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00:01:34.680 | Hello, and welcome to another episode of All The Hacks, a show about upgrading

00:01:41.360 | your life, money, and travel.

00:01:42.960 | I'm your host, Chris Hutchins, and each week I sit down with the world's best

00:01:46.600 | experts to learn the strategies, tactics, and frameworks that shape their success.

00:01:50.600 | Today, I'm talking with Sam Dogan, known online as The Financial Samurai.

00:01:55.360 | His website is one of the top personal finance destinations with over a

00:01:58.720 | million visitors each month.

00:02:00.040 | He's been writing there for over a decade and there is so much good content.

00:02:03.880 | The first time I found myself on your site, I think I ended up with at least 50

00:02:08.480 | tabs open and I've read them for hours.

00:02:10.880 | And this summer, his first traditionally published book came out called Buy This,

00:02:15.200 | Not That, How to Spend Your Way to Wealth and Freedom.

00:02:18.720 | And it's already a Wall Street Journal bestseller.

00:02:21.200 | He wrote the book to try to take the guesswork out of financial planning and

00:02:25.240 | shows readers exactly what to buy, how much to spend, and how to optimize every

00:02:29.880 | dollar they earn so they can maximize their wealth building and live life on

00:02:34.000 | their terms.

00:02:34.760 | We're going to talk about the seven core principles of a financial samurai, how

00:02:39.120 | Sam engineered his own layoff and the principles you can use to do it yourself

00:02:43.000 | if you're thinking about changing jobs, how real estate can be a big source of

00:02:46.960 | passive income without actually needing to collect and manage dozens of rental

00:02:50.760 | properties around the globe, why we should all consider having our own online

00:02:55.600 | real estate, small business, or even side hustle, his 70/30 rule for decision

00:03:00.680 | making, especially when it comes to taking risk.

00:03:03.000 | And because Sam is a few years ahead of me in the parenting journey, I have a few

00:03:06.840 | questions on that topic as well.

00:03:08.520 | So let's get started.

00:03:09.960 | Chris Hutchins works at Wealthfront.

00:03:11.880 | All opinions expressed by Chris and his guests are solely their own opinions and

00:03:15.720 | do not reflect the opinion of Wealthfront.

00:03:17.920 | This podcast is for informational purposes only and should not be relied

00:03:20.920 | upon for investment decisions.

00:03:22.280 | Sam, congrats on the bestseller.

00:03:24.800 | Welcome to the show.

00:03:26.000 | Hey, thanks so much for having me.

00:03:27.800 | It's an honor and I appreciate the intro.

00:03:30.000 | You write a lot about money, but like you do in the book, I want to start with

00:03:33.680 | talking about the point of all these financial optimizations.

00:03:36.160 | Surely it's not just to be a Scrooge McDuck sleeping on a pile of cash, right?

00:03:40.920 | If money is a means to the end, what is that end?

00:03:44.000 | You know, that's absolutely right.

00:03:46.360 | The reason why money is not the end goal is because it's just a tool.

00:03:51.200 | It's just a made up tool to help try to buy things that will

00:03:55.200 | provide for a better lifestyle.

00:03:56.520 | If money was an object, the sole object for me, I would have kept on working in

00:04:01.240 | banking after my 34th birthday, but I decided enough was enough.

00:04:06.160 | I didn't like it anymore.

00:04:07.280 | After the 10th year and after the global financial crisis, I was like, this is not

00:04:11.280 | really what I want to be doing with my life.

00:04:13.560 | I wanted to have more purpose.

00:04:15.040 | I wanted to feel that I was helping people, just regular people more.

00:04:18.600 | So I left.

00:04:19.520 | I left in 2012 at the age of 34 and I haven't been back to a day job since.

00:04:23.640 | You define happiness as progress.

00:04:26.240 | Is that right?

00:04:26.760 | That is my one word definition of happiness.

00:04:29.880 | Progress.

00:04:30.560 | Whether it's progress in your finances, in your relationship with your significant

00:04:34.840 | other, with your children, with a hobby that you're trying to get better at.

00:04:39.760 | Progress is my one word definition of happiness.

00:04:43.400 | Is that the end goal is just making progress towards all the things you care

00:04:46.640 | about, is that how you view what money allows you to do or what life's for?

00:04:51.160 | It's like one of those interview questions.

00:04:53.800 | Like, what is that one word, right?

00:04:55.480 | So that would be my word, but I don't know if that's the end goal.

00:04:58.400 | I think we always need to try to improve ourselves in whatever endeavor we take on.

00:05:04.200 | We should probably try to challenge ourselves in something that's a little

00:05:08.240 | bit scary, a little bit impossible sounding so that at least we don't look

00:05:12.400 | back with regret, having not tried our best or having not tried at all.

00:05:16.280 | I want to go back to you.

00:05:18.040 | You started down this road of being 34 and leaving your day job.

00:05:21.440 | I know you engineered a layoff to leave that job.

00:05:24.200 | And I know you've actually written a book with now five

00:05:26.240 | editions about doing that.

00:05:27.720 | So first, how did you know that an alternate path would be the

00:05:31.440 | right move for your career?

00:05:32.720 | And then I also want to get to how others can use some of those tactics

00:05:35.680 | to engineer their own layoffs.

00:05:37.000 | I started Financial Samurai July, 2009.

00:05:40.440 | That was literally the bottom of the global financial crisis.

00:05:43.280 | I'd lost 35% of my net worth in six months.

00:05:46.240 | That took 10 years to accumulate.

00:05:48.640 | So I was really bummed out and I had graduated from business school

00:05:51.600 | part-time in 2006 and wanted to start Financial Samurai, but I didn't

00:05:56.000 | because I always had these excuses not to.

00:05:57.880 | I said, I want to go give back to my firm because they paid for

00:06:01.640 | 80 plus percent of my tuition.

00:06:03.320 | Let's just focus.

00:06:04.520 | But then when the global financial crisis hit, I was thinking

00:06:07.440 | to myself, man, I need a backup.

00:06:09.440 | I need to start doing something new so that if I were to get laid

00:06:13.880 | off, I could write on Financial Samurai.

00:06:16.800 | And so Financial Samurai gave me that purpose, do something new to

00:06:21.080 | find something that I was passionate about, which was writing and

00:06:23.960 | connecting with people all over the world.

00:06:26.120 | And it was in October, November, 2011, the year before I left banking

00:06:30.600 | for good, where I was in Santorini, Greece and it was 78 degrees sunny.

00:06:35.760 | I was hiking up the crater and for two hours, and then suddenly I was like,

00:06:40.000 | oh, there's like a nice bar with wifi.

00:06:42.440 | I was like, oh, let's have a beer.

00:06:44.320 | And there's an eight euro Mithos beer.

00:06:47.080 | I was like, wow, that's expensive, but give me one.

00:06:49.120 | How often am I going to go back to Santorini at the top of the crater?

00:06:52.640 | And in my inbox on my phone was a email from this advertising

00:06:58.360 | client in the United Kingdom.

00:06:59.680 | And he said, hey, Sam, I want to advertise on your website.

00:07:03.680 | I'll put up this link and I'll pay you.

00:07:05.880 | I think it was $1,100.

00:07:07.520 | I said, oh, $1,100.

00:07:09.320 | I'm actually closer to you right now than I am when I was in San Francisco.

00:07:12.920 | So, I was like, okay, send me the code.

00:07:15.280 | I will try to put it up on my phone.

00:07:17.440 | And it was still pretty novel at the time, right?

00:07:19.280 | 2011, iPhone, wifi.

00:07:20.880 | And then within 30 minutes, he PayPal'd 1,100 bucks.

00:07:24.920 | And I was thinking to myself, whoa, that's good money.

00:07:27.520 | And I was like, give me another beer.

00:07:30.200 | And that was when I thought, ah, there could be a life after banking and I enjoyed

00:07:35.000 | writing and I knew I wouldn't starve if I was able to negotiate a severance.

00:07:39.360 | So, there's two components there.

00:07:41.120 | One I want to ask is, did you actually, when you decided to leave, get Financial

00:07:45.400 | Samurai to a place that it was going to replace your job or did you more just get

00:07:50.080 | it to a place that you saw an opportunity to do something different?

00:07:54.040 | So, my goal, first of all, was to save and invest at least 50% of my

00:08:00.440 | after-tax income every year until age 40.

00:08:03.720 | But I didn't last till age 40, I lasted until age 34.

00:08:07.320 | And the reason why was because I was able to negotiate a severance because during

00:08:12.640 | the global financial crisis, you know, talk about making lemonade, I saw many

00:08:16.760 | people get laid off and some of them were my friends.

00:08:19.120 | So, I asked them, "Hey, is everything okay?

00:08:21.760 | Can I help you find a job?

00:08:22.960 | Do you want to interview with me?

00:08:24.240 | You know, I'm still surviving."

00:08:25.440 | And a lot of them were thankful and we tried, but I also asked them, "Are they

00:08:29.400 | okay?"

00:08:29.760 | And they said, "Yeah, I'm okay because I got a severance equal to two to three

00:08:33.240 | weeks per year work, two to three weeks worth of pay."

00:08:36.000 | And that was when I realized, "Oh, well, come 2012, I will have been at my

00:08:41.760 | previous firm Credit Suisse for 11 years.

00:08:44.400 | So, if they gave me two to three weeks worth of severance, that's 22 to 33

00:08:49.920 | weeks, and if they could give me my deferred compensation because I was an

00:08:55.040 | executive director then and I had three years of deferred compensation in stock

00:08:59.720 | and cash and a private investment that they made us buy in 2010, which were full

00:09:05.720 | of those "toxic assets", if I could get that severance and all my deferred

00:09:09.560 | compensation, there was no reason why I shouldn't take that leap of faith

00:09:14.200 | because it bought years of living expenses.

00:09:17.240 | Now, most people listening to this are not - I mean, hopefully we aren't in the

00:09:22.960 | middle of a global financial crisis, maybe just like a minor recession.

