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Money advice I got from John Legend

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“It’s not wrong to be afraid.” John Legend

John Legend is a Grammy and Oscar Award winning musician. The singer-songwriter won his first Grammy Award with 2004’s Get Lifted. The album went platinum, thanks in large part to his hit single “Ordinary People.”

He was a child piano prodigy. He skipped two grades and graduated from high school at 16.

Legend stated he was offered admission into Harvard University and scholarships to Georgetown University and Morehouse College. Ultimately, he chose to go to the University of Pennsylvania, where he studied English with an emphasis on African American literature.

He sang in the church choir (which he joined at 7 and was leading it by 11), was head of the music department in his church, served as a music director in college and also worked as a wedding singer.

He has done numerous interviews in his career and much of the information in this post comes from them. I discuss multiple ones in this post.

John has an estimated net worth of $40 million dollars.

He did an interview with Katherine Schwarzenegger for her 2014 book I Just Graduated… Now What?: Honest Answers from Those Who Have Been There. You may recognize the last name. Yes, she is the daughter of Arnold Schwarzenegger and Maria Shriver (Kennedy).

For more information on her famous father, you can read my post How Arnold Schwarzenegger Totally Recalls making $20 million-dollar paychecks.

How Arnold Schwarzenegger Totally Recalls making $20 million-dollar paychecks

His advice in that book inspired me to work harder to pay off all my credit card debt and start massively saving. See my post How Millennial Money inspired me to start saving $13, 333.06 a year 

Here is some of what he had to say. (Not every word or quote is from her book, but numerous interviews) I highlight his advice in her book with KES (Ms. Schwarzenegger’s initials).  There they are (KES) on the board right behind her.

I really liked this book. So, I tweeted Ms. Schwarzenegger and told her so. She gave me a like. Thanks! I appreciated that. 👍😊

NO OVERNIGHT CELEBRITY

“I had followed the path that the Penn graduate was supposed to take, but I didn’t fall in love.” – John Legend

KES: John directed theater productions in school and performed in talent shows. He wanted to be a big star, but did not know the steps to get there. John said he had a fire in his belly.  No one was coming along to make him a star as he learned along the way. John had to put together a demo and have it produced by the right people. Anything that he was doing that wasn’t music, was going to be temporary.

After graduation, he switched gears (gave into peer pressure) and starting worked for the prestigious Boston Consulting Group, but would also perform in nightclubs in New York City.

Although, music is his first love, he worked a safe corporate job for three years while hustling to get his music off the ground. He received lots of rejections, but continued to side hustle as a musician playing anywhere he could.

DON’T BE AFRAID TO FAIL 

“Fear of failure stops too many people from doing things. It’s not wrong to be afraid, but you have to fight through fear to overcome it.” – John Legend quoted as saying this in Katherine’s book (KES)

Many of his friends became bankers and consultants so he did too. However, after following in their footsteps he found that was not meant for him. He was not cut out to be a consultant.

“I couldn’t shake my passion for music.” – John Legend

He made savvy moves to make his dream a reality. During the day he did PowerPoint presentations, but at night he wrote and performed music.

Fun Fact: While in college, Legend was introduced to Lauryn Hill by a friend. He played piano on Lauryn Hill’s “Everything Is Everything.” That was his first album appearance.

WHY SIDE HUSTLE?

“I needed money. I lived in New York and had to pay my rent.”

KES: John didn’t have any financial support from his parents and he had student loans to pay back. He found that you could make good money in consulting.

He was rejected by all major labels. All the heads of these labels all turned him down.

KES: John paid his own way through college, racking up tons of student loans in the process. He had to deal with them after graduating college. He rolled the dice, took chances, and worked his butt off to follow his dreams, and never lost faith along the way.

Basically, he moonlighted his way to a music career.

BREAKTHROUGH

Havin’ money’s not everything, not havin’ it is. – Kanye West

John’s big break came out of relationships he had made. A college roommate (which was Kanye’s cousin) introduced John to a music producer in Chicago named Kanye West.

KES: John would go to the studio straight from worked dressed in his business attire. He said he definitely stood out from the way everyone else was dressed in the studio. He ended up getting a manager and a lawyer that were also well-connected. This was in 2002.

If you want to be treated like an adult, you have to dress like one. – Diane Kruger (actress and star of National Treasure) See my post on the film. 

Money and Life Lessons I Learned from Disney’s film National Treasure

Through his collaboration with Yeezy, he was able to parlay that into a record deal. His first album was produced by Kanye. He got a deal with Sony.

That album would go on to earn eight Grammy nominations.

Years of toiling and hard work had paid off. It just goes to show, it’s not only what you know, it’s who you know. If you want to be taken serious, then you have to act like you do.

