If wealth can only be achieved through assets, then what exactly is the definition of an asset? Today Kevin and Chris talk about the Foundation, and share a process called D.E.B.I.T.S which anybody can take a closer look at and make some changes to reveal some extra cash in their lives instantly.
In this episode of WealthTalk, Christian and Kevin discuss:
Links and a full transcription of this episode can be found at www.wealthbuilders.co.uk/wealthtalk
Chris Rodwell: Hey, welcome back to another episode of Wealth Talk. My name's Christian Rodwell, the membership director of Wealth Builders and joined as always by Mr. Kevin Whelan.
Kevin Whelan: Hello Chris. Nice to see you again.
Chris Rodwell: Good to see you, Kevin. Now, back in episode three, I asked you what your definition of wealth was and he gave a great definition. And if you didn't catch that, definitely rewind, check out episode three now. But today, I'm going to ask you for different definition and that is an important one, which is the definition of an asset.
Kevin Whelan: Ooh, now that's an important one, Chris. Very, very important. Before I give you the definition of an asset, Chris, I'd like to give a distinction which will lead onto that, and that's the two different types of income one can earn. One is called work income and that's when you trade your time for money. And that's obviously easy to identify if you've got a job or if you're self-employed and you're running some kind of a business where you're cooking it, shipping it, selling it, doing the whole thing. That's trading time for money and that's called work income. And it kind of sounds different as well. We're on a podcast, why don't we make it audible? Ah, it sounds different. It's like work, work, work, work, work 30 times or 20 times in a month and get paid. 20 times work, get paid. 20 times by ... and that's the cycle, right?
Kevin Whelan: The difference that I'd like to point out, which will then come to the asset is asset income. Now asset income is income that flows from something that we now have the definition and then show the difference between the two. So an asset is something you own. Get the ownership. That is not. Now, you don't own a job so it can't be an asset. Can't pass your job onto your kids last time I looked. Something you own that is not you. It puts money in your bank account while you're asleep. You don't have to show up for the money to show up. You can pass that money on to anybody you wish to, good causes, your family and so on. You do not have to be there for the money to be there. That's the definition of an asset to me.
Kevin Whelan: So if you own assets, then the ownership of the asset, which throws off income, whether it throws off rent, when it throws off dividends, whether it throws off royalties. Whatever the income that flows from the ownership of your assets, it's permanent. It isn't temporary. So therefore if you have asset income, it continues to flow. So you do the work and often you have to work very hard. So you do work but you get paid, get paid, get paid, get paid. Should I keep going? Get paid, get paid. It doesn't stop.
Kevin Whelan: Yes, you have to put a little bit of management in place. And let's be clear, you cannot be wealthy without being in the wealth management business. You have to manage your wealth, but it's easy to delegate that or if you love doing it, manage it yourself. And certainly, if you look back to the previous episode when we talked about passing on the wealth to the next generation, you need to give the stewardship skills, the skills of wisdom to the next generation so they manage an expander wealth as well for the generations to come.
Kevin Whelan: So what I would say in episode one, I think we talked about the importance of being an entrepreneur and that you can only be truly wealthy if you're part of the value creation process, which is really what an entrepreneur is. Wealth then is the managing of your asset income as opposed to your work income. So nobody gets rich by having work income because it ends when you stop working. The wealth comes from owning assets. And in another episode, we'll go step by step into the seven different assets you can own. And what's great about it, Chris, is there are only seven. They're not eight, there are seven.
Chris Rodwell: Easy to remember.
Kevin Whelan: Easy to remember. Once you've got the seven locked in and you work out which ones are most relevant to you, when you've worked out what your target income is to be financially independent or financially secure, you can work out which assets are most likely to suit you and then how you build them step by step by step. It all takes care of itself.
Chris Rodwell: And when we share those seven assets, refer to them as seven pillars-
Kevin Whelan: [crosstalk 00:04:47] pillars, yeah.
