Reese Harper and Abby Morton break down how to help young professionals just starting their financial journey. Through the case study of a young working professional they discuss practical strategies for building wealth, from establishing emergency savings to growing income potential.
The conversation offers valuable insights for both advisors working with early-career clients and young professionals seeking to establish a strong financial foundation.
Transcript
Jordan Haines:
Hello friends, and welcome to another episode of Elementality. Today you have the pleasure of hearing from our very own Reese Harper and Abby Morton as they go through a real client’s element scorecard. Now, I have probably a dozen of these different examples going through scorecards, and I chose this one specifically today because of the feedback I’ve been hearing from lots of financial advisors [00:01:00] recently, many financial advisors who are maybe seasoned, they’ve been around for.
And more than five years, and they have a specific type of client that they serve. Naturally. Over time, these clients will recommend other people for us to work with. And oftentimes those people, while it might be easy to pass ’em off to a financial advisor, they might not even be a good fit for a financial advisor in general, and we don’t really have a good way of serving them if you were to ask them to fill out their information.
Uh, there would be a lot of zeroes, right? Not a lot of information. They’re just starting out. They just graduated college. So in today’s episode, Abby and Reese go through a scorecard that has a ton of zeroes, and they walk through how they would approach a conversation with this specific client. Some things to keep in mind, some things that they, uh, talk about.
Number one, Reese, you’ll hear him talk a lot about focusing on your craft, finding the thing that is going to produce income over your lifetime. So leaning into your strengths. Growing your income and your earning potential seems to be a very important part of that. Also, notice [00:02:00] how Abby talks a lot about how you can frame the future of the things that they need to work on and how elements can give them that framework of saying, look at these things, focus on these things.
And finally, I think the biggest thing for me that was most impactful is along the way, I just noticed a theme throughout that every decision that we show people has a trade off and using the scorecard in a way. To discuss trade offs, to actually identify, Hey, look, here are the trade offs you might have to make in the future, can be really impactful.
So enjoy the episode. Hopefully you get something out of it. And if you ever encounter a situation where you don’t know what to do with this person that you have agreed to talk to and you don’t know how to serve them, consider watching this episode as a way to get some tips and pointers on how to do that.
And with that, enjoy the show.
Reese Harper: Hey there, America. Super excited to do another one of these. Abby, who is Jackson and what is his question?
Abby Morton: So Jackson called in and he’s just getting started, [00:03:00] right? He’s, he’s at, just into his first kind of legit job he’s making Are, we’re gonna reveal income today?
Reese Harper: Well, of course, if we want to. We don’t.
That’s fine. That’s fine.
Abby Morton: I think it’s important in this context. Right? Right. So, Jackson’s making $40,000. Beautiful. He lives in California. So taxes are like huge, you know,
Reese Harper: making $40,000 single. Luckily in California, yes, single in California. You can maybe go out on the weekends. It’s rough, right? It’s rough, right?
Yeah’s tight but’s. But Jackson
Abby Morton: just called in. First of all, I am like applauding Jackson, number one at 24 calling and saying, Abby, I just, I wanna get started on the right foot. Nice. What do I do? How can you help me Make for sure that I am like. Go in the right, like what are like basics, right? He just was like, I don’t know what I don’t know.
Like, can you just teach me? Like, what do I need to know? Right. Yeah. So when someone’s young and starting out, I just thought we could talk through like basic tips at like, what are the first couple things to do to get you started on the right foot?
Reese Harper: Oh, right. Well, look, we, I, I highlighted the [00:04:00] bottom row real quick because ultimately if you have watched this show before, you’ve heard us talk about runway.
Runway is kind of like, how many months could you go right now if you’d lost your job, right? Yeah. Or. How many years in, in this case, Jackson can go for a month on liquid term score. We got 0.1 liquid term. That means Jackson can go for like a month, right? Yep. Um, that’s very common. Okay. But what I want to illustrate here is that there is a future coming where.
