Host of Elementality, Jordan Haines, CFP® discusses the difference between foundational finance and fancy finance, emphasizing the importance of having financial conversations at scale. He introduces the ‘Four Foundations of Finance’: saving enough, spending with clarity, managing debt wisely, and maintaining enough liquidity. Using personal anecdotes and practical advice, Jordan explains how focusing on these core principles can help financial advisors provide valuable service to the majority of their clients. Tune in to learn how to effectively engage clients and ensure their financial well-being through foundational financial principles.

Transcript

Jordan Haines:

Hello friends. And welcome to another episode of L mentality. I’m Jordan Hanes, financial vitals expert here at elements. And I’m excited to talk to you about a topic that’s near and dear to my heart. The topic is foundational finance versus fancy finance. So let’s get into it. I want to draw the distinction here with [00:01:00] the objective of having financial conversations at scale. 

Now, the last couple of weeks, we’ve talked a lot about the perfect 30 minute consultation. And the place at that falls in really nicely as in prospecting and seminars and client check-ins. But one of my favorite areas is financial conversations at scale, meaning a place where I’m having a high volume of conversations, where I need to have some level of consistency and value that I can provide in those conversations. 

So if I’m seeking to customize every single interaction with people, it’s going to be extraordinarily difficult for me to offer financial conversations at scale. Now, I want to be clear here in the Outfront. I’m not disparaging. What financial advisors do today. What we offer clients is incredibly valuable. 

I mean, honestly, just go through kitces.com. Look at all his articles. Those are finance, fancy finance topics, things that are valuable for a couple people here and there. And when you have a service model that allows you to serve people on that level, with that level of premium service. Then that is a wonderful thing for them. We [00:02:00] live in a world though, where we price people out or we knock people out. 

We, we, we, um, bar people out from receiving valuable conversations because we’re unwilling to not be customized. Right. I call this comprehensive complexity, right? We are focusing so much on fancy finance that we often forget that most people just need the foundational principles at play. Let me tell you a quick story and then we’ll jump into it a little bit more. 

I, um, joined a gym. 

So we had a child. I think I mentioned this. Uh, we had, we brought a baby into the world in February, so all my health habits went down the drain. A couple of months later, this has been been probably in June may or June. I joined a new gym, a new gym had opened up in our small town. It was close to our house. 

They were offering a discount. I said, sure, that’s wonderful. I’m going to leave the gym and out right now, I’m going to go to them. Cause they’re a little closer and maybe I will work out more, which you know, we’re S we’re still figuring that out. As part of joining the gym, they offered me a free consultation with one of their personal trainers. 

I said, sure, I’d love to do that. And they did a [00:03:00] health screening for me. And what they did is they have this fancy thing I stood on and it measured my BMI and my. And basic things. Um, they asked me questions around how I’m sleeping and my exercise activity level. Um, and what, what I eat typically in a day, things like that, they were asking me all of these really important questions. 

Their intention with that interaction was to gauge how physically healthy I was specifically in the areas foundational to most human beings, which are. Exercise. Diet. And sleep. They just want to know how I was doing in those areas. And frankly, working with a personal trainer would allow me to focus on those three things, diet, exercise, and sleep. 

And if I were to focus on those three things and do really well at those. Well, I’m going to be better off. I’m going to be good enough. That’s like 80% of the way there. I don’t necessarily need to do cold plunger sauna. Ha. Hot cold therapy. I don’t need to do red light therapy or all the fancy things that people do nowadays. I just know that I’m physically healthy and I’m doing okay because [00:04:00] I eat well, I sleep well and I exercise consistently. Now. We can apply those same principles to the world of finance, but what are the diet and exercise equivalent to finance? 

And I’m going to call these the four foundations of finance. And we’re going to draw a clear distinction between this and fancy finance. I’m not going to define what fancy finances, just go to kitces.com and scroll through all of his topics. They’re wonderful. They’re fantastic for the right people, but those are, if I fancy finance topics, what I want to focus on is the things that are consistent to most people. 

If I were to go to a group of a hundred people, And I could check three or four things. I would be able to know if they are financially healthy or not. And what that enables me to do. If I have these core topics in place, well, then I can speak to them with everyone, because I know that if all these people were doing these four things, they would be financially healthy. It would allow me to offer financial conversations at scale because I can focus my time on the right things. And it will allow me to provide value to them. So let’s talk about the four [00:05:00] things. 

What I want to particularly go through is what is the foundational finance topic? There are four of them. How do I know how someone is doing in that area? And then how do I talk about it? Let’s go. Topic number one. And I’m going to express this in a question from the point of view from your clients. Am I saving enough? Number one, am I saving enough? 

So the topic here is savings. Okay. What we use at elements, obviously I’m biased. This is my favorite, but it’s a simple ratio. It’s just their savings rates. What we call it. It’s their total annual savings contributions divided by their annual income. It tells us what percentage of their income is going towards long-term savings. Okay. Now, how do I know if someone is saving enough? 