00:09:26.600 | But are the tactics you use something that anyone could use or are they really

00:09:31.440 | dialed into, "I'm in the financial company in the middle of a financial crisis?"

00:09:35.720 | Yes, these are the tactics that anybody in any organization can use.

00:09:41.520 | Because the biggest pushback I have is why would anybody give me a severance

00:09:46.080 | if I'm a decent employee, right?

00:09:48.040 | I'm great, whatever.

00:09:49.960 | The point is, if you want to leave anyway and your heart is not into it, your

00:09:54.640 | employer doesn't really want you, they want someone who's hungry, who wants to

00:09:58.320 | do their best to stay overtime, do whatever and if you are a manager in this

00:10:03.080 | environment, still in this environment, it is very hard to find a replacement.

00:10:06.760 | It could take three months, six months and once you find the replacement, it

00:10:11.120 | could take three to six months to train them to be up to par with your level.

00:10:16.640 | And so, if you say, "Peace out, see you later, two weeks notice", you actually

00:10:21.680 | leave your colleagues and your manager in a lurch, they're going to be scrambling

00:10:25.640 | to find your replacement and they're going to be suffering while they're

00:10:28.320 | looking for your replacement.

00:10:29.560 | And so, the idea of negotiating severance is to think about the classic win-win

00:10:34.440 | scenario, how can you help your colleagues and your manager find your

00:10:38.360 | replacement, provide seamless transition during that replacement finding and

00:10:43.320 | train them so that when you leave, hopefully they'll save money and they'll

00:10:46.880 | replace you with someone who's hungrier, cheaper and just more motivated in

00:10:51.640 | general.

00:10:52.040 | And so, that's the simple trade-off, it's I'm going to help you make this

00:10:56.240 | transition easy and in return, you're going to give me money or vested stock

00:11:01.120 | or something and how have you seen that work?

00:11:04.120 | I'm sure you've gotten readers write back, say, "This worked, it didn't work",

00:11:07.400 | what's the kind of hit rate?

00:11:09.080 | The hit rate is high, it's like 80 plus percent and a lot of people just come

00:11:14.680 | back to me and say, "I cannot believe I was able to leave on my terms".

00:11:19.120 | I mean, a severance can not only be just a severance check but it can be, "Hey,

00:11:23.960 | how about work three days a week out of five and we'll still pay you the same

00:11:28.520 | amount of money?"

00:11:29.120 | So, if you're working 40% less, that's kind of like getting a 60% raise.

00:11:32.400 | If you do that for six months, a lot of people will be like, "Hey, I'll take

00:11:35.600 | that, I mean, that's pretty good, don't have to work for two days a week, shut

00:11:38.440 | it off and do my own thing".

00:11:39.600 | So, it's really great and a lot of people have just surprised and shocked by how

00:11:46.040 | they were able to negotiate something that they thought was not possible.

00:11:49.240 | And in this day and age, I think the reason why a lot of people will ghost

00:11:53.120 | people on the phone, text message, email or not, you know, they want to just

00:11:58.160 | break up over the phone is because they're afraid of confrontation.

00:12:00.720 | And that's, I would say like natural but it's also kind of cowardly, right?

00:12:04.840 | You want to face your oppressor, you want to face the people who could help

00:12:09.560 | you and say, "Look, these are my reasons for leaving, I've been a loyal soldier".

00:12:14.000 | And the other thing is companies are afraid of backlash.

00:12:17.720 | This is one of the things that companies are really afraid of.

00:12:20.200 | There's social media, there's bloggers, you can blow up a company online and say

00:12:25.240 | like a lot of bad things and like a tell-all, that's the last thing a company

00:12:29.280 | wants, that's reputational damage.

00:12:31.720 | And so, companies understand this, they don't want to get into a long litigation

00:12:35.200 | process, they don't want to get their reputation smeared, so they want to work

00:12:39.320 | with employees who've actually been there for at least a couple of years, three

00:12:42.520 | years, and try to come up with a win-win scenario.

00:12:45.480 | Is that metric that you had at Credit Suisse of two to three weeks pay for every

00:12:51.240 | year worked, is that a general benchmark that kind of still applies or what do you

00:12:55.400 | think is a broadly applicable benchmark for a severance package?

00:13:00.000 | One to three weeks and three weeks being at the high end, maybe four weeks, but

00:13:04.120 | it's usually one to three weeks and there's one thing that people don't really

00:13:08.200 | understand and that is to differentiate between the Warn Act, which is a worker

00:13:13.840 | adjustment training notification and a severance.

00:13:17.160 | So, Warn Act pay is reserved for larger companies, usually I think it's in the

00:13:21.880 | hundreds or thousands of people and they do a mass layoff, they're mandated by law

00:13:27.120 | to provide one to three months of pay, that's by law, mandatory, whereas a

00:13:33.000 | severance is optional.

00:13:34.240 | A severance is the company can pay you or they won't pay you, right?

00:13:39.960 | And so, the idea is a lot of people who get two months, they think it's severance,

00:13:43.960 | but it's actually mandatory Warn Act pay, severance goes above and beyond that.

00:13:47.640 | I know there are a lot of people listening who might want to use some of these

00:13:50.800 | tactics, so I'll link the book in the show notes because we're not going to spend a

00:13:54.640 | whole episode on how to engineer layoff, though I'm sure we could and can people

00:13:58.400 | reach out if they have questions or how do you feel about comments and feedback?

00:14:01.720 | So, yeah, just go check out financialsamurai.com to buy How to

00:14:07.240 | Engineer Layoff.

00:14:08.240 | It's about severance negotiations and I also have a lot of articles online about

00:14:12.600 | severance negotiations for free.

00:14:14.120 | So, you just Google "severance negotiation financial samurai", leave a

00:14:17.320 | comment and I'll be able to see it because I can see it from the back end and if you

00:14:20.800 | have a question, I can respond to it.

00:14:22.800 | So, you end the new book with seven principles.

00:14:25.280 | Is there one that stands above the rest?

00:14:27.120 | Well, the one core principle that I have held on to for as long as I can remember,

00:14:32.600 | maybe since middle school, is to never fail due to a lack of effort because effort

00:14:38.080 | requires no skill.

00:14:39.440 | And this is really, really an important principle because life is not fair.

00:14:44.760 | Some people have better advantages than you, wealthier parents, some people are

00:14:49.160 | stronger, naturally smarter.

00:14:51.120 | Whatever the case may be, the playing field is never, ever, ever fair and we have to

00:14:56.640 | accept that.

00:14:57.280 | But if we never fail due to a lack of effort, that means we are always going to try

00:15:02.680 | our best and if we lose, it's not going to be because we didn't try our best.

00:15:07.400 | It can be because the opponent was faster, quicker, smarter, whatever it is, more

00:15:12.040 | connected.

00:15:12.640 | But if we do our best, we're always going to be satisfied and we'll never look back

00:15:18.680 | with regret having not tried our best.

00:15:21.720 | Is there a reason why you chose to have seven principles?

00:15:24.520 | It seems like this is the core principle that you live by and have for a while.

00:15:28.680 | Does it deserve to be elevated to be the core or what do you think about that?

00:15:33.120 | Life is complicated.

00:15:34.640 | There are a lot of different things and so, if you can adopt this core principle in

00:15:39.080 | everything you do, whether it's doing a podcast, writing at your job, raising a

00:15:44.480 | family, the key really is to - I just hate looking back on life with regret and if

00:15:51.800 | you've seen - what is that wonderful movie at the end, Inception or actually at the

00:15:56.280 | beginning, I don't want to be an old man full of regret, dying alone.

00:16:00.440 | So, that's just the idea behind that core principle.

00:16:04.760 | I also want to talk about the last one, about thinking in probabilities and not

00:16:08.160 | absolutes.

00:16:08.880 | I know you have a framework for decision making.

00:16:11.680 | I know you also are a big fan of Annie Duke's thinking in bets and I'll just

00:16:15.840 | preface that she's coming on the show next week, we're going to record an episode

00:16:19.360 | all about this, but I know you've adapted your own rule, the 70/30 rule and I'm

00:16:24.440 | curious how people can start to use that in their lives.

00:16:26.960 | Yeah.

00:16:28.280 | So, it is very important to think in probabilities and not absolutes, so you

00:16:32.600 | don't miss out on opportunities.

00:16:34.680 | Think about if you had to feel you needed 100% certainty to make a decision, how

00:16:40.360 | many opportunities would pass you by, whether it's job opportunities, whether

00:16:45.240 | it's the girl or boy that you like, that you were too afraid to ask out because

00:16:48.760 | you were afraid of rejection.

00:16:49.920 | It's such a shame to have to think in 100% probability and if you think about

00:16:54.920 | it as an investor, investors don't think in 100% probabilities.

00:16:59.720 | They think if I can get my investments right at least 51% of the time, I'm going

00:17:05.920 | to make a lot of money over decades.

00:17:09.120 | And so, my idea is to create a 70/30 decision-making framework which states,

00:17:15.000 | if you believe with a 70% probability or greater your decision is the correct one,

00:17:20.600 | the right one, then go with it with 100% conviction while having the humility

00:17:25.280 | knowing that 30% of the time, hopefully less, you'll get it wrong and so long as

00:17:30.400 | you don't die or something catastrophic happens, you're going to learn from your

00:17:34.560 | mistakes and get better over time.

00:17:37.560 | And so, your other question was, how do we hone that decision-making

00:17:42.360 | probability framework?

00:17:43.920 | And again, if you adopt everything with a probability matrix, it helps you in

00:17:50.360 | making better decisions.

00:17:51.320 | For example, Golden State Warriors, right?

00:17:53.840 | Let's say it's NBA playoffs, you know, I love the Warriors and you start thinking

00:17:57.680 | about, okay, before the game starts, who's going to win and by how much and then

00:18:02.760 | after the game is over, you'll find out who won and by how much and then you will

00:18:06.120 | basically compare the results to your estimates and you will hone your skills

00:18:11.320 | over time and I think you'll be able to look at things in a probability matrix

00:18:16.120 | and get better.