There’s gonna be a runway where your money won’t just be in a bank account, which is where it’s at right now with our liquid term score at 0.1. Eventually you’re gonna have money in retirement accounts. Then you might own a piece of real estate one day. Who knows? You could even start a business or have some stock in a company.
That’s that business term score, and then your total term on the far right. This is like your total runway of all the stuff you have piled up. So it’s good to have that vision as a young person to just know, look, my [00:05:00] wealth, if you want to use that word, wealth is basically at at at elements money. The way we see it is how long is your runway?
Abby Morton: Yeah.
Reese Harper: If it’s Warren Buffet, your, your runway is like thousands of years, right? Like he lives in a small house and he eats at McDonald’s, drives the Civic, and he drives a civic and he is got billions of dollars. And so when you divide his wealth by what he spends, it’s gonna go for eons of time. That’s why he’s giving it away.
Abby Morton: Yeah.
Reese Harper: Now Jackson, right now, he just has enough to go for a month. Right. And that’s all he has. That’s normal. Especially at age 24. It’s normal for half the population. In America it’s, it’s normal for 70% of the population.
Abby Morton: Yeah, totally. And so
Reese Harper: just some, I think it’s, it’s cool to, like you do a scorecard that shows zeros.
Because we don’t do that all the time.
Abby Morton: We don’t. Well, and I like it because everyone has to start somewhere. Yeah. And there’s no shame and there’s no guilt. We’re gonna meet you where you’re at and we’re gonna help you make the most of what you’ve got. Right?
Reese Harper: Yeah, exactly.
Abby Morton: And, and that’s what I wanted to bring up and talk about today.[00:06:00]
I like how you say it’s your, your runway. Another way you could say that is right. It’s just how many years do you have to live off of what you have? So Totally. Just like Grace was saying. Jackson has about one month. Right. Over time. Right. And hopefully in the next years, Jackson could have like a five total term, and that means he could live for five years with, of all the money that he has.
Right? Yeah. And I hear often, especially with people Jackson’s age, like, well, I don’t have any wealth. Like, I don’t have, have any of that stuff. So let’s talk about like, what is, what do we mean when we say wealth? Um, assets. I, I think we should hit on that and just take a second and talk about what exactly does that mean.
So, yeah. Go ahead. Start with like what are basics for assets?
Reese Harper: Well, we hit on the four categories that we’re kind of like summing up. Yeah. Right. And this one that Abby’s highlighting here on the screen, if you go into your, uh, dashboard right now, you’ll be able to click on that liquid term score and see what she’s seeing.
Your first group of assets is, um, one that is very important at this stage [00:07:00] of life because it gives you optionality for the future. Yeah. Like if you don’t have liquidity. You can’t, um, change jobs very easily. Right? Right. You can’t take a step back to take two steps forward. You can’t go get some education because you don’t have any resources to go get education with.
Um, sometimes student loans aren’t available for the right type of education.
Abby Morton: Yeah.
Reese Harper: Certain types of education are skilled skill-based training or coaching programs or, um, very narrow online training courses that you need to be able to unlock a new skill set. And if you don’t have a thousand dollars, if you don’t have $5,000, sometimes you can’t access the right coursework.
Abby Morton: Yeah,
Reese Harper: so I like liquid term score for Jackson. I like to think about this stage of life is how am I increasing my income capacity to go from 40,000 to 50,000? What am I gonna do in the next year to get there? Now, before I do that, I’m probably gonna [00:08:00] wanna grow that liquid term score to a 0.25. Right? Yeah, totally.
I’m gonna wanna get that liquid term score to where I’ve got a baseline of three months instead of a baseline of a month. Right. And once I get to that baseline of three months, I’m ready to start increasing my income capacity.
Abby Morton: Yeah.
Reese Harper: So I want, I want to grow my income. The way I’m gonna do that is by taking some.
Cognitive and affective and non-native. Those are fancy words for different types of tests. Um, like working genius, like predictive index, like um, Campbell’s Skills and Interest Survey, uh, Gallup’s Strengths finder is really great. There’s a lot of different ways to sort of figure out who you are that why are your skills are out, why
Abby Morton: are you telling ’em to go take these tests?
