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This week on The Millionaire Choice Podcast, Tony talks with Peter Richon, founder of Richon Planning. Tony and Peter discuss debt, millionaire mindsets, and how to make your money work for you.
Losing his father at age 8, Peter and his younger brother grew up under the care of their single mother. Learning how to budget from her guidance, Peter took his mother’s teachings forward into his adult life.
About Peter Richon
Peter started out hosting financial radio show in 2002 while running “North Carolina’s Morning News” on 680AM-WPTF. He was the Program Director/Operations Manager of four North Carolina News/Talk radio stations and the Program Director of an online station, StateGovernmentRadio.com. During the next several years, Peter hosted daily informational financial programs with many financial firms located throughout the Research Triangle Park in North Carolina, then throughout the country. He simultaneously continued his own education, became a licensed advisor and rose to his position as vice-president while facilitating the growth of his former firm. In 2019 he authored the book “Understanding Your Investment Options” to help savers better understand the financial tools they had available.
Over the last decade, Peter Richon personally managed retirement planning for hundreds of families across North Carolina. He has been a regular, featured commentator on shows broadcast on more than 100 stations, to millions of listeners across the country. He managed a full-time staff of junior planners and sub-advisors that have helped him spread financial literacy and his message on the importance of education in gaining true financial success and freedom. Peter Richon personally serves listeners and clients spanning North Carolina. Each week, he meets individually with those clients and listeners to help them evaluate their financial goals, planning strategies, and direction. Peter also helps personally assist individuals, couples and business owners in formulating, implementing and achieving their own visions of retirement including preservation, growth, income, tax reduction and legacy planning.
Learn more about Peter Richon, https://richonplanning.com
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Show Transcript
Tony (00:00):
Welcome back to the Millionaire Choice Show. Today, we're gonna have a lot of fun talking to Peter Richon. He is the author, radio host, and founder of Richon Financial Planning. Also, I don't think this has come up on the show before, but he is also a Ramsey trusted smart investor advisor. So, if you're not familiar with Dave Ramsey's program; he's done a great job; I used to work on that program for the technology side of bringing trusted providers from all across the country together; whether that's real estate, insurance, or in Peter's case; investing and helping people with investors. And, is Dave still using "with the heart of a teacher," is he still using that as part of the slogan for that, Peter?
Peter Richon (00:40):
Indeed. All of his professionals. He wants an educational process so that when listeners to his program who have been educated by tuning in get turned over to a real estate and insurance and investment professional- that those individual professionals that he is referring to also take in mind that the fundamental approach is a heart of a teacher and it's an educational and informational process. Absolutely. You hear it all the time on the show.
Tony (01:10):
Now, I didn't catch the name of your book. You said author and radio show host.
Peter Richon (01:15):
So, Understanding Your Investment Options, is the name of the book, and the subtitle: The Most Boring Book You'll Read This Year; "boring" is crossed out with "important" sketched over it, but not a page-turner by any means. I'll profess that it's probably the cure for insomnia if you're struggling there. But, if you want a good understanding of what a stock is versus a bond; what a mutual fund is versus ETF; why are there so many different types of life insurance? What's the difference in the usage between a checking and a savings or a money market account? Why should I carefully consider the difference between tax deferred or Roth? You just turn to that chapter, read maybe 5-10 pages, and you should have a base level understanding enough to have an informed conversation, and make good decisions with your money.
Tony (02:11):
Well, what I love about what you just said, Peter, is you didn't like put out a lot of complicated principles about finance just now, but you just clarified some things. What's sad is that we study so much in school. We go to school from kindergarten through 12th grade, then on to college, some people get master's degrees, some get doctorates, but nowhere in there did anyone ever take time to teach me about personal finance. And, like you just said in your book, you're gonna go to sleep; this stuff; it's boring at times, and it's not that complicated, but why aren't we learning more about that; that's the question for me.