00:18:16.640 | And it's not just basketball or who's going to win the dog show or how long

00:18:21.560 | your friend's marriage is going to last or whether they get into college or

00:18:24.760 | whatever, it's everything.

00:18:26.960 | Once you start looking at things in a probability matrix, things change and

00:18:31.160 | that is one of your key competitive advantages.

00:18:34.320 | Is there a common financial decision that you think people make where adopting

00:18:38.080 | this framework would change the way they approach it in a positive way?

00:18:42.040 | Well, I think as an investor, you have to be humble and you have to always accept

00:18:48.960 | that you will lose money.

00:18:50.680 | That is the price you pay for putting money to work.

00:18:53.520 | You will lose money, so accept that.

00:18:56.440 | And once you accept that loss, you will be okay once you finally do start losing

00:19:01.440 | money and I think that is the thing that a lot of people have a problem with and

00:19:05.840 | that's managing fear of allocating their capital towards something that could

00:19:10.160 | make them money or could lose them money because we all know the pain of losing

00:19:13.640 | money is greater than the joy of making money.

00:19:16.200 | So it's being able to accept that loss and try to improve your investing

00:19:20.480 | probability going forward.

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00:20:05.360 | And since I know you like a good deal, Drizzly compares prices on their

00:20:08.840 | massive selection of beer, wine, and spirits across multiple stores.

00:20:12.520 | So when I really wanted to make a few cocktails while we were hosting family

00:20:15.880 | last week, not only could I get an Italian Amaro delivered in less than an

00:20:19.720 | hour, but I found it for $15 less than my local liquor store.

00:20:23.800 | So whatever the occasion, download the Drizzly app or go to drizzly.com.

00:20:28.520 | That's D-R-I-Z-L-Y.com today.

00:20:32.440 | Must be 21 plus, not available in all locations.

00:20:35.800 | I want to move on to another topic that I know is a big component of your

00:20:41.200 | passive income, which is real estate.

00:20:42.800 | Seeing the internet of people talking about financial independence, it seems

00:20:46.800 | like everyone's goal is to just accrue more and more and more rental properties

00:20:50.400 | and then graduate to buy apartment complexes.

00:20:53.320 | And I've always been someone who didn't want to manage being a landlord.

00:20:58.720 | And so I've maybe gone the other direction, which is like real estate.

00:21:02.000 | Let's just not focus on it much.

00:21:03.520 | Yes, we own a home and some REITs, but then you kind of have this middle

00:21:07.560 | approach, at least my perspective from reading the book and your site.

00:21:11.440 | And I'm just fascinated about finding a middle ground in having real estate

00:21:16.160 | be a part of your portfolio without having to be a landlord, at least as much

00:21:20.160 | of a landlord as some.

00:21:21.160 | So the reason why I heavily invested in real estate was because I worked in

00:21:26.920 | equities, banking equities.

00:21:28.520 | So my compensation, my promotion schedule, all that was tied to the stock market.

00:21:33.040 | So 50% of every paycheck and 90% of every year in bonus was allocated towards real

00:21:41.400 | estates to diversify my network.

00:21:43.360 | And essentially my framework and my recommendation to the average person is to

00:21:48.200 | get neutral real estate as soon as you believe you're going to be in one place

00:21:51.760 | for five, 10 years and neutral real estate just means owning your primary

00:21:56.080 | residence, it means you're going up and down with the market, you're short real

00:22:00.560 | estate, short if you're a renter, because you're a price taker of ever rising

00:22:05.480 | rents and as prices rise, property prices, you're also getting hurt because it

00:22:10.360 | costs you more to buy if you ever want to buy.

00:22:12.360 | The only way to be long real estate, not the only way, but the main way to be long

00:22:17.920 | real estate is to own more than one property.

00:22:20.120 | That is the way you benefit from real estate appreciation because you can sell

00:22:24.240 | your rental property and you can collect rents.

00:22:26.720 | And so my advice for people is to buy around age 30 or so and hopefully you

00:22:33.800 | have a stable job and you found a place you like to live in, to get neutral,

00:22:39.320 | live in it for three to five years, love it, enjoy it, accumulate that other

00:22:44.680 | down payment, buy another place, live in it for three to five years and do that

00:22:49.920 | over and over again, let's say up to your limit where you can no longer deal

00:22:55.480 | with managing tenants and property.

00:22:57.840 | And that limit is different for everybody.

00:23:00.320 | And that limit can go higher or lower depending on if you're comfortable

00:23:03.480 | hiring a property manager.

00:23:04.640 | For me, I found that that limit was four properties, primary residence

00:23:09.600 | plus four, and that was it.

00:23:11.760 | And they were all in San Francisco.

00:23:13.200 | So I was highly leveraged San Francisco real estate in the economy.

00:23:16.400 | But after I had my son in 2017, I just didn't want to manage that

00:23:22.160 | many properties anymore.

00:23:23.520 | So I sold one, my main one, because there was a ton of turnover, a ton of

00:23:27.480 | problems, and I reinvested about 550,000 of the proceeds into private real

00:23:34.640 | estate deals, private real estate funds and syndication deals across the

00:23:39.280 | heartland of America, because I wanted some of the proceeds to continue to be

00:23:42.920 | allocated to real estate, but I really wanted to take advantage of my

00:23:46.400 | investment thesis that I came up with in 2016, which was to invest in the

00:23:50.720 | heartland of America, thanks to technology and thanks to people wanting

00:23:54.840 | to go to lower cost areas of the country to live a better life, save

00:23:58.800 | money and still make money.

00:24:00.080 | And that was a great thesis.

00:24:02.800 | And I got lucky in an unfortunate situation because the pandemic forced

00:24:06.840 | millions of people to work from home.

00:24:09.080 | And so that accelerated that migration.

00:24:11.280 | And I think that's a multi-decade trend.

00:24:13.280 | And so my plan is to invest more of my capital in my asset allocation

00:24:18.760 | framework of 50% to real estate, to more private real estate investments

00:24:23.080 | in the heartland, so I can diversify my real estate portfolio, earn more

00:24:27.280 | passive income and hopefully higher cap rates, higher net rental yields.

00:24:31.360 | So I can live my life and not have to go back to work.

00:24:35.440 | So if I want to summarize it, it's to get started, it's not about buying

00:24:39.760 | rental properties as much as it is when you buy a home that works for you.

00:24:44.280 | And then when you outgrow that home, just don't sell it.

00:24:47.040 | Assuming you have the money for another down payment and turn

00:24:50.240 | it into a rental property.

00:24:51.360 | And it's not assuming it's being proactive and trying to save for

00:24:54.200 | a down payment for another home.

00:24:55.520 | And the idea behind this is one, you enjoy your home.

00:24:59.720 | You know, your home, the best, if you live in it for five years and

00:25:02.760 | if you enjoyed it, I'm sure other people enjoy it.

00:25:05.040 | You'll probably paint it, do some things to make it nicer.

00:25:07.520 | And the thing is, you're going to get a mortgage that is a primary

00:25:10.560 | residence mortgage that is lower than a rental property mortgage.

00:25:13.800 | And you can keep that mortgage once you rent it out, you know, and that

00:25:18.360 | is a strategic advantage of buy about 0.25 to 0.5%, and then you're

00:25:24.400 | going to get another primary mortgage to buy other property in five years.

00:25:27.640 | Maybe it's 10 years, maybe it takes 10 years.

00:25:29.280 | And the idea is there's a benefit where you're not only building

00:25:33.520 | wealth through real estate, you're also using your capital

00:25:36.320 | to enjoy a better lifestyle.

00:25:38.640 | Most of us are going to be making more money in our careers.

00:25:41.760 | Some of us are going to grow our families and we're going to be able

00:25:45.160 | to appreciate the wealth that we're building and that's a win-win scenario,

00:25:49.440 | which is why I like real estate better than stocks because you're not

00:25:52.080 | going to wake up one day seeing your stock go down 35% because it

00:25:55.400 | missed quarterly results by 3%, right?

00:25:57.880 | You're going to just enjoy your property.

00:26:00.680 | And I think the best time to own the nicest house you can afford is when

00:26:05.680 | you have the most number of heartbeats in your home and that's usually

00:26:09.160 | your kids because that way you can amortize the cost and the pleasure

00:26:13.040 | of owning a nicer home across more people.

00:26:15.720 | And after they're gone, it's not like you're going to upgrade to a mega

00:26:18.880 | mansion, no, you're probably going to keep it because it'll feel lonely

00:26:23.040 | not having so many people in your house anymore, or you might downsize.

00:26:27.560 | Tactical here, two things.

00:26:29.160 | When you get a new mortgage, will they take into account the rental

00:26:32.560 | income of the house that you haven't started renting yet?

00:26:35.360 | That's a good question.

00:26:37.200 | Hopefully what you're going to do is you're going to sign a lease.

00:26:40.000 | This is the ideal scenario.

00:26:40.920 | You sign a lease while you're in the process of buying your other

00:26:43.960 | home and that could take one to three months.

00:26:46.080 | And once you have that rental income, they will not account

00:26:50.560 | for 100% of the rental income.

00:26:52.040 | Banks will generally account for about 70% of that rental income in terms

00:26:56.040 | of their calculation for how much they're going to lend you money

00:26:58.400 | for your second, third, fourth home.

00:27:00.080 | So take that into consideration because banks will consider, OK,

00:27:04.000 | if you're renting it out, there's going to be vacancy risk as well.

00:27:08.840 | So they want to be conservative.

00:27:10.440 | So they use 70%, which I think is fair, but I think regular mom and pop

00:27:14.440 | landlords can outperform that 70% and probably rent it out for 90 to 95%.

00:27:19.040 | And then I also know you're a fan of an adjustable rate mortgage.

00:27:23.040 | Does that change with a strategy of turning your past

00:27:26.200 | properties into rental properties?

00:27:28.520 | No, so I didn't realize this, but only about 5% of mortgage

00:27:33.120 | holders have adjustable rate mortgages.

