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Dave Lukas - Lessons for Hannah400: Lessons For Hannah - Foundations of Wealth
Hello Misfit Nation! Welcome to another edition of "Lessons for Hannah!" Many years ago, I introduced a new format that alongside our regular episodes called “Lessons for Hannah.” Hannah is my daughter and one of the main inspirations for the Misfit Entrepreneur. I wanted to have a place where she could go and learn from her daddy and his Misfit friends throughout her life….even after I am gone. If you haven’t listened to the first episode of "Lessons for Hannah," I urge you to as it gives some more background and tells the amazing story of how Hannah came to be in our lives. Lessons for Hannah are short, very useful, and sometimes comical lessons, that I want to share with you and give to Hannah to help in your lives. Because I want Hannah to have these for her life, I’m going to speak as though I am talking directly to her. These episodes are a lot of fun and if you think there is a lesson that we should include in these episodes, please don’t hesitate to send it over to us at [email protected]. We’d love to share it. This week’s Lesson for Hannah Hannah, I was inspired by a post I saw recently on what the wealthy teach their kids that the poor and middle class do not. I thought I’d share some of the lessons as well as add in some of my own. Assets vs. Liabilities Assets are things that put money in your pocket and liabilities are things that take money from your pocket. You will always have some liabilities - you must to live. But you should limit large ones as much as possible. And some things that people will call assets are not always assets. For example, if you buy a house to live in, many people, including banks, would call that an asset. But, if you think about it, does the house put money in your pocket or take it out? It takes it out through mortgage payments, taxes, upkeep, etc., so in reality, it is a liability until you sell it. And in order for it to be an asset, you must sell it and recoup the costs you have paid into it as a liability, otherwise it is still a liability because you ultimately lose money. But, if you can focus on adding assets that put money in your pocket and grow those, you will do well. Examples of assets are rental real estate, cash-flowing businesses, investments that produce income throughout the year which would could be everything from dividend paying stocks to owning oil wells, intellectual property, and much more. Understanding Money What is money? I’ve talked about money before in a Lessons for Hannah episode, but it’s important to revisit. Money is really just a medium of exchange. It is a way to pay or be paid for goods and services. But not all money is equal. The US dollar has lost over 95% of it’s value since 1971. It is what is called a fiat currency. The US dollar has an advantage as it is the current reserve currency of the world, so it has to be widely used. But it is has no real value other than being reserve and backed by the US which in reality means backed by debt. In fact, all money is really debt. The US has about $35 Trillion in debt at this time and is adding a Trillion every 100 days or so. This will continue to cause the dollar to lose its value. That is why things will continue to get more expensive. It’s not that they cost more – it’s that the dollar is losing value. But, things like assets will keep up and become worth more for the same reason – they have real, tangible value, so as the dollar is worth less and less, assets hold their value and go up. Assets are how you keep up. Money can also be an idea. Contrary to popular belief, money can grow on trees. Think of it this way, JK Rowling is a billionaire because she took the idea od Harry Potter and wrote it into a book. That book resonated with enough people that it created value and money in that people that were willing to pay to read the book and subsequent books. In this way, she turned an idea into money. There are many examples of turning ideas into money – in fact, that is what entrepreneurship is all about. What about things like gold or bitcoin? Gold is a tangible metal that has value and is used to create products, but also stores value. It is the original money. I look at things like gold and silver as a hedge against a falling dollar because they are an asset that will go up in value as the dollar loses value. Bitcoin is similar and, in some ways, a digital type of gold, although it has a bigger promise as a medium of exchange, where gold is more challenged. Bitcoin’s benefit is the blockchain network, which requires no middlemen, so it you can freely exchange it without needing a bank, etc. It frees you from the fiat money system. Bitcoin is also finite in that there are only so many that can ever exist, so the more it is adopted, the less there is to go around which naturally causes the price to go up. I know this is a lot to take in, so just remember, money is just a tool to learn to use and fiat money like the US dollar will continue to lose value overtime. If you have dollars, you must keep them moving in assets to keep up and retain value so that you can afford things easier as they increase in cost due to value lost in fiat currency. Good Debt vs. Bad Debt This goes along with acquiring assets. If you are going to go into debt, you should do your best to go into good debt which is going into debt for things like assets that put money in your pocket and grow in value increasing your net worth. Bad debt is debt for liabilities that take money out of your pocket and potentially lose value over time. For example, most people go into debt for buying a car. A car is a liability and its value depreciates. It loses value over time and takes money from your pocket. Now, I’m not saying don’t buy a car. What I am saying is recognize it for what it is and buy wisely. Decide what makes sense to spend for a monthly payment and the debt you want to take on. You should try keep them both as small as possible so that your excess money can be invested into assets. Focus on adding good debt and limiting bad debt as much as possible. Wealth is Made Over Time Through Making Money Work for You As a follow on to the last couple of lessons, if you focus on growing assets through investing or your ideas, taking on good debt where it makes sense, and limiting bad debt, you will find that your money will work for you and you won’t have to trade time for money or at least trade a lot less. And if you keep at it, over time, you may reach a point where the money working for you pays all of your bills and you will reach true financial independence. This will allow you to have freedom to do what you want in your life, especially with your time. But, don’t lose sight of using this gift built through hard work, time, diligence, and making good decisions and use it to do good for others. Ultimately, what is the point of building wealth if you cannot help or share it with others to help this world. Learn to Solve Problems I have often said that entrepreneurship is about solving problems and to more and bigger problems you can solve, the bigger your business can grow. Building wealth is the same. Just because you have or build wealth does not mean that you won’t have problems. And as you solve those problems that money and wealth will continue to grow. It’s no secret that a good many people who build wealth are entrepreneurs because they see a problem, figure out how to solve it, and then monetize it. Again, money being created from an idea. So, a key skill to learn for all areas of life is to become a good problem solver. You’re Not Entitled to Anything This is one I took from the piece that I read because I think it is very relevant in our society. Wealthy parents teach their children that there is a burden of performance or they could lose everything. Your success should not depend on your parent’s money, but on your hard and smart work and actions. The real world is not the coddled society that many kids grow up these days. There are no trophies for second place. Merit and results matter, not feelings or what you think you should get. You have to earn it and once you earn it, you have to grow yourself to keep it. Remember how I mentioned that wealthy people have problems as well? Once they gain wealth, there are many ways to lose it. Keeping and growing wealth is a whole new skill set that must be learned and practiced. That is why most lottery winners go broke in 5 years, because they do not develop themselves to hold on to and grow their wealth. So, stay humble on the journey and keep learning and growing. Hannah, building wealth is a wonderful thing that opens up tremendous possibilities and allows you to do more good in this world. But money should never define you as a person. In fact, having more money just amplifies who you really are, good or bad, so as you set out to build wealth, first take from some of the other lessons I’ve shared with you in these episodes and decide the principles on which you live and build your life. Never lose sight of them and never sacrifice them for gain – they are too important. Your principles are the foundation and guide for how you will live. And if you lay a good foundation, building wealth on top of it will only make it better. I love you, Dad 
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