Peter Richon (02:47):
Well, they are starting to actually; and thankfully; teach a little bit more of this in high schools across the country. I have seen the addition of more personal finance and planning courses offered. Now you have to imagine though- and I have been privileged enough to do this- invited into the local high school to teach classes on a limited basis. I've been to our local high school twice now to talk during career day. And, during a special professionals day, I got the opportunity each time to teach four separate groups of students. It was a miracle if I; after that class; felt like I connected with one of them. I owe some of my teachers a big apology going back because keeping the attention of high school students is an exceedingly difficult task. It seems like I did not realize it when I was actually going through school, but having the opportunity to go back and on a limited basis, try to hold their attention just for 20-30 minutes.
Peter Richon (03:53):
It was tough. So, courses like social studies, civics, physics, mathematics, science, language arts, all of those, while those are difficult enough. Imagine if they were teaching taxes in high school, These kids have not even begun to earn money; many of them. And so, I just think it would be a snooze fest, or probably is a snooze fest, like the premise of my book. Hopefully, keeping it on a very basic level to where they're engaged and understanding. And, it might actually get somewhere. When I went in to teach the classes, really, I kept it at a very basic level of "save as much as early and as often as possible, and then understand the difference between saving and investing." And so, I'd ask the class, how many of you in here are actually already working, and about half the hands would go up.
Peter Richon (04:45):
Fantastic. And I would then ask, "well, how many of those working are actually saving some of your money?" About half the hands would go down, "and how many of you are actually investing some of your money?" And, there may be one hand up in the class. So, I would go into an explanation; I had some spreadsheets and charts that show the difference in saving between the age of 20 versus starting at 30 and saving for the rest of your life and what the compounding effect on that savings would mean. And then, the difference between earning a less than 1% interest rate, like what we get right now on savings versus actually investing that money and getting a more generous, maybe 7-10% rate of return; what kind of difference that makes; and talked to them a little bit about ownership in companies.
Peter Richon (05:33):
Half of the faces were down in their phones while I was talking. So I said, "Hey, y'all like your Apple and Android devices, right?" And, the faces would come up, they'd shake their heads. And I said that, "you could actually own that company. The next time you buy your next apple phone, the next time you're having conversations around the dinner table about how you need to put your phone away. You could talk to your parents about how well you have a vested interest because you are actually an owner of the company. You just go out and buy some stock. And, these days you can even buy fractional shares. And, it's a great way for just a couple dollars that you could be the owner of Apple. And that that's sort of information, got them a little bit more engaged. And, I think those are the kind of messages and lessons that we need to teach, but going in there and talking about tax code and standard deductions and brackets; that probably is going just like the title of my book, be the most boring class they take this year.
Tony (06:30):
I love it. Now, with children; I think you hit on something very critical. I think we brought up Dave Ramsey; the quintessential, leader in personal financial education; probably not only in the United States, but the world at large, nobody's got a bigger platform than him for this topic. One of the things that he always says is, "finance is like 80% behavior. It's 20% head knowledge." So, it's not that complicated. It's not, there's a lot of things you gotta, you gotta know, you gotta change your behaviors. But, getting on a budget, getting on all these things that can be really tedious for a lot of people. Like, I've got six kids; we're talking about kids; and I've just now started transcending. Like, "how do I really teach my kids beyond give, save, spend?"
Tony (07:17):
Which is what a lot of people are saying, "Hey, just teach your kids how to give, save, and spend; do a little budget. They're good." I'm thinking of a slightly different approach with my kids because I think those are good principles to learn, but they don't generally- I haven't seen my kids get excited, and my kids are frugal. We didn't spoil 'em. We didn't buy things. So, they don't go around asking me for stuff all the time. So, they're not going around- they're not consumers; they don't have consumer-itis. They're very reserved. So, one thing that I did and have started doing is just really talking them only about investing at this point. "How do you multiply your money? How can you build wealth? Where can you go with this?" And, especially with the show, The Millionaire Choice, having guests on that actually made their millionaire choice at age five, or made their millionaire choice in their teenage years. Now in their twenties and early thirties; they are already millionaires by that age. That's something that's really doable. I think a lot of kids aren't hearing that message because their parents are broke. The numbers are like over 70% of people are living paycheck to paycheck. Maybe it's over 80% right now with this inflation.