00:27:35.440 | And I've been talking about getting an adjustable rate

00:27:37.560 | mortgage since I started in 2009.

00:27:39.600 | And since I've been working in finance, well, since I bought my property in 2003.

00:27:43.640 | And the idea is, look, interest rates

00:27:47.600 | and inflation have been coming down for 40 years in a row

00:27:52.600 | because of technological advances, efficiencies, learning about past cycles.

00:27:57.400 | And yes, we currently have elevated inflation now due to a global pandemic.

00:28:01.520 | But you are seeing inflation.

00:28:03.840 | Top tick in July, and I think that's going to fade into 2023.

00:28:08.400 | It's just the way it is.

00:28:09.320 | Yin Yang finance, when prices are up, demand starts to get destroyed

00:28:13.240 | and then we get back to the normal steady state.

00:28:15.760 | And so the idea with an arm is, look, you pay a lower rate than a 30 year fixed

00:28:20.640 | because of the time value of money.

00:28:22.320 | If you're borrowing at a shorter fixed rate return,

00:28:24.920 | the lender will lend to you at a lower rate.

00:28:27.400 | And the thing is, back in the global financial crisis days,

00:28:30.800 | the average home ownership tenure was about four and a half, five years.

00:28:33.840 | Now, the average home ownership tenure ship is about 10 to 11 years.

00:28:39.240 | The idea is you want to max your fixed rate duration of your mortgage

00:28:44.080 | with how long you plan to live in your home.

00:28:46.360 | So to get a 30 year fixed rate mortgage and pay 1% higher interest rate

00:28:51.760 | for 30 years doesn't make sense if you're planning on selling your home

00:28:55.320 | or refinancing or paying it off in 10, 11 years.

00:28:59.040 | So that is the idea to help you save money and not be afraid

00:29:03.200 | of taking out an arm, because in my opinion, we're going to be in a long term,

00:29:07.640 | low interest rate environment for the rest of our lifetimes.

00:29:10.280 | So when we bought a home, we said,

00:29:12.840 | we're probably not going to be here more than 10 years, let's do a 10 year arm.

00:29:15.520 | Yeah, smart.

00:29:16.840 | We moved out, we moved to a new home and we're like, well,

00:29:19.080 | we got three years left on the arm.

00:29:20.760 | If I were to convert that to a rental, then I would go back to a point

00:29:24.440 | of adjustable rates.

00:29:25.520 | So if you want to keep something forever and rent it after you live there,

00:29:29.680 | then you really are more towards the 30 year cycle than the five or 10 year cycle.

00:29:34.160 | That's true.

00:29:34.880 | But in a declining interest rate environment over the past 40 years,

00:29:38.480 | what happens is your arm resets at the same rate or generally lower.

00:29:42.240 | And that is basically what's been happening for 40 years.

00:29:45.920 | So let's say so I took out a 7-1-1 arm in 2020, right?

00:29:50.000 | So people are like, oh, that was a mistake.

00:29:52.160 | You could have got a 30 year fix for 30 years.

00:29:55.160 | And I'm saying it's not a mistake because the 7-1-1 arm was at 2.125%.

00:29:59.960 | The best 30 year fix rate I could get was about 2.875% maybe, or maybe 3%.

00:30:05.600 | And by 2027, when the arm resets,

00:30:08.320 | I'm pretty certain that it's going to reset at a same rate or lower

00:30:12.640 | because we're going to back down to trend in terms of inflation and interest.

00:30:16.040 | So when an arm resets, it just generally resets back to the same rate

00:30:20.000 | or lower over the past 40 years.

00:30:21.720 | Obviously, sometimes you can get unlucky.

00:30:23.640 | But if you believe the trend is down or low, it'll be fine.

00:30:27.040 | And an arm, people need to understand, has a maximum reset rate

00:30:31.680 | for the first year, usually by 2%.

00:30:33.960 | So my arm rate could go from 2.125% to 4.125%.

00:30:38.320 | To me, it's not a big deal because probably about 20%,

00:30:42.840 | 25% of the principal has already been paid down.

00:30:45.800 | And then the following year, it can only go up by a maximum of 1%.

00:30:48.960 | And there's a lifetime cap to an arm, which mine is 7%, which sounds scary.

00:30:54.400 | But for the first seven years of the arm, it was saving

00:30:58.080 | 0.75 to 1% interest by not getting a 30 year fixed.

00:31:02.680 | So you're only losing until like maybe year 10 or 11 or 12.

00:31:07.400 | And it's not really losing.

00:31:08.640 | It's just it was a suboptimal decision.

00:31:10.480 | I built a comparison calculator

00:31:13.640 | to try to really dial in and optimize this particular thing.

00:31:16.800 | And I found that it was about what you just said, two to three years

00:31:20.520 | till the break even point.

00:31:22.200 | But I think it's rare to have interest rates be elevated,

00:31:27.040 | at least in my opinion, and where we're going for more than a handful of years.

00:31:32.080 | And so I would say if you have a 10 year arm and you're seven years into it

00:31:36.200 | and rates are low, probably a good time to refinance that.

00:31:38.880 | Yeah, you can always refinance.

00:31:40.800 | Yeah. So I think one common misconception is you don't have to wait

00:31:44.320 | until the end of the 10 year fixed period to do something about it.

00:31:47.400 | So if you're seven years in and rates are still low, maybe refinance.

00:31:50.800 | Then if you're nine years in and rates are really high

00:31:53.880 | and you haven't refinanced, we'll know that for the next three years,

00:31:57.040 | you're still going to be breaking even from all the savings.

00:31:59.640 | And hopefully that over that period of time, rates will drop again

00:32:03.200 | and you'll be able to do something.

00:32:04.960 | The only other thing you didn't mention is

00:32:06.760 | I actually think that in periods right now we have high interest rates.

00:32:10.560 | We have high inflation, but rents are also up.

00:32:13.240 | And so if you're using your unadjustable rate mortgage for a rental property,

00:32:17.800 | it's very possible that if your interest rates go up because of rates rising,

00:32:22.800 | it might also be in line with a situation we have now, like inflation,

00:32:26.720 | where rents are also rising.

00:32:28.480 | And so you might be able to recoup some of that incremental interest

00:32:31.600 | cost with higher rent.

00:32:33.600 | Well, yeah, I mean, everybody needs to understand finance is not in a vacuum.

00:32:38.040 | It's yin yang finance like inflation is up because the economy is great

00:32:43.360 | and job market is strong and people are getting paid more

00:32:46.960 | and rents are going up and so forth. Right.

00:32:49.880 | But there is an inflection point and we need to be aware of that.

00:32:53.680 | And that inflection point is probably right now.

00:32:56.520 | And I think inflation is going to go back down.

00:32:58.840 | So we're not helpless animals.

00:33:00.760 | You're right.

00:33:01.280 | We can refinance before the fixed rate period is over if we're afraid

00:33:04.760 | and we want to extend that term, or we can sell the property

00:33:08.360 | or we can pay down principal so that when we do refinance

00:33:11.800 | or when it does reset, less of the percentage goes to interest.

00:33:14.720 | There are so many things we can do.

00:33:16.680 | And that is a mindset that I want people to get into.

00:33:19.400 | We are dynamic.

00:33:20.880 | We always have an opportunity to do things to improve our financial situation.

00:33:24.600 | I know you've had a lot of success in real estate.

00:33:26.800 | I also know that you've talked about a vacation property

00:33:30.560 | that maybe wasn't the best decision.

00:33:31.960 | So I'm curious to get your take on vacation properties.

00:33:34.760 | So one, I think a vacation property is a suboptimal use of funds

00:33:39.400 | because you're not going to use it enough to be able to make it

00:33:43.240 | a good financial decision versus renting a VRBO or Airbnb or whatever.

00:33:47.400 | Two, you want to diversify where you vacation.

00:33:52.280 | You always go back to the same place over and over again.

00:33:54.880 | It also gets boring.

00:33:56.480 | But if you buy a vacation property, you're going to feel committed

00:33:59.320 | to having to go back to that place to make it worthwhile.

00:34:03.520 | So I bought a vacation property.

00:34:05.120 | Terrible timing in 2007 because I was making the most money ever

00:34:09.040 | and I just got promoted and I thought my income would just go up.

00:34:12.400 | So the number one mistake I made was

00:34:14.880 | modeling a high income for a long period of time.

00:34:19.880 | And then I also thought I got a deal getting it for about 15% off.

00:34:23.520 | And then it ended up going down another 40 to 50%.

00:34:27.800 | So that was a great lesson learned about not forecasting

00:34:32.720 | your income, extrapolating it so long into the future

00:34:35.560 | and also not buying things you really don't need.

00:34:38.240 | But the good thing about this vacation property is that I kept paying the mortgage.

00:34:42.840 | I paid it off. It's paid off.

00:34:45.360 | And my dream for buying the vacation property was because I took my wife,

00:34:49.400 | my girlfriend at the time, I was on our first date in California

00:34:52.880 | to Lake Tahoe at the resort at Squaw Creek.

00:34:55.600 | And I decided, you know what? It was such a special moment.

00:34:57.880 | I wanted to own that piece of moment.

00:34:59.800 | And one day, maybe we could take our children there.

00:35:02.440 | And my forecasting for having children was very delayed.

00:35:06.760 | But we just got back from the vacation property with our two children

00:35:10.160 | and they had an amazing time.

00:35:11.840 | And it was really, really a priceless moment.

00:35:14.440 | And now the vacation property is a very small percentage of my net worth.

00:35:18.600 | So at the end of the day, I think it worked out.

00:35:21.680 | And are you able to rent it out in the off time?

00:35:24.000 | Something that maybe in 2007, the platforms didn't exist to make it easy,

00:35:28.080 | but now maybe makes the equation different.

00:35:30.480 | Oh, yeah. I mean, 2007 wasn't the Stone Ages.

00:35:33.680 | It was in the rental program at the resort.

00:35:35.880 | And then after several years, I decided to move it out

00:35:39.280 | to a private rental property manager.

