Wealth: Well Being, Wholeness, Prosperity, and Happiness

Katie Bennett (Building Wealth With Katie)

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Christopher H. Loo, MD-PhD: Today, we have Katie Bennett, and she’s talking about wealth building for the everyday millennial. And today, we’re going to be talking about wealth, financial independence, and go from there. So I’ll let Katie introduce herself. Katie, welcome.

Katie Bennett: Yeah, thank you so much for having me, happy to be here. So my name is Katie Bennett. I am a part of the Benchmark Income Group. We focus a lot on an alternative way to build your lifestyle. We want to focus on making sure that we’re helping clients achieve their dreams. And we’re giving clients that financial and emotional independence that they’re looking for.

I think, unfortunately, too much of the finance world focuses on net worth. And you can’t take net worth to the grocery store, you take income to the grocery store. And if we can increase your income we can give you your net worth will naturally increase. And we can give you the freedom of your time back. So yeah, I’m really happy to talk about that today.

Christopher H. Loo, MD-PhD: Yeah, that’s a fantastic topic. Because I’ve always talked to other influencers in the field. And it always comes down to this debate between networth cash flow income. So let’s boil down what most of the media society thinks about net worth, and why is that important?

Katie Bennett: Yeah, so if we take a little bit of a step back, I’m not trying to give everyone a history lesson. But 401(k)s and IRAs really came out in the 70s. But prior to that, we have this three prong retirement system. Pensions were one leg of the stool, Social Security was another leg of the stool, and then you had your investments. Historically pensions and Social Security were actually 80% of the majority of people’s retirement income. Well, now, since 401(k)s were put into place in the 1980s. And if you think about it like our first test cases are coming to fruition now, people who started their 401(k) and IRA in the 80s, have now been working for 40 years and are retiring?

Well, as we started focusing more on this investment driven retirement lifestyle. Everybody thinks that there needs to be a certain dollar amount in an account for them to retire. But functionally, what is that dollar amount? And what does that mean? Because that dollar amount of net worth has just been the driving force, since pensions were primarily pulled off the table. And there seems to be this loss or lack of understanding that 40 years ago, when people were retiring, they had two income streams, Social Security and their pension. So if we just focus on net worth, and we use this retirement savings model, then we’re losing the traditional three prong stool that had stability, and there’s no longer stability in the process anymore.

Christopher H. Loo, MD-PhD: Yeah, that’s really interesting, because it sounds like a lot of things that are just touted in society are just very outdated, need upgrading.

So my main question is, you talked about income, and cash flow from passive income investments, and then net worth. Do you think there’s a role for all three? Because, for example, when we go to a grocery store, if you have a high income you can buy stuff, but if you don’t have any assets, then you’re dependent on your job or whatever source of income you have. So what are your thoughts on that?

Katie Bennett: Yeah, I think that’s a great point. And I think accumulating assets and having some form of net worth is important, but we need to differentiate fluctuating assets versus stable assets. And I mean, to separate those fluctuating assets, I’m going to say are things in the market, your things that are gonna go up and down. But over time when you invest in the s&p, we all know that the line is up and to the right. But there are stable assets on the other side that are going to continue to grow, but maybe not at the same rate, but they’re going to be consistent. And I think we need to kind of split it up and 50% of our assets need to go into this fluctuating environment. And 50% of our assets need to go into a cash flowing environment, or stable asset environment where we have a consistent rate of return and we have little to no downside.

Christopher H. Loo, MD-PhD: And when you say the stable asset category, you’re talking about real estate, high yield, performing investments, bonds. I mean bonds — I don’t really consider them stable, but stocks, dividends, et cetera, is that correct?

Katie Bennett: No. So actually I would say that stocks and bonds still go in the fluctuating asset category, right? I think the last three months are a great example. We just saw stocks and bonds go down together. So if you had a 50/50, stock bond portfolio, well, that didn’t help you. So in the stable asset category, yes, I would put real estate, I would put CDs, I would put fixed annuities, I would put cash accumulating types of life insurance that have guaranteed internal rates of return where you can access the cash. I’m talking about things that quite frankly, don’t have a downside, or a correlation to the rest of the marketplace.