Peter Richon (08:29):
Unfortunately high. Absolutely. I think that you're right; that there's like two sides of money. There's math, and at its core money is math. It's not even like complex math; calculus or anything. It's addition and subtraction, more needs to be coming in than is going out. The problem is that that's not the current situation for a lot of people. And, if it's not; it's difficult to make that happen. I mean, there are many that are hardworking, lucky, or blessed enough to be earning ample amounts of income. It's pretty easy to cover all of your expenses and still have money left over. But, unfortunately, like you just said; there are more people out there where that equation, that simple math equation of one must be greater than the other is a very difficult day to day, month to month task to tackle.
Peter Richon (09:24):
And, even for those that are making ample income, the change in that income, if they are walking away from the paycheck, like if we advance this conversation to retirement, is that much more dramatic. They often forget to pay as much attention to the income and expenses; as they're transitioning to retirement; as they should. Understanding the importance of the budgeting and the controlling the expenses side, which is really your best asset for long term financial successes; keep expenses under control. But, when you're faced with difficult decisions with money, it's not just math, is it? It's mental, it's emotional, it's psychological, it's behavioral. And, that's really where we need to focus is; this is not simply a math equation. I mean, my background is one that taught me how to be frugal. My mom- we lived in a nice house, but she was a single parent teacher.
Peter Richon (10:25):
Under those circumstances. It's not always the easiest thing to make ends meet at the end of the month. So, she sat me down at a pretty young age and taught me how to balance a checkbook. And, I understood that in my early teenage years. I asked for money to buy a car basically every birthday and Christmas between the age of 12 and 16. And, I was able to buy my mom's car from her; all that money in the gifts. I basically handed that money back over to her to buy the family car at that point in time. But, those lessons, while they were taught, while they were important, while they were absorbed, and I got them; it doesn't mean that I didn't make my own mistakes because by the time I got out of college, I had five figure credit card debt that I had racked up.
Peter Richon (11:13):
They just make it so easy to borrow money that we don't have to buy things that we want and don't need before we can actually pay for. And, that's the psychology of money in today's world. We need to address that part of it, and how that actually affects and impacts the math side. Because, if we can avoid debt; if we can only pay for the things that we have the money to pay for; then the math of the equation of the income must be greater than the expenses; it becomes that much easier to solve. After college I was having trouble. It took a couple years for me to a realize the error of my ways and my mistake, and then dig myself out of that credit card debt. And, just about that time, I was actually in radio and I was the program director, operations manager for several talk radio stations, and the morning and afternoon drive time producer for one of the big stations that aired Dave Ramsey's program, he was touring the country and running his program out of every studio.
Peter Richon (12:17):
I think everyone that syndicated and broadcast his program, he came to Raleigh to do that. And, I got to sit in and run the board for part of his program. And, this guy's sitting there and saying, "Hey, stay out of debt, get out of debt by all means possible, cut up the credit cards. Don't use them." It's at the time in my life where I was like, "this guy is right. He is righter than right!" And, I followed his teachings ever since. And, I eventually realized that, "Hey, based on those teachings that my mom gave me; based on the knowledge of my own mistakes, and the lessons learned, I had a pretty good, fundamental understanding of money and became a financial advisor myself, made a career transition and have been in that field, helping others with the benefit of lessons, learned smart people learn from their own mistakes.
Peter Richon (13:10):
Geniuses learned from the mistakes of others. I'm trying to help my clients learn from some of the mistakes I myself and others have made, so that they can be on the good side of that equation, make sound financial decisions that will help them financially and monetarily. But, more importantly, money is a tool to do what's important for us in our lives and mentally, emotionally, psychologically, we can have more confidence in doing the things that are truly important if we don't have the concerns around money." And so, that's what I strive to do. I think everybody has the ability to be confident about their money. It's just a matter of addressing the math, and addressing the psychology of how we're arriving at the solutions for that math equation.
Tony (13:51):
I love it. Let's talk about that a little bit more, but you mentioned something in that which I wanna key in on. You mentioned your mother; your mother was a school teacher, single mom. So, you were raised in a single household. Do you have any siblings?