FIRST BIG PAYDAY

“When I got my first big check, I paid [my college loans] off. No more debt!” – John Legend

As you can see, his biggest earnings are from his music. It goes to show that passion can pay off big!

KES: John quit his job and started working part-time so he could focus more on his music. He struggled for a while, living on credit cards and skating by. Then he started making money touring with Kanye. In 2004, he got a deal with Columbia Records and when that happened he didn’t have to worry about money anymore. As soon as he got my record deal, he paid off all his student loans and credit card debt. He said no one ever told him about college loan debt and how to manage it.

Preaching to the choir here with not knowing how to manage debt. And in his case, that is literally speaking as he was in the church choir singing, which would become his meal ticket.

INVESTMENTS

“I bought a place [in Manhattan]. I just bought some art—some abstract stuff—and some collages are coming too. A friend who works at MoMA is like my art consultant. I just wanted nice stuff that would hold value.” – John Legend

You should always invest and buy things that go up in value. It just makes sense.

PASSION MAKES A GRAMMY WINNER

“But that cool detachment only gets you so far. Passion gets you a lot further. It makes you a better entrepreneur, a better leader, a better philanthropist, a better friend, a better lover.” – John Legend

He chose to pursue his interest. This made him his fortune. I call it the House that was built on a piano. 😉

Just FYI: John Legend is a 10-time Grammy Award winner. He won an Oscar for the song Glory in the film Selma.

Financial Freedom, Financial Independence, Retirement, Saving, Wealth

How do you play with FIRE?

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“It is so liberating to really know what I want, what truly makes me happy, what I will not tolerate. I have learned that it is no one else’s job to take care of me but me.” – Beyoncé

Many of you may have heard of the FIRE movement (financial independence, retire early). However, what some of you may not know is that there are different ways to FIRE.

Let’s explore some of those ways shall we.

WHAT IS FIRE?

According to Camp Fire Finance, the elevator pitch for FIRE is this, “When your investments generate enough money to cover your annual expenses you’re financially independent (FI). At that point work is optional and you can retire early (RE) if you want to.”

Basically, you have more than enough money coming in to stop working. Usually, this requires anywhere from $1 million to $5 million dollars depending on what you want or need to spend to maintain your lifestyle or that of the one you dream of having.

For example, if you decide you want to withdraw at least $80,000 a year, you would need to have a $2-million-dollar portfolio.

HOW DO YOU BUILD A $2 MILLION DOLLAR PORTFOLIO?

“Don’t focus on getting to $1 million; focus on getting to $2 million.” – Arnold Schwarzenegger

I heard that little gem when Mr. Schwarzenegger was doing a radio interview.

So, one word: invest.

Property, stocks, art, and stamps can all help you build your net worth.

“Market crashes are the best times to buy,” he said. “When Walmart has a sale, everybody would run in to buy. But when the stock market has a sale, or the real estate market has a sale, everybody runs away. That’s why there’s a difference between rich and poor today because they don’t know a good thing when they see one.” – Robert Kiyosaki quoted from a MarketWatch interview

Do not focus on your income; focus on your net worth.

Earning a high income means nothing, if you spend it all. If you make $85,000, but spend $86,000 you’re in the red. You can blow through just about any paycheck.

PURSUIT OF LIFE, LIBERTY, HAPPINESS AND FINANCIAL FREEDOM

The pursuit of financial freedom takes work and time. I thought this post from Apathy Ends, hit the nail on the financial head on why people are not rich, yet. See my post on Patience is the key to wealth.

I will never forget that episode of America’s Next Top Model (ANTM) when Ms. J was teaching the girls how to walk down the runway. He was fierce and determined.  What he got from the girls was gentle and undetermined or undefined and lazy.

He commented to them, while slapping his hands together, with one palm face up against the other hand palm down for emphasis: “I want you to walk like you’re selling it and the rent is due tomorrow.”

I could think of no better way to tell someone that is how you approach your money and your life’s work. Either be all in or don’t do it at all. Passion is what separates the have’s from the have not’s. And in that case, it was a $100,000 prize and modeling contract.

Get a financial education. Learn all you can about money. Make a plan or a budget for your money, but make it sexy. I know for some people talking about interest rates puts them to sleep, but how about we think of the subject differently and come at it from another angle.

I went to a meetup in DC and heard J. Money of BudgetsareSexy say this, “Do you want to learn how to balance a check book? Boring. Or do you want to learn how to save a million dollars?” WHAT?!!!

Did you also know reducing your 401(k) investment fee by 1% can provide you with 10 years of income? Shocking? Yes, I know. I can teach you how to save $1 million and keep $100,000!

Now, those things sound sexy and exciting. Yes,  please tell me more.

Once you have a question. Start looking for answers.