Chris Rodwell: Break it down even into three and a four to make it even easier to remember. But we'll save that for another day.
Kevin Whelan: Save that for another day. But actually, it's an important visual. So we've just done an audible, you know, what working income sounds like. But also think about the visual of anybody who hasn't checked us out yet at the Wealth Builder website can see if they were looking at that, that the logo of Wealth Builders is a foundation, of plinth almost, foundation, like a building. Seven pillars, which are the seven assets and the roof. And they're the three kind of principle things that we share and teach.
Kevin Whelan: And I think probably it will be a good idea to start with the foundation today, Chris, because you cannot get above ground. So some people will be listening, will be struggling maybe, you know. They even having the work income is not giving them enough freedom to be able to build assets, to be able to sack their boss, in your language, or get out of the rat race or just simply move themselves to a place of complete financial security. Then let's get them above ground. Let's put that foundation in place and show them what to do. Why don't we talk about that?
Chris Rodwell: Yeah. Because in the last episode, episode three, we talked about five levels of wealth. If you didn't catch that, absolutely you must go back now check that out. And we talked about the first level being insecurity.
Kevin Whelan: Insecurity. Yeah.
Chris Rodwell: So many people do find themselves at a point where if they lost that one source of income, that typically is a job, there wouldn't be any other money flowing in.
Kevin Whelan: Correct.
Chris Rodwell: So where do they begin? We talked about something and the last episode you mentioned where debits.
Kevin Whelan: Debits. Yeah.
Chris Rodwell: So what does debits stand for?
Kevin Whelan: Well, debits is my kind of a mnemonic acronym, whatever term you want to use, which goes through all of the different points that anybody can self check. So in the concept of a bit of self diagnosis at the beginning or they can come and get some help and let's give them some help now. Each of those letters stands for an area where they could have a little closer look at what's going on in their financial life and make some changes that will reveal some cash. It always does. And if you reveal cash that you didn't know existed before, it uncovers money that you don't need to carry on spending.
Kevin Whelan: Now, let's be clear, Chris, I don't mean stop having a cappuccino. I don't mean penny pinching. I'm not talking about budgeting. I'm not talking about a diet. I'm not talking about pain. I'm talking about some common sense things people can do that if they go through it and do it once a year, only once a year, then they will find money and they can put that money to good use. Instead of that money sitting idle, doing nothing, festering in a bank account, they put that money to work, to start the process of building assets.
Chris Rodwell: That reminds me, we did a Wealth Builders workshop. It was about two, three years now maybe. And it was an exercise. We had two groups, split the room into two groups. And the purpose of exercise was to prove or to show that you really can't save your way to wealth. can you?
Kevin Whelan: You cannot save your way to wealth. When you look at how much can you save, you can't shrink your way into wealth. You have to expand your way to wealth. And that expansion comes from finding money that you didn't realize you could use and put that money to work and make leverage from that, make much bigger and stronger things happening. So why don't we dive into it?
Chris Rodwell: [crosstalk 00:08:20] so let's get going. What's D stand for, Kevin?
Kevin Whelan: Well, D stands for debt. And you know, we know debt is all pervasive in the economy right now, and more so, and I'm sad to say for students. Never before ... I went to university, didn't pay anything for it. I've got three kids all gone through university and one of them didn't end up paying, but the other two did end up paying. Actually, they didn't because I paid. But that's not the issue. The point is, you know, debt is a big cost. It's a drain. It's a break, it's a drag on people's money. Because the thing about debt is no matter what happens with debt, when it's bad debt, debt that's costing you in life as opposed to debt that's expanding your life, we won't have time to talk today I don't think about good debt and bad debt, leverage debt and unleveraged debt. Let's just talk about how to eliminate debt, how to reduce debt. And there I've written a book on this, Chris, called Save A fortune.
Chris Rodwell: A very good book it is too.