Well, I start by measuring what their savings rate is, and then I start to understand context around their life. For example, if they are. Um, they save 8% and they’re a teacher and they have a, or a public employee and they have a pension and future social security and a spouse that [00:06:00] works. Any percent savings rate is actually probably okay. 

It’s low. But it’s probably okay. But if I’m working with a high productive, highly productive dentist who owns his business, And as trying his best to do the best he can. Right. I would want to see. Upwards to 20 to 25% savings rate. So what is a subjective answering that question and saying, are you saving enough? 

It’s objective. But if that client knows that they’re saving enough, and I know that they’re saving enough, we can check that box and they’re going to be far better off than most people are today. Because if they are saving enough, that is something that they can control and they can do well. So that’s topic. 

Number one. Topic number two, foundational principle. Number two. Is, are you spending with clarity? Or with intention. And in this case, I’m not advocating for budgeting. Not everyone needs to have a budget or really even a clear spending plan, but people need to know where their money is going at elements. 

We start to understand this by measuring their burn rate, we take their spending outside of savings, debt, and taxes, and we divide that by how much they make in a year. [00:07:00] It tells us what percentage of someone’s income is just being spent. That can go towards fixed expenses, insurance premiums. Um, variable expenses, discretionary expenses. 

It doesn’t matter. I just want a broad topic to see how are you doing in this area? Now if someone is overspending in like the 80% range, that’s concerning to me. If someone is under spending and the 20 or 30% range. While that might be concerning to me, but that’s probably a little better. What I want them to know though is what their burn rate actually is. 

And whether they’re tracking that Monarch money or used to be mint, or why NAB or they’re pulling bank statements, or they’re doing it in their own spreadsheet. It does not matter to me. I just want them to have some clarity. That in how much they actually spend and understanding that I actually think is one of the things that causes people, a lot of anxiety, just not knowing what’s going on. Not necessarily just having a plan. 

It’s just not knowing it. And so we want to provide a little bit of transparency around that. That’s topic. Number two, foundational topic. Number three. Is, am I managing my debt wisely? Notice that I’m not saying am I [00:08:00] debt-free. Am I managing debt YZ. The reason I call it out this way is because if I’m working with a dentist versus a teacher, that example we had earlier, a teacher, I might want to be that free. Right, no consumer debt pay down our student loans, maybe pay down our mortgage over time. 

That might be really valuable. For a dentist. That might not be the best advice. In some cases, if I’m a brand new dentist and I’m about to buy a million dollar practice, I’m going to have debt and I need to be okay with that. Right. So understanding if I’m managing debt wisely is really valuable. Now at elements, we use a simple debt to income ratio. 

We call it debt rate just helps us at a high level, know how they’re doing in that area so that I can then speak to that very quickly. The third, the fourth and final area. The one that I often find is the most overlooked by financial advisors and consumers. Is, and my maintaining enough liquidity. And elements. 

We look at their liquid term score. This one has a little bit of nuance here. We to calculate a liquid term score in elements, we take their total. Liquid assets. So that’s going to include cash, checking savings, types of [00:09:00] things. And after tax investments, things that I can get to quickly, we total all those up and we divide it by how much they spend in a year. 

So it’s more of a duration score. It tells us how many years they can live off their liquid assets. If I have a low liquid term score, I am not maintaining enough liquidity to be comfortable in my life or to capture opportunities that come my way. And frankly, I’m probably going to feel a lot more anxious in this, in that process. But if I maintain enough liquidity, not exceptional amount, but if I have enough. Then I’m going to feel a lot more comfortable. 

My life I’ll be able to capture opportunities. I’m not going to feel as nervous or as uneasy. These four topics. So savings spending debt and liquidity. I call the foundations of finance. Now we luckily at elements have four elements dedicated individually to each of these. And when I go through a financial conversation or one of these perfect 30 minute consultations, one of the first things that my eyes are drawn to are these four elements. 

These things that I know if. Most people had these things figured out. They’re going to be okay. That’s 80% of the way there. And that sets the stage [00:10:00] perfectly for me to then if I do fancy finance to start talking about fancy finance topics. The state planning, insurance investments, things like that. But until then I run the risk. Of being too complex, too early. Focusing on things that aren’t fundamentally important to people too soon in my process. So if you’re going to take away anything from this episode today, It’s that when you offer financial conversations at scale. You should focus on the foundational financial principles over the fancy foundation, financial principles, which are. Saving enough. Spending with clarity. Managing debt wisely. Maintaining enough liquidity. And if you do those things, you’re going to offer a valuable service. For most of the people that you talk to. Let me know if you disagree, you can add me on LinkedIn. You can email us@podcastatgetelements.com. 

Otherwise guys, excited to talk to you next week. Have a great week. [00:11:00]