Peter Richon (14:04):
Younger brother; younger, slightly larger brother. Not my little brother. He's a giant.
Tony (14:11):
And so, when did your mom become a single parent household; what age did that happen?
Peter Richon (14:18):
I was around eight.
Tony (14:20):
Okay. Now do you, is there anything in your past; like in that season; because I know what teachers roughly make right now, and I know what they were making 25 years ago. I think, the private school, I had a friend of mine that applied to be at this private school where I went to and I think they were gonna pay 'em $18,000 a year if I remember correctly.
Peter Richon (14:41):
Back then, it was a pretty small amount. My mom did a lot of extra schooling during her working career; during her teaching career to get extra credentials and accreditation and a master's degree to raise that pay rate. I think she ended up retiring making somewhere around $50,000 a year. It was not always easy to cover all of the expenses of two growing teenage boys- let alone just regular routine household expenses.
Tony (15:12):
Now, did she have to put locks on the refrigerator? I've seen some families do that.
Peter Richon (15:17):
We had no locks, but we also had friends in the neighborhood. So, both my brother and I would ride our bikes. And a lot of times we'd eat three or four separate dinners over the course of one night, just going from house to house, eating dinner at each one of our friends' houses. So, there are strategies for that.
Tony (15:38):
That's how you, that's how you support two growing boys on a teacher's income. Now, did you face any hardships? I know a lot of times kids grow up in homes that don't have a lot of money. I was one of those, and I didn't really realize we didn't have that much money. I just went about my life and things were good. My parents loved me well, but things were a little bit tight. We didn't have the nicest clothes. They did sacrifice to put me into private school, which I still am bewildered how they were able to make that happen. There were times where I was behind tuition by like two years. For some reason, the principal still let us keep going to this private school, which I think was just, a spiritual blessing or something there. But, a lot of kids grow up not knowing that their families are dealing with financial difficulty.
Peter Richon (16:25):
Well, and let me clarify here, single parent, but there was help and assistance from both sides, there was an additional stream of income there. I'd have to say if we were struggling, I was not really aware of it at any point in time, she was careful with her money. She's always been careful with her money, and taught me those lessons. Still to this day, if she sends a check for my son's birthday, and then two months goes by, she'll call me and say, "Hey, Peter, that $25 check that I sent Brax; I have not seen that clear my account yet. I'm trying to reconcile my accounts here. I know that's out there. You wanna go ahead and cash that?" She has that understanding where in today's world of digital banking and online transactions; and everything's automatic; a lot of people don't balance and reconcile their accounts like that.
Peter Richon (17:19):
They wouldn't know if an extra expense hit that wasn't supposed to, or if money that they've already sort of obligated themselves to hasn't been cashed yet. And, that leads a lot of people to a lot of problems. I mean, some of that credit card debt and the financial mistakes that I made through college were exactly for that reason; just not paying attention to my money. And, it's not like you have to do it every day; although, it's easier to keep up with it on an ongoing basis, but if you sit down once a month for 30 minutes to an hour and just reconcile the accounts and make sure that what was supposed to go in got there, and only what was supposed to go out was debited. You're gonna go a long way in making sure you maintain a positive outlook and cash flow type of situation. If you don't pay attention to it, you risk those insufficient funds charges. And, by the way, banks make a ton of money. They love to put you in the situation, or have you be in the situation where you're bouncing checks, or running charges that you don't have the funds there for. I don't remember the exact number, but it was in the billions of dollars that they made off of NSF charges in a single year; the last time I looked at it.
Tony (18:39):
The whole system. Let's just say this; It's not set up in the consumer's favor, whether that's credit cards, banking system; it's set up to make banks money.