Kevin Whelan: Thank you very much. How to completely eliminate your mortgage loans and credit cards fast. Okay. So I paid off my mortgage in seven years flat. And then that gave me a sense of enormous financial, a good foundation because it means you don't have a mortgage payment. So if you don't have a mortgage payment, you're not worried about interest rates. And in debits then, and in the book, and in other lessons that we'll put onto the membership website, there are a whole host of different things that you can do to reduce the cost of debt, eliminate high cost consumer debt, tactics you can use to find ways to make that debt payment gradually diminish. So both in the short term for immediate feeling of having more disposable money to the long term cost of mortgage debt and anything else in between.
Kevin Whelan: There's 12 strategies in the book that we can teach people that they can use at least one of them to reduce the cost of debt and therefore put more money in their life. And if you put that money to work on building assets, and we show them which ones to build, then they can start their wealth-building journey from that.
Chris Rodwell: That's the idea, isn't it? It's this extra money you're saving, you're not then going out and spending it and having a holiday. You're putting it to work.
Kevin Whelan: Well, there's nothing wrong with having a holiday if you needed a holiday. But I'm saying if you find that you've made a saving, put some of it towards the holiday and the life that you're enjoying now and some of it towards your wealth. And there's a whole argument, isn't there, about making sure that in everybody's outgoings there's at least a portion of that money earmarked for the Wealth Building side of their life. And I think we refer to that in one of our lessons in the various [inaudible 00:11:14] I think it is, Chris.
Chris Rodwell: I believe so. So we've hopefully saved a little bit of money just by looking at the debt and managing that in a more effective way. What does E of debit stand for?
Kevin Whelan: Well, E is education. And while I'm not suggesting there's a way to save on university education and so on, but education is an important aspect in Wealth Building. And we talked about that in episode one, that the foundation, the very starting point of all wealth building is getting a good education in wealth building. Not in academic education, not the drifters drifting from one bit of education to the next. And there's a way to get education for free or significantly reduced by connection with Wealth Builders. Let's give a couple of examples about that.
Kevin Whelan: So we're a community-based outfit, aren't we? We've got lots of our members. So we've got some very strong and seasoned, experienced people in all aspects of wealth building and assets like property, as an example. And many of them will offer a significant discount for members of Wealth Builders to access education at lower cost. But there's another way to do that too. So in one of the wealth building areas that we help people to do better on, Chris, which is one of the subjects you've raised before where you first heard me speak. And it's this horrible word of pensions, right? So, you know, pensions being the glum, the gray, the dreary side of wealth building. But it's an important one because for many people, it's the only way they're building their retirement wealth. So they're having to wait for many, many years to get it. So they kind of park that money and leave it there.
Kevin Whelan: But there's a way to capture that money, to bring that money into your control today. And once you've got control of that, and there's a special type of a pension that allows you to do that. And once you have that, you can use that money in the pension to pay for education that helps you build more wealth. So instead of having to pay to get education, remember I spoke about the ROI?
Chris Rodwell: Mm-hmm (affirmative).
Kevin Whelan: Return on intellect.
Chris Rodwell: Yes.
Kevin Whelan: And becomes smarter by being engaged in your own wealth process. So if you can find a way that your pension that gets tax relief, so the government are paying, that you can use to get an education to help you build your wealth even further, how about that as a suggestion? And we can show people how to do that.
Chris Rodwell: Wow. So we're only two down. I'm already feeling a little bit wealthier.
Kevin Whelan: I hope so.
Chris Rodwell: Let's move on to the third one, B.
Kevin Whelan: B. Well, B is not quite as sexy because B means you've got to get your bank statements out, get a highlighter pen out or a spreadsheet out and get your cursor out and start looking at the bills. So B stands for bills, Chris, bills that you're spending in life. And again, I encourage everybody at least once a year to take a long, hard look at what they're doing, what they're spending, and see if there's something that's in your life that just doesn't need to be there anymore.