Christopher H. Loo, MD-PhD: I see. So uncorrelated. Okay, that’s interesting. So yeah, we can talk a little bit about that. And then now let’s talk a little bit about finding financial independence. A lot of people on this show are millennials, some Gen X, Gen Z as well. So let’s say they have their dream salary, what do they do next?

Katie Bennett: After they put their dreams together? Is that your question? What do they do next?

Christopher H. Loo, MD-PhD: Yeah.

Katie Bennett: So I think of it a lot like a house, you have to build a stable foundation for your house. And then we’re going to build the roof of the house, right? Because when we’re doing construction, if we don’t put a roof on it, and there’s too much rain, we ruin everything we do inside. So we want to build a foundation, we want to build a framework and the roof first, and then everything we fill the house with is kind of the gravy.

So I look at the foundation as your protection, and your assets. And I would actually argue and I think everyone at my firm would agree that paying down your credit card debt is not as important as starting to save and allocate assets. I think there’s this first tier that a good portion of the world is living paycheck to paycheck and trying to survive. Well, the next step, if you’re living paycheck to paycheck, instead of taking all those dollars that are extra, and throwing them towards your credit card debt or throwing them towards your home equity debt or whatever it is, put that into savings. Because we often find people get into this cycle of, I’m paying down, paying down, paying down and then all of a sudden you get into a car accident and you blow two tires, and you need to spend $900. Well, since you paid everything down, and you didn’t put money into savings that $900 goes right back into debt.

Well, if we spend more time allocating our savings, and we just maintain that credit card debt, we can build our savings and build our investments. So eventually, we will wipe out all of that debt, but let’s provide stability in that process first. So that foundation is savings, income protection, and stability. Because we want to make sure as we graduate up the tiers in life, and we continue to grow our assets that one bad day isn’t going to knock us down the ladder.

Christopher H. Loo, MD-PhD: Interesting. The other thing you mentioned was saving and then also debt. How do you factor in the cost of the debt, the interest rates? Credit cards are very expensive if you don’t pay them off fully every month. So would you advocate for young millennials or Gen Z to save and then pay the minimum on their credit card? Or pay their credit card off first, and then as well as continue to save?

Katie Bennett: I think you pay the minimums on your credit card until you have at least one months living expenses cash cushion in your account. Until you have that, I would not make extra payments on your credit card debt. And yes, credit card debt is expensive to carry. But I find when clients go into this cycle of bad events back into debt, pay off debt, back, and then they go in this circle, and they never really create savings, it can be very mentally taxing. And one of the most important things to building wealth is not the amount of money in your pocket, it’s your mindset.

People forget that the wealthiest people in the world don’t look at debt as a bad thing. They look at debt as leverage. And if we look at our debt as leverage, and we build a cash cushion, I’m not saying that credit card debt is good leverage, it’s not good leverage. But changing your mindset is going to be so much more important to future wealth building, then the interest rate on your credit card debt that you’re going to carry for maybe the next 12 to 24 months.

Christopher H. Loo, MD-PhD: Interesting. Yeah, because for example, real estate debt, if you’re using it to purchase investment property, that’s considered good debt. Of course, if the property goes unrented, or you have a housing crash, you’re still liable for that debt. So, there’s good debt and bad debt. It’s like a two edged sword.

You also talk about explaining the current economic environment. And I guess, right now, we’re living in very, very interesting times, very volatile times. So what can people do to navigate this downturn and come out on top?

Katie Bennett: First, don’t put all of the extra money you have in the market. Every extra dollar you have in your savings doesn’t belong in a volatile asset class. I do, however, think that if you have extra money, and you’re looking for something to do with it, and you still have a good savings, cash cushion, absolutely buy at a discount. The stock market always goes up to the right.

If you go to Old Navy, and you see stuff on sale, and it’s exactly what you were looking for, are you not going to buy it because it’s on sale now? No, you’re gonna buy the things you want. So buy your Microsoft, buy your tech stocks of the world, buy your good companies. But make sure that you’re also keeping a little bit more of a cash cushion then maybe you did previously, so you can allocate to other asset classes. I think we are going to see interest rates continue to go up. I think the rate that we’re going to get on fixed products, whether that be CDs, or things like that is going to be a little bit higher. And it’s worth having money that’s accessible to get those higher interest rates that you have no guarantee, you have a guarantee of no downside.