Peter Richon (18:54):
You drive into any major city. The biggest buildings in the skyline are bank buildings, and they don't manufacture anything. They don't produce any goods or widgets that are used in production. They provide; in its essence; storage for your money. They take advantage of arbitrage to loan it out to other people who need money, and they make a difference in interest rates. That's very oversimplified, but that's what they do. Yet, they are some of the biggest companies and corporations in the world. So, if you can stay on a positive side and not get behind and understand how they make money is also possible in your personal economy, you can take advantage of arbitrage, or at least need to consider that kind of arbitrage; "where's a negative return. Where am I making a positive return? Can I maximize the difference?" If you can take advantage of that, you will go a long way in building a solid foundation for yourself financially.
Tony (20:04):
I was trying to bite my tongue there because we're talking about banks, and I don't talk a lot about banks on the show, but let's park on that for a minute. Because, when you really get down to the banking system; it's fairly ludicrous. It really is because you've got fractional banking, which; we give the banks our money. They then loan that out like 8-9 times; loan that back out to other people, and they make their money. The fact that we put money in is what allows them to make money in the first place, but yet they're loaning our money out. In some cases getting a 20-30% interest rate to our own neighbors. Like, it could be our neighbors that are taking out loans from these banks, and they're charging them on consumer credit, but it's even worse than that. Because when you go up the chain to the Federal Reserve Bank, all they really have- they don't manufacture anything. They don't make anything at their core. The only thing they have is the legal authority to issue money in the country. That's really it. That's all they have.
Peter Richon (21:10):
And, set interest rates.
Tony (21:12):
Yes. So, the whole system is set up by a group of people that really have no tangible assets. They got some wealth and some land and stuff like that. But, the system itself is independent of that. So, they get the legal authority to be able to issue money, make money, own the currency. They essentially own the right to the currency for the country. And, this comes to mind; it's almost like having a book. You take somebody else's concept for a book as a publisher, and they say, "this is my book. I wrote this." Then the publisher goes, "okay, well, let us take that, and we'll sell that for you." And then, all of a sudden, you've got this weird arrangement where you're the creator of the book, but they're the printer of the book. It's a little wonky of an analogy, but it's just very fascinating to me. And then, now when we see the government tells us we got 7-8% interest, or inflation rates, but other people are gonna tell you it's like 20%.
Peter Richon (22:11):
In reality-
Tony (22:13):
It's a lot.
Peter Richon (22:14):
The way the inflation is calculated has changed over the years to be; I think; less transparent and less reflective of the actual prices that consumers are paying. I mean, they don't even include things like energy and healthcare, the price that you're paying at the pump isn't included in that CPI, it's like consumer goods. And, by the way, consumer goods have actually gotten cheaper over time. I'm not paying as much today for a television as I was 10 or 15 years ago. I'm not paying as much today for a refrigerator, a washer, a dryer as I was 10 or 15 years ago, relative to income levels. So, those things have actually gone down in value. Yet, still they recognize through that CPI consumer price index that we are seeing inflation higher than standard, but it's not in any way a true reflection of the actual true cost increases that I think that every day mainstream Americans are paying.
Tony (23:11):
Absolutely.
Peter Richon (23:12):
And, to your point; we've given up that ability and that power; willingly in some cases; but behind the scenes in other cases. Finaciers; large, large money, some of the wealthiest people, in the country set up that Federal Reserve System, big bankers behind the scenes when the country needed a financial infusion, the country itself actually didn't have a whole lot of money, but these wealthy individuals did. They were more than willing to back the country and give infusions of capital for things, for instance, like wars and initiatives and infrastructure building at certain points in time. But, h ey, every dollar comes, comes with, a little requirement. A little give is a little get. And, before it, this affiliation of what was private banking institutions was now generally in control of the monetary policy of the country through the Federal Reserve.
Tony (24:21):
I think of the parallels between you being a college student with a five figure debt coming outta college. What went through my mind- I didn't say it at the time, but it's really; that's a form of enslavement. And, then you take the banking system with our government being over 30 trillion; I think the number is now over 30 trillion; in debt to these individuals and the whole system is very much a debt enslavement trap or a modern form of servitude. Especially, I was fortunate to never have 30% interest rates on my credit card. My housing loan; I think the highest interest rate on my housing loan was about 6.25%; That was back in like 1998.
