Episode 242: Wealth is the Luxury of Choice Not a Number with Kaitlyn Carlson
Do you know how much money you should be saving from your business? Do you know how to create wealth from your business? These are the tougher questions that can enhance your work especially if you're starting to get a handle on your business numbers.
How much should you have in an emergency fund? What would you need to do to take care of this business if say, a pandemic hit? This episode will have you think about all the different ways you can start building wealth for your business and have your money work harder for you.
Kaitlyn Carlson is the Founder & CEO of Theory Planning Partners, a boutique wealth creation firm for the top female entrepreneurs in the United States.
Before launching Theory Planning Partners, Kaitlyn spent the majority of her career at UBS Financial Services, Inc., where she held roles in both the southern and northeastern regions of the U.S. There, she developed more than 300 financial plans for clients with assets ranging from $500,000 to $1 Billion.
Subsequently, she became an advisor on a private wealth management team that managed over $600 million for a few dozen families. Her career began in asset management with Putnam Investments.
We are in great hands with Kaitlyn today, and I want you to notice what she says about discipline, freedom, and the true definition of wealth.
Journey to wealth management
Kaitlyn thought she was going to be an econ major, but when she got to college, she realized she was more interested in psychology. She majored in psychology but went to work for an asset management firm when she graduated.
She realized financial advisors were a combination of finance and psychology because they worked with people with and around their money. Finding her life calling, she shortly made the switch to wealth management.
“I had some professional nudges and then I had some personal influence that really started getting my brain ticking on, like, how do people think outside the box?” says Kaitlyn. “How do they create wealth? And it became very clear to me that in order to create wealth, you need to know the rules of the game, and you need to know how to play the game.”
Kaitlyn saw her uncle lose his restaurant. She saw her grandfather have to sell his home in Maine. She saw the financial stress in her family and felt responsible as the oldest child to learn and create a better future for her family.
What business owners should know about wealth management
When people start their businesses, Kaitlyn says the one thing she wishes business owners did was to calculate their financial freedom number.
“Context leads to intention,” says Kaitlyn. “When I was working with average Americans that were getting ready for retirement, the majority of them were not prepared for retirement, and it was because they didn't have this information earlier in time. And it's, you know, business ownership is not linear. It is a rollercoaster.”
She says the wealth creation journey is like ascending and descending a mountain. She says a lot of business owners will just put one foot in front of the other without having any idea of where they are on the mountain.
“Business ownership is half execution and it's half mental as well,” she says. “I think just when I think of wealthy people, they had the strongest habits I've ever seen, and it just comes down to having a really strong habits at the end of the day.”
Finance lessons for entrepreneurs
When it comes to an emergency fund, Kaitlyn recommends three months’ worth of expenses in cash. Personal emergency funds are similar, anywhere from three to six months of living expenses in a cash reserve. Risk tolerance and whether or not you’re living in a single or dual-income household will affect if you’re saving three- or six-months’ worth.
“Wealth is not a specific number; wealth is the luxury of choice. You want to put yourself in a position to have the luxury of choice as often as possible.”
Returning to the psychology of things, if you are stressed, you are not going to be creative or resourceful. You might be panicking. Kaitlyn says it’s ok not to force yourself to like the numbers. If you don’t love doing the bookkeeping, then become successful enough to hire a bookkeeper and delegate.
“Business owners that really start to rise above are the ones that are great delegate and recognize this is always going to be a weakness for me. It's never going to be something that I love. I have to hire an expert to advise me in this space,” says Kaitlyn. “That's where I've really seen the breakaway between, you know, the five figure and then the multi six, seven and eight figure is they're a fantastic delegators."
Kaitlyn says she thinks her biggest mistake in her first year was that while she was scrappy and wore all the hats in her business, she sat in perfectionism for a long time. She says that will hinder you as an entrepreneur because you have to get out there and get feedback.
“You have to revel in the mess … and soon enough you get comfortable.”
How to start building wealth
Kaitlyn says to start building wealth, you need to secure the recurring profitability of your business.
A mistake entrepreneurs might make is when their business has eclipsed their former salary and can cover their living expenses, they’ll enter a period of lifestyle creep. They’re making more money than they’ve ever made before and they’ll just go out and start spending it – neglecting the financial freedom number that needs to be funded.
“So we really try to catch people when they get to that point of, okay, now my business is doing really well. I'm starting to make more money than it costs to live my lifestyle. This is where I need to stop and assess what my plan is, what my intention is,” says Kaitlyn.
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