Posted on: May 2, 2013

Financial Literacy: It’s Never Too Early To Start Planning

Financial Expert, Entrepreneur, Author of The Cold Hard Truth on Men, Women and Money, and  colourful television personality, Kevin O’Leary shares his insight with Media Planet on how to gain control over your financial situation.

■ Mediaplanet: In your book The Cold Hard Truth on Men, Women & Money, you reference the great financial values your mother passed along to you. What would you recommend to the modern parent who is trying to instill similar values in their children?
Kevin O’Leary : My mother instilled values that basically say money is going to be a part of your relationship with the world for the rest of your life; you’re either going to have a really good relationship or a really bad relationship with it. Her concept was basically to not spend too much, mostly save and invest savings. So when you’re in your mid 30’s or 40’s you’re out of debt and you’re starting to build a nest egg; it’s a very pragmatic approach to life.

■ MP: What budgeting advice would you give someone who has never lived within their means and has acquired a mass amount of debt?
KO: You need to calculate your “90 day number”, which I outline in my book. You need to look at your life over a three month period, add up every source of income and subtract from that every expense you’ve got. You’ll get one of two answers, you’re both making money and slowly building wealth or you’re going further into debt and losing money. If you find yourself in a negative number
you absolutely have to change your lifestyle then and there. There is no way on earth you can sustain losing money every 90 days.
■ MP: What advice would you give to someone who is just getting their finances on track and finally has some money to invest?
KO: There are many good advisors, lots and lots of people who can help. There are some very basic rules. In my view you need to own a portfolio in half bonds and half stocks; everything should be generating a dividend or interest, I don’t own any securities that don’t. No more than five percent in any one stock and no more than 20 percent in any one sector. If you do that you will
be fine. You’ll generate anywhere between five and seven percent per year, never spend the principle only the interest and adjust your lifestyle accordingly. These are very simple basic rules and if you adhere to them life is a beautiful place. But if you don’t you put a tremendous amount of stress on yourself and your family and often it will end in ruin.

■MP: Are financial woes becoming an epidemic? How can they be fixed?
KO: Yes, we need to do more education at an early age. I talk about a thesis where you start teaching children about money at age 5. What’s good about it, what’s bad about it, the concept of debt and the concept of time and money. So when children work, they get paid, or when they use their time wisely they are rewarded financially. I think we have not done a very good job in society. We teach them about math, geography, sex education and not money, how stupid is that? I think people have ignored it for a long time; that they assume it’s something everyone learns or gets from osmosis just by being in society. A bad relationship with money starts early in life; the time to start talking about money with your children is never soon enough.

■MP: Can you apply a business perspective to personal finances?
KO: Yes and no. Basically the 90 day number applies to governments, business and people. You need to understand you can’t live beyond your means. It doesn’t matter who you are. It’s the essence of life. I consider money a family member; it sits at the dinner table with us. That’s how you should embrace what money is. It’s ubiquitous; it’s always there, it’s your greatest ally or it’s your worst nightmare and enemy. Many people find later in life money ruins them; they never figure it out and find themselves in horrific debt, which is a terrible place to be in your 50’s, 60’s and 70’s.

■MP: What was the worst investment you have ever made and what did you learn from that mistake?
KO: I’ve made many bad investments and I’ve made many good ones. I’ve learned that the most important lesson is diversification; I never bet the farm, I have never made an investment so large that if it fails I’m ruined. What I do is bet up to five percent of my portfolio on any one opportunity and hopefully it works. Diversification is the biggest lesson I’ve learned; from it I have a balanced approached. I do lots of venture investing that I ensure I can manage if they go to 0. That’s the key, never bet the farm.

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