Christopher H. Loo, MD-PhD: Yeah, interesting. And then for the younger generation, what do you recommend? Or what are some guidelines to how much they should start saving? And, obviously, timing. When should they start saving?

Katie Bennett: So I’m gonna throw out some unpopular opinions here. I think first, you start by trying to save 5% of your income. And I don’t think that the best place for that is your 401(k). Especially if you’re living in a cash flow tight scenario, or you’re living paycheck to paycheck. I think if your company offers a match, you never put more in your 401(k), then your company will match. If they’re going to match it, it’s free money, if they’re not going to match it, then why are you going to put money somewhere that you can’t access until you’re 60? Put money somewhere in a taxable account or in a savings account, that you can actually access to make investments.

So I think the first 5% of your income should always be your starting goal. And if you can get to 20% of your income, that should be your end goal. I don’t think you ever need to save more than that, because you need to live your life. Second, I would contribute to taxable savings and not to your 401(k) until you can meet that 5% savings goal annually. I would start saving as early as possible.

But I think what the problem we’re trying to solve for clients is not a savings problem. It’s a cash flow problem. So if we can start saving money, and we can actually allocate that to cash flowing investments, then we’re going to increase our cash flow. And savings is going to be a lot easier. So I like to think of these problems as short term cash flow problems, not whether or not I’m going to have my latte next week. Having your latte next week is not going to change your life. Have your latte.

Christopher H. Loo, MD-PhD: Yeah. Excellent. Excellent. Well, this has been a fascinating discussion. I’m really passionate about personal finance, there’s so many viewpoints and people do different things, people combine different ideas. And that’s the beauty of financial literacy is you can put these ideas together and make it your own things. And there are so many resources out there. I’m sure people are interested in visiting your website or contacting you, and how can they do that?

Katie Bennett: Yeah, so our company website is benchmarkincomegroup.com, you can visit us there. You can also visit my LinkedIn page, or my Instagram, the handle for both of them is @buildingwealthwithkatie. So that should be pretty easy to find. But I definitely if your listeners are interested, I think there are two books that have been a really good guide to me, and to some of my clients.

So the first one is The Lifestyle Investor. And then the second one is called Becoming Your Own Banker. I think The Lifestyle Investor, particularly for millennials, will take you through what it means to increase your cash flow and how that really correlates to freedom of lifestyle. My mentor, the life that she lives now is from the same exact process as a lifestyle investor. And in some ways, that’s the exact process that we’re bringing our clients through as well.

Christopher H. Loo, MD-PhD: Interesting, and what was the second book you mentioned?

Katie Bennett: It’s called Becoming Your Own Banker.

Christopher H. Loo, MD-PhD: That’s a very fascinating title. I’ll have to take a look at that. And yeah, so for all the listeners out there, all of Katie’s resources and links will be included in the show notes. So Thanks, Katie. Thanks so much for coming on. It was a really interesting discussion. You brought up a lot of very different viewpoints, which is really good. Try to get the whole mix and let people digest information and make their own decisions. So thanks so much, and we look forward to hearing from you again.

Katie Bennett: Yeah, thanks so much for your time. I really enjoyed it.

Christopher H. Loo, MD-PhD: Many thanks again for being here. If you’re new, you can find me online at Christopher H. Loo, MD-PhD, where I have links to other episodes or links to online resources that will support you on your financial literacy journey. I’ll see you there in on next week’s show. While I bring you thoroughly vetted information on this show regarding a variety of financial topics, I cannot promise you a one size fits all solution. This is why I caution you to continue to learn. Educate yourself and seek professional advice unique to your situation. If you want to talk to me, I welcome it. Please reach out via my website or email at Chris@drchrisloomdphd.com. I read and personally respond to all of my emails. Talk soon!

Editor’s note: This transcript has been edited for brevity and clarity.

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