00:35:41.960 | And that, yeah, it generates 500,000 bucks a month pretty consistently.

00:35:47.080 | I mean, it's high season during the summer and in the winters

00:35:49.680 | and then really sparse during October, November.

00:35:53.760 | So actually, it generates passive income,

00:35:56.040 | but it wasn't a good financial decision at all.

00:35:58.920 | And it was tough.

00:36:00.680 | It was like that albatross on my neck for a while.

00:36:03.200 | Like, I really had to fight it and get through it.

00:36:05.560 | But now it's fine. It's just it is what it is.

00:36:08.240 | It's part of the game of you win some, you lose some.

00:36:10.320 | We recently looked at vacation properties in Napa, OK,

00:36:14.600 | because there just aren't a lot of Airbnbs.

00:36:17.200 | And we ended up buying a Picasso.

00:36:19.680 | I don't know if you've looked at it.

00:36:21.840 | It's like a fractional, fractional real estate.

00:36:24.440 | So basically, you buy one eighth of a home.

00:36:26.720 | So imagine it's as if eight people came together and bought a home together.

00:36:30.000 | Except they have the marketplace so you don't have to find the other seven.

00:36:33.360 | Right. Well, you'll probably enjoy it more than I enjoyed my Lake Tahoe

00:36:37.320 | probably because Sonoma and Napa is an hour and a half away.

00:36:39.600 | Well, it's closer, right?

00:36:41.080 | So hope you enjoy it.

00:36:42.320 | It's an hour and a half away.

00:36:43.640 | Family is nearby.

00:36:45.360 | And we only paid an eighth of it and we only get an eighth of the year,

00:36:49.080 | which means we only really use six weeks a year.

00:36:51.400 | But it's more efficient.

00:36:52.400 | Yeah. Yes, it's much more efficient.

00:36:54.800 | Quick interruption.

00:36:55.840 | As you just heard, Amy and I bought a Picasso in Napa,

00:36:58.960 | and it was one of the fastest big purchases we've ever made,

00:37:01.960 | because as soon as we learned about it,

00:37:03.760 | it just felt like the best way to buy and own a second home.

00:37:07.120 | And it's been absolutely amazing.

00:37:09.480 | In fact, ever since we closed, I've been trying to see

00:37:12.280 | if they would partner with the show, because as you all know,

00:37:15.120 | I end up seeking out most of the brands I work with

00:37:17.800 | because I truly love their products and services.

00:37:20.680 | And I only want to work with partners where I feel that way about the company.

00:37:24.040 | Well, since recording this episode, I've actually partnered with them.

00:37:27.400 | So while you'll hear more in a future episode,

00:37:29.560 | I just want to share that if you go to all the hacks dot com slash Picasso,

00:37:34.040 | you can get free early access to new listings and twenty five

00:37:37.880 | hundred dollars or more in closing credits.

00:37:39.960 | That's all the hacks dot com slash Picasso P.A.C.A.S.O.

00:37:45.600 | OK, back to the show.

00:37:47.120 | So let's turn away from physical real estate.

00:37:48.920 | I want to talk about online real estate.

00:37:51.160 | I web presence my website, maybe a business I run,

00:37:54.200 | because I know you've said that people are quick to have their social media

00:37:57.200 | profiles, but maybe they don't have this hub in the middle to tie it all together.

00:38:00.920 | They can help them build something online. Right.

00:38:03.560 | Could you talk a bit about why you think that's important?

00:38:06.120 | Yeah. So in the old days, 10, 20 years ago,

00:38:08.920 | we would just have a resume that we'd submit and it would be tossed

00:38:12.120 | into the trash, right?

00:38:13.640 | Seven seconds people spend on a resume and that's it.

00:38:16.400 | Nowadays, everybody Googles who you are, what you do, what you stand for,

00:38:20.480 | what you believe in.

00:38:21.960 | And so having your website is vital and thinking about your brand

00:38:26.400 | is also vital if you want a job, if you want to do new things.

00:38:29.840 | I decided to go with financial samurai dot com because I was working in finance

00:38:34.400 | when I started the site and I just wanted to have this really cool sounding name.

00:38:38.000 | I used to live in Japan for two, three years,

00:38:40.640 | and my girlfriend and now wife is half Japanese and I love it.

00:38:44.040 | I love the Japanese culture and I thought it was great.

00:38:46.760 | And I think everybody needs to plant their flag

00:38:51.040 | on the Internet and own their domain instead of letting a social media company

00:38:56.040 | own you.

00:38:58.000 | Look, if you write content on Twitter, Facebook, whatever,

00:39:02.200 | they own you, they have the content and they're getting rich, right?

00:39:08.000 | You are helping them get rich.

00:39:09.680 | Instead, why don't you get yourself rich by planting your own flag,

00:39:12.880 | branding yourself online and sharing with the world what you stand for?

00:39:17.080 | It's the green marble theory is my belief that if you have a janky,

00:39:21.280 | crusted green marble, if you put it on eBay, someone will want to buy it.

00:39:25.720 | And the reason why is because there is something like five,

00:39:29.280 | six billion people online now.

00:39:31.320 | And it's the law of attraction. We're all connected.

00:39:34.000 | You just have to put yourself out there.

00:39:35.800 | And good things will happen if you stay the course long enough period of time.

00:39:40.040 | Put another way, do you think everyone should kind of write or produce

00:39:44.280 | content somewhere on the line and own the place they do it

00:39:47.400 | so they can build an audience or the business around it?

00:39:49.680 | It depends on what you want.

00:39:52.360 | If you want to be hired as a consultant or build your business or whatever,

00:39:56.800 | you should probably be a thought leader and thing that you care about the most.

00:40:01.280 | What I've seen, it's interesting, the VC community, it's fascinating

00:40:06.400 | because I think being a VC is one of the best jobs in the world.

00:40:09.000 | You invest other people's money.

00:40:10.880 | You don't have to prove yourself for 10 years because that's the life of the fun.

00:40:13.960 | And you're just collecting big bucks, 2% of fees under management.

00:40:17.400 | And you get a percentage of the profits if it turns out well.

00:40:20.760 | And what these folks have done, it's very competitive to attract capital

00:40:25.040 | and get your companies to accept your capital, right?

00:40:27.960 | They've hired thought leaders to write and be on social media

00:40:32.400 | and have their websites and write for the VC company's blog

00:40:36.320 | every day, every week to showcase their knowledge,

00:40:39.840 | what they're doing and their brand, because it's so competitive and noisy out

00:40:44.600 | that you need to figure out how to make yourself stand out

00:40:48.200 | and how to attract the right people that you want for your business.

00:40:51.120 | As a former VC, I think if you love that job, it's great.

00:40:55.720 | I found that at the time in my life and maybe things have changed since then.

00:40:59.480 | But I was like, I really wanted to build products.

00:41:03.040 | And so as much as it was a great lifestyle, like all the things you said,

00:41:07.560 | I was like, I don't want to watch all these people build things.

00:41:10.720 | I want to build things.

00:41:11.440 | So I'll just caveat that like it sounds as it's glamorous.

00:41:14.400 | Yes, you can make a lot of money.

00:41:16.240 | But at the end of the day, if what you love is actually building the thing

00:41:20.320 | and not supporting those doing it, it might not be the most fulfilling career,

00:41:24.200 | even if you make a lot of money.

00:41:25.640 | I think that's really admirable that you left the cushy VC job

00:41:28.840 | to actually try to build something and then actually successfully sell it.

00:41:32.280 | I mean, that's amazing to me.

00:41:34.120 | And what I find amazing is that there are VCs who have no building experience.

00:41:38.320 | They don't know how to operate a company or start a company.

00:41:40.720 | And that's kind of amazing to me because as an entrepreneur,

00:41:46.760 | you're hopefully leaning on their expertise and experience.

00:41:50.200 | But it also shows that you can do anything you want.

00:41:53.160 | The world is your oyster.

00:41:54.600 | So whether you have any experience or nothing and you just went to business

00:41:58.520 | school and learn case studies, you can be a VC too. Awesome.

00:42:02.360 | It's funny because I think one of the reasons that I left being a VC

00:42:05.560 | was that I kind of had this feeling of imposter syndrome

00:42:09.280 | because I hadn't actually built and grown and scaled a company like you mentioned.

00:42:13.000 | However, I now look back and realize that

00:42:16.400 | those two skill sets are incredibly different.

00:42:19.240 | And the skill set of a VC is actually much more in line

00:42:23.520 | with the skill set of a professional investor than with an entrepreneur

00:42:27.240 | or a manager or a CEO.

00:42:29.320 | And so I think at one point in my career, I thought I couldn't be a VC

00:42:31.800 | because I've never built a company.

00:42:33.080 | Now that I've built a company, I'm like,

00:42:34.920 | "I couldn't be a VC because I don't want to be a professional investor."

00:42:37.440 | Andy Ratcliffe, who started Wealthfront, who I sold my last company to,

00:42:41.080 | told me when someone asked him, "Should I be a VC?"

00:42:44.000 | He says, "Well, do you like to invest in stocks on your own?

00:42:46.960 | Do you like to pick stocks in your brokerage account?

00:42:49.240 | And if you don't, you maybe ask yourself, do you really like investing?"

00:42:52.760 | And I always thought that was strange because I'd always thought of VC

00:42:57.120 | as like the second career of an entrepreneur.

00:43:00.240 | And as I looked deeper and deeper at some of the most successful

00:43:03.880 | venture capitalists of all time, many of them were not entrepreneurs.

00:43:07.880 | Many of them are much more adept at picking companies,

00:43:10.880 | evaluating businesses than they necessarily were at starting them.

00:43:14.080 | But boy, did I think that was my flaw.

00:43:17.400 | That's why I thought I couldn't be a VC in the first place.

00:43:19.280 | I've evolved that position over time.

00:43:21.200 | But yeah, before we get back to the episode,

00:43:24.240 | I just want to thank you for listening to and supporting the show.

00:43:27.240 | Your support of our advertisers is what keeps this show going.

