25+ years of finance experience in less than 5 minutes

Eighteen minutes. That’s how much I missed seeing the New Year’s Eve ball drop by.

I walked into our daughter’s room, told her goodnight, marched into our bedroom, and promptly fell asleep.

I have mixed feelings about treating each new year as a special event. On one hand, I do see it as a perfect time of year to evaluate everything and set goals, not resolutions, for how I will attack the year. I even have a file in my Notion dashboard called “2024 Operating Model” where I establish rules of engagement for the year.

For example, one rule, that I started last year, is that I try to do something creative or active if I’m anxious or frustrated. Doing one of those two things will almost always calm me down. Give it a whirl.

Writing is one of my creative outlets. Over the past week or so I’ve put down 11,197 words towards my next book, Stress-Free Finances.

In the book I am sharing everything I’ve learned in over 25+ years in the finance industry. That’s a lot of time and I’m fortunate to have picked up a lot of lessons along the way. Still, there are always opportunities to learn more.

For example, just last week I was working on a $1.6M loan for the purchase of a liquor store. The deal fell through and I would have caught it earlier had I done a better job analyzing the asking price compared to the value the business was demonstrating on its books.

Other times, my experience pays off when working on something finance-related. Like when I made my annual IRA contribution. Every year, if we have excess cash, I invest the maximum, this year it’s $6,500, into my and my wife’s IRAs. One reason I have a mental trigger to do that at the end of the year is that investment is tax deductible. This year I decided to put my full contribution into an S&P 500 fund. I knew it was performing well and my experience told me I’d get an immediate lift. Sure enough, I’m up 8% in about one month.

Those types of financial decisions are second nature to me. But, you don’t need 25+ years in finance to make smart financial decisions. Pareto’s Principle, commonly known as the 80/20 rule, does apply to finance.

So, today, I’m going to distill those 25+ years of experience into a quick 5-minute read.

The 20% of finance knowledge that matters

Here are the few things that matter when it comes to succeeding in finance. Get these down and you will be ahead of most people. With one caveat. You can’t just understand them, you have to act upon them.

Personal Finance

1. Spending money = investing - As often as possible, when you are spending money, try to think of it in terms of whether that expense improves your financial picture or hinders it.
2. Assets > income = As long as your basic income needs are met, you should be putting your money into growth assets. Preferably assets that produce money as passively as possible. Good examples - real estate, index funds. Bad example - 99% of cars.
3. 50/30/20 when in doubt = 50% of your money should go to needs, 30% to wants, and 20% saved. i.e. budget.
4. Total cost of ownership - when you buy something like a car or home, it’s important to think about the total cost of ownership. Most people only think about the loan payment. That’s a mistake. For example, having a home comes with utilities, internet, TV, gas, water, waste, yard maintenance, repairs, furniture, and all kinds of other expenses.
5. Control your emotions - most of the financial mistakes people make are centered around bad decisions driven by their emotions, especially their egos. No one needs their house to look like it was decorated by Joanna Gaines. You want it, you don’t need it. How often are people coming to your house anyway?

Business Finance

1. Understand basic financial statements - Profit/Loss statement = revenue and expenses; Balance Sheet = assets and liabilities; Cash Flow = sources and uses of cash. Your P/L does not equate to how much money you have made!
2. Debt vs. equity capital = Debt comes from lenders. Lenders expect to get paid back, principal and interest, repeatedly, often monthly. Equity comes from investors. Investors expect to get paid back from an acquisition, or public stock offering. Lenders give you money based on past financial performance. Investors give you money based on expected financial performance. Investors don’t invest in ideas. Ideas are a dime a dozen. They invest in people with a track record of proven execution.
3. Marketing/Sales are the key skills - I had a mentor once who said, “There is no problem that five new customers won’t fix.” It doesn’t matter how talented you are at your profession. If you can’t find and close deals then you don’t have a business, you have a hobby.

But, Jonathan, how do I pick the right stock investments?

How are cap rates calculated for commercial real estate?

Which cryptocurrency is going to spike next?

That’s the problem. All those fancy finance tips you are trying to follow, they don’t mean a damn thing if your foundation isn’t strong. Do you want to get better a picking individual stocks? Learn how to analyze the financial statements of those companies.

If you want to boil down all of this advice, and everything else I know about finance, into only one actionable step, focus on #5 above - controlling your emotions.

While I can’t help you there, I do have a bunch of resources to help with your personal and business finance questions.