6 Lessons My Work Life Has Taught Me About Managing Finances

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In my last article (“How to Uncover Amazing Deals by Simply Changing Your Mindset”), I talked about how I used to have a Scarcity Mindset. To be quite honest, that’s all I was brought up with, and everyone around me for the most part had that mentality. In fact, most of my family and friends from my early years still think in this way.

So, how did I start to realize it and what made me change?

Just so we’re clear, Accumulation Mode has a tendency towards Scarcity just by its nature, and Utilization Mode has a tendency towards Abundance.

When I first got out of college, I was in Accumulation Mode. I had a Corporate America-type of job (for 13 yrs.) with benefits (security) and a retirement plan. Next, I figured all I had to do was to work hard and accumulate a nice nest egg so that by the time I was ready to retire, I’d be happy, I’d be set.

Related: 10 Things Only Personal Finance Nerds Would Understand

I would become rich off the plan that people who were managing my mutual fund investments sold me on — concepts like, Asset Allocation, Compound Interest, Diversification, and Dollar-Cost-Averaging. All I had to do to increase my nest egg was to sacrifice, defer delay, scrimp and save, and I’ll be set. It wouldn’t be long before I’d have significant net worth, and my wife and I would be happy and secure. One day, someday, we could have all the nice doo-dads and material things we always wanted. We just had to be careful that we didn’t go after anything with too high of a return because that might be too risky, and of course you can’t jeopardize your retirement.

The irony is these same types of concepts were something I was presenting to clients years later when I was selling insurance as a financial planner. Now, I’m not saying all financial planners are bad or evil, but looking back, most of what we were selling was commission-based insurance products. I knew things weren’t right when I asked my boss about a policy for my family, and he told me, “Oh, you don’t want that” (what I’d been selling to everyone I knew). He said, “You want this.”

So, here are some of the things I learned in the fifteen years after college while I had worked in a “real,” secure job with benefits — and then later as a planner. I’ve also included even more lessons I learned in the following 15 years as entrepreneur, RE and note investor, and owner of multiple businesses.

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6 Lessons My Jobs Have Taught Me About Finances (and Life)

1. I’ve never met anyone who’s gotten rich off Compound Interest, other than a bank.

I’m all about making my money work harder than me, but the only time I’ve ever lost a lot of money is when I gave up control and gave it to someone else. My luck diversifying in mutual funds was a disaster.

Years later, when I was trading options, I realized that even though my knowledge was limited, I could probably do better than the majority of planners (without all of the fees) by simply putting some money in an S&P Index Fund and some proportionately in a bond fund based on my age, through a Vanguard or E*TRADE type of company (low fee and cost).

2. I thought my wealth was determined by my Net Worth on a balance sheet and that Security was derived from accumulated money. It’s not.

When I was 42 years old and I got hurt, I had to get out of the painting business that I had been developing for the last 10 years. It turned out that it was the positive Cash Flow from my 40 rental units and the high yields on my Private Money rehab loans that I gave to RE investors that enabled me to survive — not the $2 million in Equity that I had (before the RE crash). Equity or Net Worth on a balance sheet doesn’t pay the bills.

Today, I look at wealth as things like health, happiness, relationships, skills, and knowledge, as well as the person I’ve become along the way to becoming successful.

3. I learned to get rid of the “Do-It-Yourself Mentality.”

This comes from the Scarcity Mindset as well: “Nobody does it as well as me,” “I can’t afford to hire anyone,” or “I need to reduce expenses.”

I’ll tell you this: as I delegate as much as I can to my 20+ employees, and as I try to work as much as possible on my business instead of in my business — I know that none of the successful folks I’ve encountered did it alone.

I heard a good saying recently that states, “If you don’t have an admin, you are an admin.”

I get that the live below your means concept has some value, but most of us tend to cut back on the wrong things. For example, I watched people in my family wipe out three estates and thousands and thousands of dollars unnecessarily because they wanted to save a grand or two by not hiring an estate planning attorney. People often make the mistake of cutting back in the wrong areas or with the wrong advisors.

4. I found out the benefits of secured and collateralized investments.

When I was in my Accumulation Mode, I didn’t realize I was playing with investments that were unsecured and uncollateralized. I didn’t know enough about other investments out there that are secured and collateralized (i.e. Real Estate and Notes). In most cases, if the Cash Flow stops, the physical asset can be sold or leveraged. You can also jump in to try to improve the situation.

Even trading stock options, you can insure your trades with Puts and Calls, employing Stop Losses, etc. — none of which were ever explained to me by my old stock broker.