Reese Harper: ’cause you’re gonna want to grow. That’s how you’re gonna grow your income. You’re gonna grow your income by focusing on the things that you’re already good at.
Abby Morton: Yeah. There’s this area, you taught me this concept of like. Ikigai. Right. But there’s another concept, right? Japanese word I love Ikigai. Yeah.
Which is like, how can you do what you love and do what you’re good at and what can you get paid for? Right. Perfect. How can you, [00:09:00] I think that’s what you’re alluding to, is how can you bring those three areas kind of together. Mm-hmm. And using that to increase your income. Because if you naturally are doing in your job what you’re good at, you are going to be happier.
You’re going to produce better results for your employer, and then therefore they’re going to wanna pay you more.
Reese Harper: Yes. And I, the, the way I would like, you know, it’s like, well, you could always make more money, Reese, why don’t you just tell him how to fix. The money he has. Well, if you look at, um, the national income averages for people at age 24, 40,000 is a pretty good income for a 24-year-old.
Okay. Like, it’s, it’s, it’s probably median for 24. It’s just not the median income for all people.
Abby Morton: Yeah.
Reese Harper: Median income for all people is gonna be for. It is gonna be in the fifties or sixties, depending on which, uh, data set you’re looking at.
Abby Morton: Yeah.
Reese Harper: And so if your income is below the median, then I’m gonna focus on income capacity.
If your income is above the median, then I’m gonna focus on more on what you do with it. Right. Might be a little more likely to tell [00:10:00] Jackson, Hey, don’t spend money on pizza so much. If his income was 80,000 and he had a liquid term score of 0.1. But at 40 K, you’re probably just using your income to kind of get by, just barely making it and you’re gonna build up some liquidity.
Yeah. And I would recommend you take that liquidity and use it towards increasing your income through skills that align with your, uh, what you love, what you’re good at, what your brain naturally is inclined towards. Yeah. And that way you’re gonna be able to grow faster. ’cause if you think about it, wealth is built by however much you make in a year.
Multiplying that by how long you’re gonna be alive and working. Okay, so if you’re making 40,000 and you’re gonna work for 30 years, you’re gonna make $1.2 million of total gross income.
Abby Morton: That’s taking the 40,000 times by 30 30 for how many years? You’re working for 30 years, yeah. That’s where you got that 1.2
Reese Harper: 40,000 times by 30 years, $1.2 million of income
Abby Morton: for your whole life.
Reese Harper: If you made 60,000 times 30 [00:11:00] years, now you’re gonna make 1.8 million. That’s $600,000 more. In income over your lifetime. It’s a substantial difference. Imagine if you could make a a hundred thousand dollars a year, right? Times by 30. Now you’re making $3 million. Yeah. Over your career instead of 1.2.
Abby Morton: It’s such an interesting concept ’cause I don’t feel like you normally.
Think about, I mean, everyone thinks I should make more, I should make more, but I like this different way to think about it as my total earning potential over my lifetime. Yeah. And, and what am I gonna do with that over my whole entire life? Right. Exactly.
Reese Harper: And, and I think that affects what decisions you make.
And if you look at Roe too, in Jackson’s scenario, he’s spending of his gross income, of that 40,000, 77% of it’s just going to live.
Abby Morton: But I mean, when you’re making only 40,000 is very, that’s where you gotta be. Right. Very common.
Reese Harper: Very common. He doesn’t have a lot of debt, which is great. But, uh, if we open up that debt rate, this may be an area where we have a chance to get ahead a little bit.
Abby Morton: Yeah. So he told me he has some credit card debt and then he is sold, and then he has a car [00:12:00] loan, right? I mean, you gotta have a car loan, right? You gotta get to work. Right. If you
Reese Harper: think about it, if he didn’t have that car loan, when he doesn’t have that car loan, and when he doesn’t have that credit card debt.