00:43:30.760 | To learn more about all our partners and get links to all their deals,

00:43:34.440 | you can go to allthehacks.com/deals where the URLs, codes

00:43:39.160 | and discounts are all right there.

00:43:41.360 | So please consider supporting those who support us.

00:43:44.280 | You mentioned putting up something online, starting to write.

00:43:47.000 | Some people in the world will find it.

00:43:49.080 | And if they do, you know, you can have a business.

00:43:51.400 | You can also start side hustles.

00:43:53.560 | One of the things that I've really appreciated on your site

00:43:56.080 | that I would love to talk a little bit about is some of the kind of personal

00:44:00.040 | and financial and maybe tax benefits of running a business.

00:44:04.040 | Because something I've learned with this podcast

00:44:07.560 | is that when you're employed, you know your salary,

00:44:11.040 | and then you usually know what gets deposited in your bank account.

00:44:13.440 | And at the end of the year, you might owe some taxes or not,

00:44:15.800 | but it's a pretty straightforward equation.

00:44:17.720 | But when you run a business, it's actually really confusing

00:44:20.960 | because there are a lot of things that might be deductible

00:44:23.240 | that maybe weren't when you worked at a company.

00:44:25.160 | Maybe you don't make that much money,

00:44:26.880 | but a lot of the things you spend your money on are less expensive.

00:44:30.120 | You've written on your site about how vacations can be free

00:44:33.880 | if you talk about the vacation, how your car can be depreciated

00:44:37.160 | as a business expense.

00:44:38.640 | You talk a little bit about some of the exciting things,

00:44:41.080 | maybe not those two that running a business can afford you.

00:44:44.600 | I had a decision 10 years ago to run a lifestyle business

00:44:48.960 | or try to blow it up and take funding and run a big business

00:44:52.120 | and try to make mega millions.

00:44:53.920 | And at the poker table, I decided with my friends

00:44:56.600 | who are all trying to make the mega millions

00:44:58.360 | that I would run a lifestyle business

00:45:00.280 | because I just got out of banking and I wanted a better lifestyle.

00:45:03.240 | So, to go back and try to kill myself to run a business,

00:45:05.960 | to make a lot of money was just totally the antithesis of what I wanted to do.

00:45:09.960 | And so, the idea is with a lifestyle business or just with a business

00:45:13.560 | in general, you want to think about those expenses that are personal expenses

00:45:18.120 | that also overlap with your business, right?

00:45:20.720 | So, those things include internet costs.

00:45:24.200 | You need internet to run your business, your iPhone or whatever,

00:45:28.400 | your mobile phone to run your business, the monthly subscription on that.

00:45:31.520 | You have to have a board meeting every single year for your business.

00:45:35.080 | I think that's the rule.

00:45:36.120 | You don't have to have it in your mom's basement with free water.

00:45:39.240 | You can go to Hawaii or wherever you want with your consultants,

00:45:43.160 | your editor, whatever it is.

00:45:44.920 | You can pay for their fare and have your board meeting there.

00:45:48.160 | It's somewhere more pleasurable.

00:45:50.000 | And so, the idea is identify those crossover points

00:45:53.440 | where you need them for your personal life anyway and your business.

00:45:57.400 | And that is where you can probably write off a lot of your expenses.

00:46:02.040 | But of course, I'm not a CPA, so ask your CPA.

00:46:04.800 | But the worst thing that can happen is not like you're going to get thrown in jail.

00:46:08.880 | There's like 70,000 pages on the tax documents in America.

00:46:12.080 | We make mistakes all the time.

00:46:14.120 | The worst case is you're going to get a letter and say you actually did this wrong.

00:46:18.280 | You got to pay this because you didn't pay it.

00:46:20.400 | And maybe you have to pay like a 5% penalty fee per year, for example.

00:46:25.280 | So, that's something that people need to understand.

00:46:27.000 | It's not like the movies where you're just thrown in jail and your life is over.

00:46:30.600 | People are trying to figure out things on their own.

00:46:33.200 | And the IRS, they're actually good people because they're trying to clarify

00:46:38.200 | and simplify and explain their convoluted tax laws.

00:46:44.320 | It's crazy. But that's my thoughts in general.

00:46:47.400 | I wouldn't go and just like expense everything and hope that it'll work.

00:46:50.800 | But I do think there are a lot of things, if there's a gray area

00:46:53.600 | and you're not sure, the worst case isn't as bad as you might think.

00:46:57.000 | A couple of tactical questions now that I'm over here running a company on my own.

00:47:01.400 | What was your choice for your business when it comes to retirement plans?

00:47:06.400 | How do you do that on a personal level with your business?

00:47:09.240 | So, we have the SEP IRA plan, and basically you can contribute.

00:47:15.120 | I think it's up to 25% of operating profits.

00:47:17.800 | Operating profits, not revenue, not net profits.

00:47:20.920 | Operating profits to the SEP IRA plan for yourself and your employees.

00:47:26.000 | So, it's just my wife and me.

00:47:27.560 | And what I also did for when I had more time before my son was born

00:47:31.640 | was I did some freelancing, consulting, whatever, ride share stuff,

00:47:36.440 | just any stuff that I can make money.

00:47:37.840 | So, I created a solo 401(k) as well.

00:47:40.680 | And so, I was able to contribute to my solo 401(k) and get the SEP IRA plan going.

00:47:46.160 | And what some people don't realize as employees is the maximum 401(k) contribution

00:47:51.440 | is not just $20,500 per employee in 2022.

00:47:55.560 | It's actually way more.

00:47:57.560 | I forgot the exact number, but it's something like $60,000 plus.

00:48:00.480 | We can look it up.

00:48:01.760 | But the employer can contribute even more than the maximum

00:48:05.720 | the employee contribute through profit sharing.

00:48:08.360 | And so, that's something you got to think about before you quit your job

00:48:11.800 | or join a startup or whatever.

00:48:13.600 | What is that 401(k) match?

00:48:15.880 | Because it's often not just 3% or $5,000 or whatever.

00:48:20.560 | It could be tens of thousands of dollars

00:48:23.040 | if your employer is really on good financial footing

00:48:26.480 | and is really providing a lot of benefits to their employees.

00:48:29.840 | I think something to just keep in mind

00:48:33.160 | is that if you were able to, on a freelance or self-employed basis,

00:48:37.880 | make maybe 10% less than your work salary

00:48:41.560 | because of some of these benefits, maybe better retirement contributions,

00:48:46.080 | maybe more efficient business deductions,

00:48:48.640 | you might actually be able to get by on less income than you would.

00:48:52.960 | Not to mention, if you move to a lower cost of living area,

00:48:55.880 | you could definitely get by on less income.

00:48:57.880 | One area that I want your take on is on health insurance,

00:49:01.160 | because that's one expense that you're going to have to pay on your own.

00:49:03.880 | For people worried about what that means,

00:49:06.720 | leaving their job and starting a company

00:49:08.520 | and having to cover their own health insurance.

00:49:10.200 | How have you approached that?

00:49:11.480 | So there are a couple of ways to approach it,

00:49:14.840 | but what we did was we sucked it up

00:49:17.560 | and we decided to pay 100% of our health care insurance.

00:49:21.240 | We got a platinum plan for the family of three.

00:49:24.160 | Once my wife left her job in 2015 as well,

00:49:27.000 | she engineered her layoff as well at $34,500.

00:49:30.640 | And we paid full freight, which was $1,800,

00:49:33.520 | $1,800 to $1,900 a month at the time.

00:49:36.520 | And now with a family with two kids,

00:49:39.400 | we pay about $2,300 a month for a gold plan.

00:49:42.480 | And so we are not getting any subsidies.

00:49:45.480 | And I think it's fine.

00:49:46.920 | We don't need any subsidies.

00:49:48.680 | But strategically, if you want to get subsidies from the government,

00:49:51.840 | you would have to earn less than 400% of the federal poverty limit

00:49:56.400 | per household size.

00:49:58.400 | So, for example, the federal poverty limit for one person

00:50:01.520 | is something around $2,700 to $13,000.

00:50:05.000 | So if you can make as close to that as possible,

00:50:09.840 | then you will get as much health insurance subsidy as possible.

00:50:13.760 | So this is why you hear a lot of multimillionaires.

00:50:16.800 | Let's say, you know, you have two or three million dollars

00:50:19.560 | and you have a household of four and your investments,

00:50:22.080 | let's say three million generates $60,000, $70,000 in income.

00:50:25.920 | You can get health care subsidies as a multimillionaire, technically.

00:50:28.520 | And that's actually what a lot of people do.

00:50:30.280 | Now, whether that is going with the spirit of the intention of the subsidies

00:50:33.880 | is another matter.

00:50:35.040 | But what we did, we pay full freight, but it's a business expense, right?

00:50:39.160 | So if we have a 20% marginal income tax rate, it's $2,300 a month,

00:50:44.840 | technically minus 20%.

00:50:47.240 | And that's our expense.

00:50:48.760 | I don't think I even knew that that was a business expense.

00:50:50.880 | So that's an interesting thing.

00:50:52.480 | Can you talk a little bit about managing finances with a couple,

00:50:56.400 | bringing them into the business?

00:50:58.000 | But I know you have a few unique opinions on managing finances with your partner.

00:51:02.360 | Yeah, I think if you love your partner,

00:51:05.280 | you should strive to make them financially independent of you.

00:51:08.520 | Right. Because financial dependence, I think, is one of the worst things

00:51:13.120 | because we're all adults here.

00:51:14.640 | Your partner, you had a life before you met each other.

00:51:17.560 | And I feel that a lot of fights with your partner

00:51:21.760 | can be due to money.

00:51:23.440 | That's top three reason.

00:51:25.080 | And so having financial independence with your partner

00:51:28.280 | and having your own bank accounts, separate accounts,

00:51:30.640 | actually is like a release valve for stress that if money becomes an issue,

00:51:34.920 | you can just go, I'm going to go spend my own money. It's OK.

00:51:37.080 | So that's one of my philosophies.

00:51:39.120 | Make your partner financially independent if you really love them.