Kevin Whelan: I recently spent a day at home, Chris, and my wife made me declutter. I had to get rid of a number of suits and a number of shirts and a different things. And I had to wave them all goodbye and touch them and say, you know, you've served me well in the past but no longer. Apply that very same thoughts to things that you used to use. Is there something in your life that was important that you are spending money, but you can either get ait cheaper. There's a whole raft of I suppose, you know-
Chris Rodwell: Money [crosstalk 00:14:48], yeah.
Kevin Whelan: ... websites and comparison sites that you can get anything cheaper if you shop around for it. And that's a skill that you can use. And whenever you find a saving, take some of that saving and put it in the jar to enjoy life, but take some of that saving to reduce your debt maybe or take some of that saving to build an asset. And the simplest asset to build right at the very start is just simply to use very low-cost tracker funds, which costs almost nothing. Very, very low cost to start, at least the feeling that you're seeing something accumulating in your life.
Kevin Whelan: Now, I'm not advocating the stock market is the best place to build wealth, certainly not, but it's one of the places that it's the easiest to start because it's so liquid. It's so cheap to get access easily and you don't need to be paying high costs fees, for advisory fees or fund manager fees when you're using things like Exchange Traded Funds or ETFs for short. Very simple ways to get access and then much cheaper now when you're shopping around to do that. And the whole range of things that you would look at in your bills. And there's always something you can find that you just didn't need to be spending or something you can reduce the cost and then put that money to good use.
Chris Rodwell: Yeah. Often subscriptions that are no longer needed and things such as that. Okay, so we've looked at debt, we've looked at education, bills just there. What does the I stand for, Kevin?
Kevin Whelan: Well, I stands for the word insurance. Now, everybody's insuring something. And we talked about comparison sites, didn't we? So it's easy to insure and check the insurance costs of things like cars and houses and so on. But do you remember I mentioned a little while ago the subject of getting tax relief and using that tax relief to get an education. Well, you can also use tax relief if you're a business owner. So not everybody is, but it's easy to start creating a business, isn't it, really today?
Chris Rodwell: Mm-hmm (affirmative).
Kevin Whelan: And if you have a business, you can get tax relief on the payment of life insurance. So instead of paying for that outcome after-tax money, you can pay for it with pre-tax money. And because you can buy it then and the government's paid a contribution to the premium, then it's saving you money. Also, the other thing that I see a lot when you're looking at the difference between what's important to you, wealth building or just securing something that's really not massively important in your life, I believe in insurance by the way. But insurance for really important things, critical things you should have. So insurance, if you've got debt, make sure if something happens to you, you paid your insurance, the insurance pays the debt off. If you get seriously ill, make sure you've got something. Because sometimes people who lose their jobs because they're ill not only lose the income but they lose the capacity to go off and create another income.
Kevin Whelan: But this is not to advocate insurance in any great way, but just to say you can save money it. And sometimes, things that really shouldn't be insured, Chris, are insured.
Chris Rodwell: iPhones.
Kevin Whelan: iPhone insurance. You know, insurance on your laptop.
Chris Rodwell: Washing machine.
Kevin Whelan: Washing machines. You know, the sort of things that salesmen sell that may be you just didn't have the time to check when you were paying it or maybe you just did because it was easy. But if you think about it because, it costs you [inaudible 00:18:12] a month to ensure your iPhone when you know it's not the end of the world, if you lose your iPhone. You can always replace that. But that money could be used to either eliminate debt or build wealth. You can just think about different ways how to do that.
Chris Rodwell: Yeah. Okay. So that move onto T.
Kevin Whelan: Well, T's a biggie. Yeah, T is tax. And part of the challenge with the whole concept of taxes, it's all pervasive. You know, there's income tax, there's VAT, there's cooperation tax, capital gains tax, inheritance tax, stamp duty tax.
Chris Rodwell: They say there're two things in life you can be certain of.