Even if his income were still 40,000. Yeah. He could accumulate a little more liquidity a little faster. Totally. Right. But still. So
Abby Morton: what would you prioritize then for Jackson? Would you ask him to, ’cause that was one question that he asked me. Right. Do I, I know I should keep saving, but I know I should pay off this credit card debt.
And like the car loan is the car loan. I’m not too worried about like you have to again, get to work. So at least the guidance I gave Jackson is. Save enough so you have three months worth of liquidity. Right. So that’s like checking save, like savings money. Right. Money in your savings account. Three months sitting there.
Yeah. Then I’d say turn every penny to pay off the credit card debt. ’cause you’re paying these creditors extra money, extra interest that we don’t wanna pay creditors. We don’t want credit card debt. Yeah. It’s bad, right? Yeah. So pay that all off. And then once that credit card and it’s only like a $2,600 [00:13:00] balance, like we’re not talking about a huge balance.
Yeah. Then as soon as that’s paid off, he can turn back to building up more of that savings on the side. What do do you think about that? So you, you said
Reese Harper: go to liquidity to 0.25. So get his liquid term score up to a three month, then pay off the credit cards.
Abby Morton: Yes. Then then shift and don’t, like, don’t, I think a lot of people try to do both at the same time.
Like I gotta save at the same time that I’m also working to pay off the credit card debt. Yeah. And I feel like. Because you’re working on both. You don’t hit anything hard, like you don’t see a lot of improvement. Yeah. And so that’s why I said just focus on the savings, pay the minimum credit card debt because it’s not too much.
Right. It’s not gonna take ’em too long to get there. Then turn back to the credit card debt. Get that? Yeah,
Reese Harper: I think we’re aligned on that. The, the only thing I would probably add is right now I would want you to start, um, understanding how your. What, what your interests and personality are, are calling you to do in your career.
What is gonna bring, what career? Yeah. At moves are you going to make and which, [00:14:00] um, testing, you know, if you did a coaching session, we would just identify the right, affective or co native test for you to take so you can kind of learn a little bit more about yourself.
Abby Morton: I love it.
Reese Harper: Come in, get a test done.
It’ll probably cost 25 or 50 bucks to do the right one. And then you’ll be able to walk out of that coaching session with like a strong understanding of how to go to your manager, go to your, uh, employer, and um, find out where the opportunities are for you to be promoted to do extra work to help contribute to the organization in a way that gives you energy and joy.
Abby Morton: Yeah.
Reese Harper: Rather than just like picking up extra hours or grab a second job work like Dave Ramsey would tell you, um, you can work your tail off and. Uh, just get another job delivering the pizzas instead of eating the
Abby Morton: pizzas. Okay. I love that.
Reese Harper: Uh, I just think that that would be probably the order I would do it in, uh, coaching.
Yeah. That you gave, I think is great. And I would just, uh, accentuate like we have to focus on increasing our income capacity. I. Getting at [00:15:00] least up to the median income level, it’s gonna make a huge difference in your ability to be able to make, uh, to build wealth.
Abby Morton: Yeah.
Reese Harper: Over time. So,
Abby Morton: so as a quick recap for all of you that are kind of in a similar situation as Jackson, you’re just starting off like, what are the key things you should do?
I just wanna wrap that up. Okay. Yeah, yeah. Number one, figure out where your interests and your skills are at in your career, and make for sure that you’re really leaning into that. Number two, get at least a three months or a 0.25 liquid term score built up. And number three, I’d say stay out or get out of credit card debt.
Like if you do those key three things, that’s nice. I feel like it really will put you in a good position. There’s, there’s more to do, obviously, but that’s just a good baseline and a good starting point.
Reese Harper: Great. Love it.
Abby Morton: Okay, Jackson. Good
Reese Harper: luck brother.
Abby Morton: Catch you next time. If you have a financial question you would like answered, email us at podcast@elementsmoney.com.
And don’t forget if you want some one-on-one guidance for your personal situation, schedule a coaching session in the app anytime. Catch you in the next [00:16:00] episode.