00:51:42.920 | Now, a lot of people are against that.

00:51:44.840 | They say, oh, we're a one team. Everything is great.

00:51:46.960 | We're never going to divorce. Yada, yada, yada.

00:51:49.520 | OK, that's great to do what you want.

00:51:51.760 | But this is my philosophy in terms of bringing her on the fold.

00:51:54.840 | Once I helped her engineer her layoff and get a severance in 2015

00:51:58.520 | because we had a pact.

00:52:00.080 | If I was able to negotiate a severance at thirty four and a half and leave,

00:52:03.880 | she's three years younger than me.

00:52:05.600 | I said, you too can negotiate a severance when you're thirty four, thirty five

00:52:09.000 | and come join me if everything works out great.

00:52:11.960 | And so everything did work out fine.

00:52:14.560 | And so I helped her negotiate a severance.

00:52:16.520 | And we ended up incorporating Financial Samurai

00:52:20.120 | and we have our little business.

00:52:22.680 | And the idea is, look, we are a team.

00:52:25.480 | I do the front end. I do the writing.

00:52:27.320 | And she does the editing and she does the filing of the taxes.

00:52:30.880 | And that's how it goes.

00:52:31.960 | And we pay ourselves a salary and it's an equal salary.

00:52:35.840 | And we just treat it as a fun lifestyle business.

00:52:38.480 | It really is like we can't believe that there's actually income

00:52:41.480 | coming in from what we would do for free. It's just fun.

00:52:44.200 | And if you look at articles on Financial Samurai, it's storytelling.

00:52:48.400 | It's talking about difficult situations.

00:52:50.720 | It's not SEO optimized affiliate post after affiliate post

00:52:54.520 | like a lot of sites can do.

00:52:57.280 | And we could do that, too.

00:52:58.600 | But it's just so soul sucking that we just want to write stories

00:53:01.720 | and tell what's going on in our lives.

00:53:03.600 | That's awesome.

00:53:04.200 | And one thing that I think is very rare is that in this space,

00:53:07.960 | so many people who are in the financial independence route

00:53:10.920 | who've quit their job and can work from anywhere end up moving

00:53:14.560 | to low cost of living places.

00:53:16.480 | Yet you're still in where I am, the Bay Area state

00:53:20.240 | with the highest income taxes, maybe in the country.

00:53:23.000 | What do you say to people

00:53:24.920 | that think you're crazy for staying here when you could live anywhere?

00:53:28.080 | What do I say?

00:53:30.040 | Well, I grew up overseas for 13 years, six different countries.

00:53:34.280 | I've been to 60 countries.

00:53:36.520 | I've lived on the East Coast.

00:53:38.080 | I've been to the Midwest many, many times for business.

00:53:40.960 | And I live in San Francisco for 20 years now, more than 21 years.

00:53:44.920 | And I say I love the San Francisco Bay Area.

00:53:47.880 | It's beautiful.

00:53:49.560 | There's a lot of culture.

00:53:50.560 | The food is amazing.

00:53:51.560 | It's perennially ranked top two in the country.

00:53:54.240 | I can fly to Hawaii if I want to.

00:53:56.760 | There's tremendous amount of job opportunities, consulting opportunities.

00:54:00.440 | And I get to look at the ocean every single day out of my house.

00:54:03.960 | And I feel great.

00:54:05.240 | And so, yeah, there's a price to pay for that.

00:54:07.440 | And that is the median home price in San Francisco is 1.8 million.

00:54:10.680 | And the reason why the median home price is 1.8 million is because you have

00:54:14.120 | 24 year old engineers who are making 200 to 300 thousand dollars

00:54:17.760 | a couple of years out of college.

00:54:19.400 | Everything is rational.

00:54:20.800 | The media forgets that the opportunity of each city is what drives the cost,

00:54:25.400 | not the other way around.

00:54:27.080 | And so for much of my life, especially after I left in 2012,

00:54:30.960 | I just thought, wow, there's so much opportunity.

00:54:33.240 | Yes, it's expensive.

00:54:34.320 | There's consulting here.

00:54:35.320 | There's a meet up here.

00:54:36.520 | It's just so fun and it's beautiful.

00:54:38.640 | Look, I know the media likes to focus on the one street

00:54:43.160 | in the worst neighborhood in San Francisco and blow it up.

00:54:46.520 | I mean, it's really good media.

00:54:47.880 | You know, they're really smart about that.

00:54:49.440 | But if you actually come to San Francisco, it's an amazing city.

00:54:52.920 | And I've been everywhere.

00:54:53.960 | And so I could have done Hawaii.

00:54:55.800 | Honolulu is my second favorite city.

00:54:58.400 | But it's very expensive in Hawaii and adjusted for the income opportunity

00:55:03.080 | or the fundings you can do.

00:55:05.320 | It's a little bit too expensive, actually, in my mind.

00:55:08.000 | As someone who also lives in the Bay Area, I share a similar sentiment.

00:55:12.760 | My wife and I both work for a company that we could be remote right now.

00:55:15.560 | Podcasts I could do from anywhere.

00:55:17.200 | But I tend to think that money's purpose is, like we said at the beginning, a tool.

00:55:22.360 | And we love living here.

00:55:24.440 | The opportunities here are great.

00:55:26.040 | And for us, yes, we could save more money somewhere else.

00:55:29.800 | But if money's goal is to allow you to do things you love,

00:55:33.640 | then we're using it right now to spend more to stay here.

00:55:36.760 | I mean, I understand the hatred against San Francisco,

00:55:41.000 | because if you can't comfortably afford to live in a place, you might hate it.

00:55:45.200 | Right. It's just logical.

00:55:46.600 | You got to like shack up with a roommate when you're 40 years old.

00:55:49.240 | You can't eat what you want or go what you want.

00:55:51.160 | It's natural. And I understand that.

00:55:53.200 | And what I've also noticed is that we tend to accumulate the amount of wealth.

00:55:58.160 | That will enable us to afford to live in a place we want to live.

00:56:02.640 | So if I didn't live in San Francisco and if I lived in, let's say,

00:56:06.400 | Austin, I would probably just work as hard as I could to make enough money

00:56:10.960 | to cover my expenses in Austin, where the median home price is,

00:56:13.280 | let's say, $500,000 or $600,000 and be comfortable with that.

00:56:16.880 | But I like a challenge and it's really fun.

00:56:19.320 | I have my friends here.

00:56:20.320 | I have my network here.

00:56:21.560 | I play tennis.

00:56:22.440 | And it's just you are what your friends and family are.

00:56:25.360 | I love it here.

00:56:26.760 | So I don't see moving anytime soon.

00:56:28.680 | But speaking of travel and moving and going other places,

00:56:32.120 | I know before kids and the pandemic, you did a lot of traveling

00:56:35.160 | and a lot of the conversations we have are about travel.

00:56:38.560 | And I know a lot of our listeners are just now having built up

00:56:42.040 | a lot of big balance of points and getting past the pandemic,

00:56:44.960 | thinking about where to go.

00:56:46.320 | I'm curious if you have any suggestions from all the travels

00:56:49.640 | you've done of where people might want to take a trip to or check out something

00:56:53.680 | that maybe is not the obvious place.

00:56:55.760 | Hahaha. Oh, man.

00:56:58.400 | My favorite place is Malaysia,

00:57:01.400 | because I also grew up there in my middle school teenage years.

00:57:05.040 | And that was like exciting.

00:57:06.680 | The food is the best.

00:57:07.640 | Top three in the world is very inexpensive.

00:57:10.120 | I love Angkor Wat, Cambodia.

00:57:12.400 | It's so hot. It's like 95 degrees and humid.

00:57:15.080 | But the temples are unbelievable.

00:57:18.040 | I love Southeast Asia.

00:57:19.560 | Southeast Asia is a great, great region.

00:57:22.520 | Friendly people, people speak English.

00:57:25.040 | The food is amazing.

00:57:26.400 | And the cost of living is low.

00:57:28.040 | So, I love that.

00:57:29.600 | I went to probably 20 different countries in Europe.

00:57:32.000 | I love it as well.

00:57:32.800 | I love the lifestyle, the attitude of living not for work,

00:57:36.040 | but living for living's sake.

00:57:37.320 | It's just one of those things where after you see like five Gothic churches,

00:57:40.880 | they all start looking the same.

00:57:43.000 | So, I enjoyed Mallorca, Spain.

00:57:44.920 | Mallorca was amazing.

00:57:46.800 | The Spanish culture, you eat tapas at 10 p.m.

00:57:49.760 | You enjoy life, the water, the beaches.

00:57:52.720 | And then Amsterdam.

00:57:54.280 | Amsterdam is kind of like the San Francisco of Europe,

00:57:56.880 | where people are pretty chill.

00:57:59.320 | Wheat is available everywhere.

00:58:01.080 | And there's a really diverse culture.

00:58:02.880 | And I love Amsterdam as well.

00:58:04.560 | I haven't been to Mallorca.

00:58:05.480 | Amsterdam is amazing.

00:58:06.360 | I want to come back to Malaysia because I think it's a country,

00:58:10.120 | having been there, I don't often hear a lot of other people go there

00:58:13.920 | that don't have some family there or some business reason to be there.

00:58:17.880 | So, if someone's thinking right now, listening to this saying, "Oh, Malaysia.

00:58:20.920 | I've never really thought about going there."

00:58:22.960 | What would you tell them to think about as a trip?

00:58:25.280 | You don't need to plan a whole week or two itinerary,

00:58:27.800 | but what are a few highlights of something they should do?

00:58:29.920 | Other than my favorite is just eat all the roti canai you can find on the street.

00:58:34.320 | That would be like my path.

00:58:35.680 | But what would you tell someone to think about as they plan a trip?

00:58:38.160 | Well, Malaysia, it's a peninsula surrounded by water on three sides.

00:58:43.440 | And the beauty is food is amazing, right?

00:58:46.840 | The mamak stalls, the roti, the milk fish, the chicken, fish, all that stuff.