Peter Richon (25:08):
I remember my parents, talking back in the day, they had, I think private financing, but their mortgage rate was in the double digits; in the high teens; like 15-16%. At the same time; if you were a saver; you could walk into a bank and maybe get a 10-11%, interest rate on a CD, but where you are on that spectrum depends on, "are you a net saver, a net positive net worth, are you in debt?" Prevailing interest rates help or hurt depending on what side of the coin you are on. In other words; and you think about that; your statement is right. Dave Ramsey says it often; "the debtor is slave to the lender." And, you mentioned the fact that we're 30 trillion in debt as a country.
Peter Richon (26:02):
I saw this highlight video recently of right before the great recession, 2007-2008. And, at that point in time, we were only $10 trillion in debt, by the way. That was scary enough. We've tripled that at this point in time. It's gone way up, and so interest rates are exceedingly low by the policy makers; the very ones who are 30 trillion in debt. I know that that is a convoluted number like, "where does that go? Who is the lender? Who do we actually owe?" But, if you can control the interest rates, and then are also in debt, like, is that, is that sort of self conflicting in a way, and has it really helped to float the debt? The fact that interest rates have been so low, inflation's starting to creep up. The reaction in the past has been to raise interest rates. They've said they're going to do that. They said they're going to do it aggressively here this year. How much is that going to actually hurt us on a balance sheet as a country, if interest rates prevailing globally start to rise when we're 30 trillion in debt, how much of our budget and intake and, and tax revenue, is it going to take just to service the debt on, or the interest on the debt that we have?
Tony (27:20):
I'm curious though; I really haven't- I looked this number up, but since you brought it up; do you know what the interest rate is on the debt that we hold? Is it different per-lender? Because, I know there's probably about 10 different- I thought there was one major holder of that debt- and there are, but the major holder actually holds a lot less than I would've expected. So, I think there's like 10 different lenders that would show up in the U.S. deficit or the U.S. debt holdings.
Peter Richon (27:46):
Well, a lot of it has been actually two American citizens and it's not at one interest rate. They issue bonds, and then they have obligations, but when they need to raise capital, they do it in a couple ways. They tax, that's the main way that we get ongoing revenue, but treasury bills, treasury notes, treasury bonds. Those are the ways that the government actually raises capital through lending, borrowing from individuals within the country and outside the country, that have the capital. And so, the interest rates on those bonds are issued at the time and set at the time that those bonds notes are bills are issued. And so, it's not just one interest rate. It's spread over many, many decades of borrowing and lending from people who have borrowed money from as little as 30 days to as much as 30 years.
Tony (28:45):
I'll have to study that a little bit more. Have you read The Creature from Jekyll Island?
Peter Richon (28:50):
I have not. I have heard of it.
Tony (28:50):
Oh, that's about the founding of the Federal Reserve Bank. I don't have a copy here. I strongly recommend it. I've had probably 7-10 different people recommend that book to me. Just showed up again with another guest I was talking to that came on the show. I strongly recommend you do it on the audio book though, cuz it's about a 23 hour, deal to go through the book if you listen on audio book. So, you can imagine how difficult it would be to make it through and read it. But, it's about the founding of the Federal Reserve Bank, the people that were involved, and I'm not very far into it, but it's very, very informative. I think people need to understand that the Federal Reserve Bank- what it, what does he say?
Tony (29:31):
It's neither federal nor does it have "reserves." And so, if they need more money, they just print it. There's no reserve funds. There's nothing there. And, it's not a federal entity. It exists outside the federal government, but a lot of people don't know that. So, we have a lot of people, new millionaires that made the millionaire choice and they are future millionaires now. What wisdom do you for somebody that just decided that they're gonna become a millionaire one day? How could you set them off on the right foot today?