5. I discovered that “higher risk means higher returns” was another bad myth.

The irony here is that it should say, “The less control you have, the more risk you take on.”

Let’s face it: any time you invest, it’s got to be a clear value proposition — because, after all, we’re really investing in the people behind the production, strategy, or service. Once I invested heavy in a company that did flak jackets during the Iran/Iraq war. It was a great company on paper… until management ran off with all the money, and I lost my shirt.

6. I learned new perspectives on retirement.

Retirement was all my father and father-in-law talked about. They couldn’t wait because in their minds all that hard work and suffering or delaying and deferring would pay off. But the truth is that none of that happened. They never had much time to really be happy. They both passed away shortly after they retired.

I’m not sure I ever want to retire (or die). As Alan Greenspan said when asked about retirement, “What do you want me to do, stop thinking?”

For me, it would mean I’m no longer living my life’s purpose. I hope I never have to stop helping people or stop having a real impact. For example, the main purpose of our business is to teach others and help them to build and preserve their wealth, which is why I’m not in a rush to retire.

Conclusion

So, while you are working towards your goals, which mode are you in?

For example, if you’re storing your capital in a savings account, you may be in accumulation mode, but the bank you use is certainly in utilization mode, using your money to make more money.

Related: How to Think Big to Achieve Big Financial Dreams

If you’re putting your cash, equity, etc. to work today to create cash flow streams for yourself and/or your family, you are definitely in utilization mode. Utilization mode is focused on finding ways to operate more efficiently in order to increase production or velocity.

Whether you’re in utilization mode now or if it’s a shift that you are considering, let’s all try seeking ways to maximize our usefulness and strive to lead more meaningful lives of Abundance.

Are you in utilization mode when it comes to business and finances? What are the most important lessons you’ve learned from working?

Don’t forget to leave a comment!

About Author

Dave Van Horn

Dave Van Horn is President at PPR The Note Co. - an operating entity that manages several funds that buy/sell/hold residential mortgages, both performing and delinquent. Dave has been in the Real Estate business for 25 years, starting out as a Realtor and contractor and moving onto everything from fix and flips to Raising Private Money.

17 Comments

  1. Larry Russell

    Nice article. I’m definitely in the utilization mode. I’m currently focused on learning how to operate more effectively and efficiently in order to create more cash flow streams for me and my family. I’ve gotten rid of the “Do-It-Yourself Mentality” a long time ago. I believe in paying the professionals to get the job done right the first time. The next step is to find ways to outsource parts of my business while working a full-time job.

    • Dave Van Horn

      Hi Larry,
      Although I believe that we’re all in both modes sometimes, it’s good to see that you’re leaning towards the utilization mode. It’s also good to see that you’re starting to work on your business vs. just in your business. Many people aren’t so willing to delegate. Thanks for reading!
      Best,
      Dave

  2. Scott Trench

    Thanks for this article. i think personally I apply your mindset with a little tweak. I like to accumulate and do everything! But just once or twice. Then, I can teach or pay someone else to do it going forward. It gives me insurance where someone else fails I can go in and mop up. It also ensures that I understand the scope of work, the effort involved in various projects, and the return on time.

    I believe that I only get the experience to make great decisions through a year’s long application of the scarcity mindset. I actually think that the scarcity mindset is what begets the abundance mindset.

    • Dave Van Horn

      Hi Scott,
      I get where you’re coming from, and I agree that in a lot of cases it does pay to know and understand the process of your endeavor. I also agree that we all accumulate to a degree before we can utilize what we’ve accumulated, but some people never shift from accumulation to utilization mode for fear of failure. I think that’s where it really breaks down. Thanks for your comment!
      Dave

  3. Frankie Woods

    Dave, I enjoyed the article and agreed with most of your points. However, I believe compound interest is absolutely essential for wealth building. Investopedia defines compounding as “The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.” To the average investor, this is really the only means towards wealth, unless you get lucky. Re-investing earnings is the key to success in my personal opinion and one of the surest ways to “make it”. With that out the way, still are very solid article!

  4. Alan Mackenthun

    “5. I discovered that “higher risk means higher returns” was another bad myth. The irony here is that it should say, “The less control you have, the more risk you take on.””

    Exactly. Everyone’s pushed into stocks and mutual funds, but they’ve got next to no control over the companies and managers in between not to mention the general market fluctuations and economic cycles. In real estate you’ve got something you can touch and feel. It generates income and you can improve it. Sure there are risks, but most are insured.

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