THE RULE OF 25

“I can never be safe; I always try and go against the grain. As soon as I accomplish one thing, I just set a higher goal. That’s how I’ve gotten to where I am.” – Beyoncé

If your annual expenses are $55,000 a year, then you need $1.375 million to retire (55,000 x 25) and then this should last you for the next 25 years.

The formula used to calculate your 25 years of expenses is this (expenses x 25 years).

Estimate your FIRE number.

You want more money to retire on? Like Beyoncé says, set a higher goal.

For $100,000 in income, you would need a $2.5-million-dollar portfolio to generate that kind of cash.

See chart.

Source: Camp Fire Finance 

THE RULE OF 300

Say your monthly expenses are $3,500, then you need $1.05 million to retire (3,500 x 300) and that should last you for the next 25 years.

As you can see, it is similar to the Rule of 25. It only differs slightly in we use monthly expenses versus annual expenses in this calculation.

Source: Four Percent Rule

THE FOUR PERCENT RULE

The 4% rule refers to your withdrawal rate: the annual percentage amount you can safely withdraw from your investment portfolio when you retire.

Therefore, if you want to withdraw $200,000, then you need a $5-million-dollar portfolio.

Source: Camp Fire Finance

THE THREE PERCENT RULE

“Keep your feet on the ground and keep reaching for the stars.” – Casey Kasem

The 3% rule refers to your withdrawal rate: the annual percentage amount you can safely withdraw from your investment portfolio when you retire.

This allows you to touch your interest earned at a slower pace. Since, you are withdrawing 3% instead of 4%. Meaning your draw down the principal more slowly, if ever. The more you have squirreled away and the less you take, you may not even touch the principal at all.

I know that is really shooting for the stars, but that really is the goal. You never want to touch principal. That way, you live only off the interest forever!

I got this chart from doing another online search and the best I came across was from the blog Financially Alert.

Source: Financially Alert 

LEVELS OF WEALTH

Only you can decide how much money is enough. However, if we go by Rockefeller, enough is always a little more. Basically, how much money is enough?

For purposes of simplicity, we will use the examples of enough money given by billionaire Mark Cuban.

Mark Cuban on enough money:

“‘Enough’ is what it takes to not worry about the bills.”

“‘A lot’ is enough that you never have to worry about working again.”

“‘F you’ money means you can rent a jet to go wherever you want, whenever you want, and no party is out of reach.”

“‘F everyone’ money means you can have your favorite band in your backyard, not care how much it costs, and lend them your jet to get there.”

We’re not talking about rich; talking about wealthy. Chris Rock once said, “Shaquille O’Neal is rich. The guy who pays his salary is wealthy.” He also said comfort is the poison. Too much of it can slow down your progress on the road to wealth. All I mean is to stay hungry. I’m just saying there are different levels of wealth.

FIRE IT UP

“Focus on all four of your net worth factors: increasing your income, increasing your savings, increasing your investment returns, and decreasing your cost of living by simplifying your lifestyle.” – T. Harv Eker

Simple math can help you retire rich.

Unfortunately, many people think of math as a foreign language and say it’s too hard to learn.

In my experience, to build wealth you need to know addition, subtraction, division, and multiplication. And that’s about it.

Why FIRE AT ALL?

More control and satisfaction over how you spend your time and money. Finding something you love to do and are passionate about is life changing and fulfilling. What you want is…FREEDOM. Waste less money and work with what you’ve got. Do more with what you have.

What do you want out of life? Write it down. Go seek answers. They say seek and you shall find.

According to Mr. Money Mustache, you should focus more on you than your bank account. Get wiser and healthier so you can increase your probability to get wealthier. My favorite quote of his is this: “Salads and barbells every day.” Become your best self with hard work, dedication, and consistency. Be the Boss.

READY, AIM…FIRE!!!

According to an article by Physician on Fire (POF), called What is fatFIRE?, a Facebook group defined FIRE as the following:

FIRE = Financial Independence. Retire Early.

leanFIRE = FIRE on a shoestring budget.

fatFIRE = FIRE on a generous budget.

Most aspiring to fatFIRE have a target of $2.5 Million or more or the equivalent annual budget of $100,000 or more based on a 4% withdrawal rate.

I found a breakdown of the terms financially speaking on Miniafi on the difference between lean and fat FIRE under the title So Many Terms!

I break it down like this:

LEAN FIRE = $1 million dollar or less portfolio

FIRE = $1.25 to 2-million-dollar portfolio

FAT FIRE = $2.5 million dollar or more portfolio

FIRE is about having enough passive income flows to never work again or to decrease the amount of time you spend doing work you don’t want to do and increasing it on the work you do want to do.

Financial Freedom, Financial Independence, Investing, Real Estate, Saving, Wealth

How not to be house rich, cash poor

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“If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.” —Edmund Burke

I remember watching an episode of Property Brothers and they were telling this couple that you do not want to spend too much or overspend on a home and end up being house rich and cash poor.