Peter Richon (30:00):
Well, there are a few behavioral patterns that millionaires have. I think that you should study others that you would like to emulate. Millionaires and beyond tend to have a good understanding and control of their money, their assets, and their cash flow. I was recently at a conference for advisors, and heard a pretty interesting presentation because they were talking to the advisors about the type of clients that you want versus the type of clients that you have. It was an interesting conversation. Basically, they were acknowledging that, "you as advisors would all like to have wealthy clients, correct?" And, heads noded. "You're speaking the wrong language," and they got into the details of it. They were saying the average American citizen- you stated it doesn't really have much of a net worth to speak of at all, but that's not generally the type of client that an advisor brings on necessarily, but the type of client that an advisor brings on may have on average; in the majority of cases; somewhere between $500k and $1.5 mil, and they said, "what does that individual look like?"
Peter Richon (31:22):
And they said, "well, the majority of their assets are in their homes and their retirement accounts. And what you're talking to that individual about is making sure that when they quit working for somebody else to earn money. That what they have saved is enough to last their lifetime; not run out, and maintain their standard of living." And they said, "here's the thing; wealthier individuals, those million dollar plus type of net worth individuals. They don't have those same concerns. In fact, an exceedingly lower amount of total assets is in retirement accounts or primary residents the higher your net worth gets. That may not be a surprising statistic, but when you look at it, those with $2-5 million plus, they're not putting a whole lot of the percentage of their overall savings strategies into retirement accounts. In fact, they can't, retirement accounts are limited in contribution amounts.
Peter Richon (32:29):
A measly $6,000 a year. You can put into your individual retirement accounts. If you work for a company, they offer a retirement plan. You're still working for somebody else to earn your paycheck. And that's a, another big distinction as well, is that a lot of millionaires have their own businesses, several businesses, family run businesses. That's another concern of the millionaire mindset. But, if you are working for a company that does offer a retirement plan, you can save up to $20,500 still. That kind of progress- yes; over an entire lifetime career of savings; can create millionaire status. But, your concern is that half of life could be spent in retirement. Now we've gotta deal with how to spend down that allowance, that we were able to save and invest. For most millionaires, the cash flow is more significant that they max out other retirement savings options.
Peter Richon (33:25):
So, they're looking at investment in businesses and non-qualified investments and stock investments. And, the big thing is that the millionaire mindset is different. They're not trying to build up the biggest pile of money to sit there and say, "that pile is giving me financial confidence." They're actually sending as much money as they can out into the world to be active in creating its own money. And, then little baby bills come back to support the lifestyle. But, that is what is called passive income. Passive income is active money. Passive money sitting in an investment account somewhere creates active income, the retirement accounts, when you pull the money out of that is brand new income to you; fully taxable, no real advantage or place to hide it because you made that deal with the IRS and saving in those retirement accounts.
Peter Richon (34:22):
Not to say we shouldn't take full advantage of those opportunities, cuz they do give us some advantage, but the millionaires, they put their money out into the world as much as possible in investment, in business, to create residual income and passive income, which there are a lot of ways that that passive income can be significantly more advantageous than the brand new income. Warren buffet famously said that he was paying less in taxes than his secretary. And, he said that billionaires should pay more in taxes. And yet, he hires a team of tax professionals to ensure that's not the case, but the essence of that statement that he was paying less in taxes than his secretary makes sense on a surface level because the secretary is earning that money for the very first time. That's when we are taxed at our highest rate. If we earn money, pay the initial tax on it and then send it back out into the world where we've already paid tax on it once into endeavors that create more additional income for us, then we don't pay the same tax rates. We actually have opportunities and advantages to write off gains and losses and offset things that we don't have when we're first earning brand new income or making withdrawals from retirement accounts. I went a number of different areas, but I hope all that makes sense as far as the mindset of millionaires and where to go and get there.
Tony (35:47):
You did a great job covering a lot of territory. One that we don't touch on a lot is taxes, but a lot of millionaires are more conscious about the taxes they're paying out cuz it's money that they see can produce new money. I like to say, if you're getting to finances, it's a pretty simple thing; you need to learn how to make, manage, and multiply your money. Which, I loved what you said there; a passive income is active income, it's money. That's actually producing something versus just sitting in an account somewhere. And, I'm still learning about some of this stuff too. I don't have it all figured out. There's simple ways to get ahead with your finances. The best thing I think is; you just gotta get in the game, and that's what's so sad.