Kevin Whelan: Well, yeah, quiet. And you know, what's interesting about taxes, it's always a fascinating thing for me, which is as an economist there one of the most famous economist, Adam Smith, has an institute. And that Adam Smith Institute has a day which he posts as sort of a calendar date, which I think this year was May 20-something-
Chris Rodwell: [crosstalk 00:19:13]. Yeah.
Kevin Whelan: So let's say it's May 25th, just to pick a number, but it's about that. That's the day that you stop paying taxes and the rest of the year is your money.
Chris Rodwell: Isn't that just absolutely shockingly scary.
Kevin Whelan: So do you think it's possible that with a bit of education, with a bit of support, with a bit of connection is possible to reduce some of the tax burden to eliminate some taxes or reduce some taxes? And it absolutely is. And one of the important things that, yeah, I think I've heard definitely come out of Robert Kiyosaki's writings in Rich Dad Poor Dad, was that employed people earn money, pay their tax, and they have at their leisure to spend what's left. If you're in business, you earn money, you can spend that money and you pay tax on one left.
Kevin Whelan: So a business owner can enjoy things that is part of their life, legitimate things that they can use and claim tax relief on and still enjoy them like cars and like, you know, if I want to go on a trip to somewhere to go on a conference, you know, I can claim that provided it to legitimate expense and so on. And if I wanted to get training to learn how to be better in fund management, because I'm a trustee of my own pension, mentioned that earlier on, then I can claim that from my pension funds. So there are ways you can claim money back.
Kevin Whelan: So there's a whole army of tactics and skills that you can deploy to reduce taxes here and there. And that's all part of the wider connection that we have with experts in property, and in business, and in just simple things people can do to ensure that they've got, you know, the maximum use of tax within husband and wife, for example. So there are many things you can do to reduce taxes and we're all keen to help that because if you reduce your tax, puts more money in your life.
Chris Rodwell: And we played the cashflow one-on-one game-
Kevin Whelan: All right.
Chris Rodwell: Next month in London, as you know.
Kevin Whelan: Right.
Chris Rodwell: So if anyone is familiar with Robert Kiyosaki, Rich Dad, Poor Dad, but hasn't played the cash flow game, then definitely find out when the next game is by heading on over to wealthbuilders.co.uk/wealthtalk. Make sure all the links to everything that we're talking about in the show are on that page for you. So let's move into the final, which is S of debits. What does S stand for, Kevin?
Kevin Whelan: Well, S stands for support. Now, you realize that all through our discussions quiz, there's a common thread and that common thread is a need for education, the need for good support. What I mean by good support is support that's unbiased, support that's focused on an outcome for you, not for them. Support that you can see and is absolutely focused on trying to do the best thing for you.
Kevin Whelan: And what I find that support generally in the way people are building their wealth in things like stocks and shares, their pension funds, the support costs, the people who are involved in that, custodian fees, advisor fees, fund manager fees.
Chris Rodwell: Talking IFA type, yeah.
Kevin Whelan: I'm not saying all IFA's are bad. Of course, they're not. They're just trying to do their best. But there's a conflict of interest which is unstated, which if you think about it this way. If the vast majority of the 95% who are trying to build their wealth, build their wealth on the stock market. And the custodians, the fund managers, and the IFAs, or the advisors or all trying to make money out of your money. And you're trying to make money off your money, there's something that's not going to work.
Kevin Whelan: And you know, the average cost that people are paying for the combination of those three fees is about 2% per annum, which doesn't sound a lot.
Chris Rodwell: [crosstalk 00:23:17] might not sound a lot.
Kevin Whelan: It's only going to cost you 2%. yeah, but the average return is about 6%. Now, I don't about you, Chris, but that's an interesting kind of idea.
Chris Rodwell: [crosstalk 00:23:28] sounds quiet hefty.