00:58:50.960 | The kangkuk belacan, got to check that out.

00:58:53.360 | You can go to Kuala Lumpur for sure.

00:58:55.200 | See the palace, see the Batu Caves, go on these excursions.

00:58:58.920 | But go to the Pulau, which are the islands on the east and west,

00:59:05.160 | or go to Penang and see the turquoise water and go scuba diving

00:59:09.760 | 70 feet down and still see the water and have nobody around you.

00:59:14.040 | My favorite trip was to this resort called the Tara's Resort.

00:59:17.160 | There's an island on the east side and we just had -

00:59:20.400 | it was the movie The Beach with Leonardo DiCaprio.

00:59:24.160 | It was kind of like that.

00:59:25.240 | You take a dinghy out, you go scuba diving, you come to this cove.

00:59:29.400 | There'd be some little sharks around, turquoise water.

00:59:32.120 | And it was just unbelievable.

00:59:33.880 | So it's the Tara's Resort. I would check that out.

00:59:35.960 | Awesome. I don't feel like I gave Malaysia its justice on our trip.

00:59:40.600 | It was part of our eight month backpacking trip around the world.

00:59:43.680 | And but it was awesome.

00:59:45.120 | I don't know if this is still the case,

00:59:46.360 | but the one thing I remember very specifically because it was a big problem

00:59:50.720 | was that the ATMs in Malaysia would not accept

00:59:54.000 | any of my two or three American bank cards.

00:59:57.560 | And so we showed up in Malaysia with probably seven dollars in cash

01:00:02.680 | and went to the ATM and it didn't work and we could not get cash.

01:00:07.600 | So how did you get the cash?

01:00:09.240 | So I ended up going online and finding some local community

01:00:14.560 | in the tech community.

01:00:15.640 | So there was these events called Bar Camp, which are like

01:00:18.080 | conferences that I'd gotten to know, and I just went like Kuala Lumpur Bar Camp,

01:00:22.240 | emailed the list serve and was like, can anyone here meet me in Kuala Lumpur?

01:00:27.120 | And I can pay you money and you can bring me cash.

01:00:29.640 | But my new plan is never go to a country without at least like

01:00:33.680 | maybe one hundred dollars of cash.

01:00:35.680 | We literally probably had like seven dollars,

01:00:38.040 | which can get you a lot farther in Malaysia than I imagine.

01:00:41.680 | But not too far, but not too far.

01:00:43.800 | Wow. OK. Yeah. Bring cash.

01:00:46.680 | And again, the terrace beach and spa was on Redang Island, Redang Island.

01:00:51.640 | OK, cool. Awesome.

01:00:53.240 | So I also want to talk a little about parenting.

01:00:55.600 | We've kind of hit on it a little bit here and there, but we haven't gone deep.

01:00:58.760 | I know not everyone in this conversation listening has children,

01:01:02.280 | but you've written so much about it.

01:01:04.600 | I'm at home with a two year old and a two month old, and it's been top of mind

01:01:08.680 | for the last two and a half years.

01:01:10.960 | And there are a bunch of decisions that have to be made

01:01:13.520 | that you highlight in the book.

01:01:15.000 | I'd love to just run through a few things, get your perspective

01:01:17.760 | and see where it goes.

01:01:19.480 | You mentioned the rising cost of education.

01:01:22.160 | I'm curious how you've thought about approaching five twenty nine savings

01:01:26.040 | for college, how much to put in there and all of that.

01:01:29.160 | So I think the rising cost of tuition

01:01:32.320 | that is rising faster than the rate of inflation is kind of a racket.

01:01:36.200 | And it's kind of a racket because colleges don't guarantee

01:01:40.400 | any graduate a job, right?

01:01:42.440 | If they guaranteed a minimum paying job, then it wouldn't be a racket.

01:01:45.400 | But I think, you know, charging seven, 8%, 10% every single year forever.

01:01:49.440 | While everything online is for free, you can learn everything, right?

01:01:52.520 | YouTube, blog posts, even like the college lectures they put online.

01:01:57.240 | So why are we spending so much money on tuition?

01:02:00.000 | And why are colleges, these great colleges still only accepting

01:02:04.080 | a same level number of people if they really want to educate and help humanity?

01:02:08.720 | Right. They have a different motive.

01:02:10.440 | They want to keep their status, keep their eliteness, all that stuff

01:02:14.320 | and keep people out.

01:02:15.760 | That's my cynical view.

01:02:16.800 | But I think that's the realistic view as to why things have not changed

01:02:20.600 | in terms of tuition and acceptance rates in terms of five to nine plan.

01:02:24.600 | Unfortunately, we have to think about our children and play this game

01:02:28.800 | because education is the most important thing we can provide our children.

01:02:33.440 | If you're educated, you can have the courage to take risks,

01:02:37.560 | do things to make you money and live a better life.

01:02:40.160 | So for five to nine plan, I think it's a no brainer to contribute to it.

01:02:43.120 | We have super funded our children's five to nine plans

01:02:46.840 | the year they were born.

01:02:48.960 | And so we can't fund it for another five years.

01:02:51.280 | And if we overfund it, it's fine because you can just write

01:02:55.640 | a different person's name as the beneficiary, right?

01:02:58.280 | If your child ends up being a genius, gets a grant, scholarship and all that,

01:03:01.920 | and you got 100,000 leftover, just change the name, change it back to yourself.

01:03:06.320 | Change it to your nephew, niece, aunt wants to do graduate school, whatever.

01:03:10.760 | Five to nine plan is one of the best ways to transfer wealth in a responsible way

01:03:15.960 | instead of just giving money to transfer well for the use of education.

01:03:20.720 | I'll actually say there's a great hack, which is if you get a scholarship,

01:03:24.720 | you're actually allowed to fee free, take the money out

01:03:26.960 | that was given as a scholarship.

01:03:28.240 | So there you go.

01:03:29.720 | If you don't have anyone, other siblings, other people

01:03:32.720 | you want to give the money to, you can actually take it out in that circumstance.

01:03:35.800 | I know this is a topic in the book that I was excited to read.

01:03:38.640 | Public versus private school and spending money for education

01:03:43.400 | when there is public education as well.

01:03:45.320 | How would you help someone approach that thought about deciding

01:03:48.680 | whether they send their kids to public or private school?

01:03:50.760 | So I went to public school, high school, college, graduate school, all public school.

01:03:56.160 | I went to international private schools

01:03:58.000 | when I was in the Foreign Service in Malaysia, Taiwan, Philippines and Zambia.

01:04:04.000 | So I have a ratio.

01:04:06.160 | It's that you can go to a private school if it fits your kids needs.

01:04:10.120 | If your gross income is equal to at least seven times the net tuition of one child.

01:04:14.720 | So in other words, if the net tuition costs $20,000,

01:04:18.720 | you got to make at least $140,000 to be okay

01:04:23.440 | sending your child to private school.

01:04:25.520 | Because remember, your goal is also put your oxygen mask on first

01:04:29.560 | and save and invest for your retirement as well.

01:04:33.000 | And it used to be the multiple is more like five times,

01:04:36.440 | but I've upped it to six to seven and might continue to go up

01:04:39.480 | because I feel that education is more and more free and accessible to everyone.

01:04:43.080 | Therefore, the idea of spending more and more money on private school

01:04:46.760 | just doesn't make sense because after, let's say you send your kid

01:04:51.520 | from private school, from kindergarten through four years of college,

01:04:54.640 | it's about $780,000

01:04:58.360 | without any returns here in San Francisco, just for normal private schools.

01:05:03.240 | And college, if you slap on a 4% rate of return,

01:05:06.600 | which is pretty reasonable and pretty achievable,

01:05:09.600 | it's like $1.1 million that you're going to spend.

01:05:12.480 | So think about it from your child's perspective, who doesn't know better,

01:05:16.120 | but who will know better based on your tutelage.

01:05:18.200 | Would they rather go to public school

01:05:21.280 | and have a check for $1.1 million when they graduate from college

01:05:25.320 | or, you know, farmed out over, you know, a five-year period

01:05:28.120 | so they don't spend all their money and go crazy?

01:05:30.480 | Or would they rather go to private school?

01:05:33.480 | Ask your children that, give them that dilemma,

01:05:36.440 | and then also ask yourself what you can do in terms of accelerating your retirement

01:05:41.360 | if you had $1 million more as well.

01:05:44.040 | So those are my thoughts.

01:05:45.880 | I think it's not the end all be all, whether you go to private school, public school.

01:05:49.360 | I think what's most important is that you develop your social skills,

01:05:52.720 | communication skills and actual practical knowledge

01:05:55.520 | so that you can get a good job or start your own business.

01:05:58.800 | I love how in the book, you take questions like this

01:06:02.520 | and you help approach the average person on how to think about them from both sides.

01:06:06.680 | So I definitely think anyone listening should check it out.

01:06:09.600 | It's linked in the show notes, so you can find it there or really wherever books are sold.

01:06:13.920 | Where else can people find everything you're working on?

01:06:17.200 | You can just go to FinancialSamurai.com.

01:06:19.960 | And if you want to leave a comment, you can leave a comment.

01:06:22.400 | I'll see it and I'll respond to it if you have a question.

01:06:25.160 | You can buy Buy This, Not That anywhere books are sold.

01:06:28.560 | But you can check out the landing page at FinancialSamurai.com forward

01:06:32.400 | slash BTMT for Buy This, Not That as well.

01:06:35.200 | Awesome. Thank you so much for being here.

01:06:37.920 | Yeah, no worries. Thanks for having me.

01:06:40.680 | I really hope you enjoyed this episode.

01:06:44.240 | Thank you so much for listening.

01:06:46.040 | If you haven't already left a rating and a review for the show in Apple

01:06:49.360 | Podcasts or Spotify, I would really appreciate it.

01:06:52.320 | And if you have any feedback on the show, questions for me or just want to say hi.

01:06:56.480 | I'm Chris at AllTheHacks.com or @Hutchins on Twitter.

01:07:00.440 | That's it for this week. I'll see you next week.

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