Tony (36:26):
The old stats were 78% of people living paycheck to paycheck. Maybe that dropped a little bit, it's probably up a lot higher right now with these gas prices. I think people are probably stretched a little bit more, but you don't wanna live there. If you don't have to live there in that 70% range where everybody else is living; you can actually break free from that. But, it starts with, like we said; basics, knowledge, understanding of money, how it works, budgeting. You mentioned balancing your checkbook every month. That's a very simple thing to do just to make sure that you're not overspending or getting insufficient funds growing up. That was one of the things I remember my parents talking about, some days I'd walk in, and man, we bounced seven checks and next thing we're driving up to the grocery store to pay the bounce check charges that were like $20-40.
Peter Richon (37:17):
It's a real hard choice to decide between food or heat though. We've gotta fix that equation somewhere, somehow. Do we cut expenses? Do we increase income? Do we work extra hours? Like if you're in that situation and circumstance, it's a, it's a really hard decision dollar-to-dollar; each dollar; you gotta decide what is most important. And, I I've talked to many, and remember, some days where the pile of bills was sitting there, "which one am I going to try to pay this month?
Tony (37:51):
I remember those days growing up. That happened quite often. It was pretty visible. I think the stress on my mom and my dad's- well, mostly my mom's face, cause I think she was writing the checks. My dad felt it through her, but she was the one bearing the burden; I think; emotionally.
Peter Richon (38:08):
I worry about these gas prices. I mean, back in 2007-2008, what we call the Great Recession; Wall Street lost more than 50% of its value over a 1-2 year period. But, that's not what hurt main street Americans, what hurt main street Americans was the $5 a gallon gas that was remnant from hurricane Katrina coming through. In 2005, Katrina came through and all of a sudden gas shot up from a $1.50-1.80 a gallon to $5 a gallon across the country, and stayed there for a number of years. Day-to-day, that's what hurt the budget and the bottom line of main street America. Sure, companies and investors felt the pinch, but if we kept investing during that time, it was actually an advantage. It was not something that hurt us unless we were dependent on the investments for income, which that's a whole-nother conversation and ball of wax there, but what really hurt was the prices at the pump. And, I see them creeping back up there and I'm really worried about that.
Tony (39:20):
I believe that the gas prices being as high as they were back then was one of the contributors to that recession too. When you've got a family that may be paying $400-500 a month in gas at $2 a gallon just to get to work, just to keep their lifestyle. And then, all of a sudden you double it, or in this case, I've seen prices out in San Francisco; online; upwards of $9 already. And, we're just at $4.50 here in Nashville. So, when you hit those kinds of numbers; it can't not have an effect on the economy and the cash flow that's actually going in the system. Cause you're taking so much disposable income that would be buying all kinds of other things. And, you're having to redirect it right into the energy sector. It's a convergence of the national cash flow. It's just going into one thing instead of going into twenty things. And, I think that hurts us all. Peter, how can our future millionaires on the show get in touch with you? Maybe some of them wanna talk to you about some of your ideas on financial planning and stuff. And, where are you located by the way?
Peter Richon (40:23):
So, I'm in North Carolina, right outside of the Research Triangle Park area. I serve clients across the state; really, across the world; with modern technology. We can talk just like this very easily face to face. But, if you would like to get in touch; the easiest way is probably to go to the website, richonplanning.com. I did author a book, Understanding Your Investment Options. I'm working on my second one, Retirement Planning for Geniuses. Understanding Your Investment Options, by the way; there is another section there on investing in yourself, and for the Millionaire Mindset, that's probably one of the most important chapters in the book. Right on the website, you can download a free e-copy of the book. Just go to richonplanning.com; be in touch that way, and if you got questions; would like to talk about anything; if there are speaking opportunities out there to help motivate others to have a better mindset in psychology and mentality with their money; I welcome those opportunities.
Tony (41:29):
Well, thanks, Peter. Thanks for being on the show and sharing your wisdom.
Peter Richon (41:34):
Absolutely. It was my pleasure to talk with you again, Tony.
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