Kevin Whelan: So, hold on. Let's just replay this. So you're going to pay, unless you choose differently, a third of your money to somebody who has no stake in that. So in other words, you put all the money in, they didn't put any. You take all the risk, they take none. And then if things go wrong, which they did massively in 2008 and will again, who knows what's going to happen. As we're talking today, we're on the Brexit brink. So we don't know really what's going to happen there and the uncertainty there. But if something goes wrong, they're not accountable.
Kevin Whelan: So with no accountability, no risk, and no involvement, you can see there's a conflict of interest. And I wouldn't sign a third of my money away to somebody who didn't have a stake in it and I don't think everybody else should too. So we're absolutely advocating that people should get involved more in the self management of their money.
Kevin Whelan: And remember, I said to you in an earlier episode, Chris, that when you decide to become wealthy, you're in the wealth management business. So getting in the wealth management business early, make a decision about where your costs really are. Look behind the statement because you don't see these charges. They're hidden, they're opaque. And the way I phrase it is someone sticking a siphon in your bank account, except it's your investment bank account. You're not seeing it. You would see it if you've got the highlighter pen out, right? If it was in your personal bank account and somebody was taking a couple of thousand pounds a year out, you'd see it, but you don't see it when it's hidden from you. And I encourage people to understand their fees, to challenge those fees, to check if they're getting good value for those fees.
Kevin Whelan: And if you combine the debt, the education, the bills, the insurance, the tax, and the support costs, I will challenge anybody not to find a significant sum. The challenge isn't if the money's there, the challenge are you willing to do it? And this is where the drifters come in. The drifters will say, "Oh, I'll get around to it. I'll think about that. That's a really good idea. I listen to the podcast about debits," but did they do it? No, they didn't. And that's why they will continue in that cycle of remaining insecure financially, possibly for the rest of their life. Their incomes will go up, of course. But tragically, when they lose that job through health, or through redundancy, or through retirement to tragic factors, their income would drop massively, and that didn't did not need to happen. So we're encouraging the DIYers to do a bit and those who are interested being dynamic for us to help them, we can help them to really uncover all of the things rather than just discovering what the discover on their own. That's debits.
Chris Rodwell: That's fantastic. And whilst we position that as really being a good jump-start for those looking to move from level one of insecurity to level two of security, really this is applicable to everyone.
Kevin Whelan: It's just revisiting your foundation. You know, in the building, if you picture that building again with a good foundation and the seven pillars and a roof. But if you have the damp course, you know, and the damp is rising, that's going to undermine that foundation. So you know, in the same way this is water is leaking. And in this case, if you don't take care of your debits, you're going to be losing money and the money will be leaking out of your life. And if you can plug those leaks, then the levels will rise and you can use that money to build your wealth. And I would encourage everybody, wherever they are, to start right there.
Chris Rodwell: So an annual check would be a good idea to review those debits.
Kevin Whelan: Well, yeah, just like, you know, you're forced to do that with your car.
Chris Rodwell: Yeah.
Kevin Whelan: [crosstalk 00:27:14].
Chris Rodwell: That personal MOT or [crosstalk 00:27:16].
Kevin Whelan: Right. [crosstalk 00:27:16].
Chris Rodwell: Yeah. It's money check, almost.
Kevin Whelan: You could do it yourself or you can engage with somebody to do that. Just recognize that if the benefit is to make more money than you ever spend in the support costs with somebody else who can help you do that, then it's worth its weight in gold.
Chris Rodwell: Yeah. And we've actually recorded or I should say you've recorded a summary video of debits. So we can make that available as well for those listening right now. I think we've gone into a bit more detail here on the podcast. But for anyone who likes the visual aspect-
Kevin Whelan: Right.
Chris Rodwell: ... we do have a video as well [crosstalk 00:27:46].
Kevin Whelan: Okay. That's great.
Chris Rodwell: Good stuff. Thanks, Kevin. That was great. So we're gonna move on and see you guys in a future episode of Wealth Talk. Thank you.
Kevin Whelan: Thank you very much.