They instead wanted the couple to buy a fixer-upper, do some sweat equity, renovate the home, and put that money into their pockets.

Basically, when you buy a turn-key home, the work has already been done and you are paying the homeowners for the money they put into the home on renovations.

However, then you buy the house at a markup.

This is due to the fact that they may pay $20,000 for renovations and then the property may increase in value by $40,000 or double what they paid. Thus, allowing them to increase the purchase price of the property, ergo you pay them to renovate.

That’s pretty steep for move-in-ready.

If you do the work yourself, you get to keep the value that the home increases by.

This means buying a fixer-upper for $300,000 and putting in $20,000 for renovations will push the home value to $340,000 and let you keep the $20k in equity for yourself instead of putting it in someone else’s pocket.

If you read my last post, Save $10,000 by Avoiding PMI, then you know I am all about saving that paper.

So, let me show you how not to be cash poor, but house rich.

WHAT DOES HOUSE RICH, CASH POOR MEAN?

According to Investopedia, “house poor is a situation that describes a person who spends a large proportion of his or her total income on home ownership, including mortgage payments, property taxes, maintenance and utilities.”

Basically, you are paying more for your home than you can afford or simply buying too much home.

If you have to pay more than 40% of your income for your dwelling, then you will become cash poor.

Matter of fact, if the value of your home decreases, you can be both house and cash poor.

When you are house rich that means all your money or wealth is tied up in your home. The home equity may be something like $150,000, but you only have $1,500 in the bank. That is not even enough to cover one month’s mortgage payment!

In order to shift this, you would want $40,000 in the bank, and to owe less than $150k on your home. That $40k would be enough to pay one year’s worth of expenses including mortgage payments ($1,600 x 12 = $19,200).

You would need a fixed rate mortgage to help you do this.

STAY AWAY FROM VARIABLE RATE LOANS

The ARM, or “adjustable rate mortgage” loan is too dangerous. Any loan product that can change at the drop of a hat and without a moment’s notice is too risky.

Let’s think about this for a second. Why is anything at a drop of a hat so bad? Well, did you ever see the movie Tombstone?

The idiom is likely to have come from the Old West, when duels would begin with a signal consisting of a man grabbing his hat and thrusting it toward the ground, before weapons are drawn.

Is this any way you want any part of your life to be lived?! Absolutely, not.

Entertaining in the movies sure, but not for real life.

This type of trickery should be left out of the equation.

First, lenders approve you for wayyy too much. Second, they tell you it’s okay to only pay the interest when it’s really not. As you cannot get out of debt, without paying off the principal of a loan.

And going for the trifecta of trickery, the third thing lenders do, and this is the hat trick, your mortgage payments jump so high Bryce Harper couldn’t catch it!

Your mortgage payments spikes upward too sharply for most folks to keep up.

A reasonable $1,600 mortgage payment could reset and go up to $2,400 in a single month!

That’s no joke.

I had a conversation with someone this actually happened to. Shocks like this are hard for most people to fathom and continue to live comfortably.

A fixed rate loan allows you to plan the monthly budget in advance.

When you how much you monthly nut has to cover, you are just better off.

HOW TO BE CASH RICH

Buying a home for less than you can afford is a start.

If you are approved for $400,000, then slash this amount by 25%. This equals $400k x 0.25 = $100,000!

You heard me. Then bank says $400k, and then you say:  I’ll go $300k.

In one fell swoop, you both cut the amount of home you buy and monthly payment by 25%

You then take that $100,000 and over the course of the 15, 20, or 30 years you are paying your mortgage, you put this same amount into mutual funds.

You could do the S&P 500 index. Do whatever you want.

The goals are to simultaneously invest that money and pay down your mortgage.

For instance, that $100k over 30 years translates to investing $277 per month for 360 months. That would allow you to save anywhere from $500,000 to over $1 million depending on your rate of return through compound interest.

That means over a 30 year time period you have paid off a worth an estimated $300,000 or possibly more as home value may increase during this time and have an additional $800,000 in investments.

You would have a net worth of $1.1 million and would put you in the top 10% of wealthy households in America. See my post; Join the top 10% club for more on this.

WORDS OF WISDOM

A few words of wisdom to follow:

  • Buy less home than you can afford
  • Spend no more than 25% of your income on the housing payment
  • Invest the difference of the savings you received from not paying the full amount approved for
  • Stick to a housing budget
  • Have a god size emergency fund of 8 months or more

It sounds so simple, but most folks are actually living beyond their means and buying my house than they can afford. I have actually seen people in their 50s signing up for 30 year mortgages! Holy crap! The odds of paying off this home are slim at that age.

If you can follow the advice I give above, you could find yourself at the top of the economic pyramid.

Don’t believe me? Read my post Join the top 5% club and find out!