Beware_of_financial_blind_spots_on_the_road_to_financial_independence
00:00:00.000 | Hello everybody, it's Sam from Financial Samurai and in this episode I want to talk about financial
00:00:05.440 | blind spots on our road to financial independence.
00:00:09.000 | So every month I treat myself to a chair massage.
00:00:12.560 | The chair massage at the mall is about 80 cents to a dollar a minute and I'm hoping
00:00:17.820 | to get 30 minutes because that's I think the sweet spot, but I usually only get 10 minutes.
00:00:23.240 | Why?
00:00:24.240 | Because every time I go to this chair massage place there's this guy that I'm trying to
00:00:27.560 | avoid and every time I get there he's like, "Hey, welcome, welcome to the chair massage
00:00:33.040 | place.
00:00:34.040 | Come sit in my chair and do you want a 30 minute, 45 minute, 60 minute?"
00:00:38.960 | You know, the more the better for them because they make more money.
00:00:42.400 | And every time I see him I say, "Well, no."
00:00:45.960 | I start pretending I actually don't have that much time.
00:00:48.400 | I've got to go pick up my kid or something and I can only do 10 minutes.
00:00:53.280 | And the reason why I say 10 minutes, which is the minimum chair massage time at the place,
00:00:56.880 | is because I don't know if I can take his torture.
00:01:00.480 | I have told him time and time again, "Please go a little bit lighter because it's a little
00:01:06.120 | bit too sensitive after tennis and softball."
00:01:09.200 | And every time he says, "Sure, no problem."
00:01:11.120 | And then within three seconds he starts kneading away, kneading and he's like digging into
00:01:16.640 | something like trying to find gold in the ground or something and I'm just dying.
00:01:21.800 | I'm making audible noises showing discomfort and he just keeps on going.
00:01:27.840 | So there's a disconnect here.
00:01:29.280 | He believes what he's doing is the right way even though the client, me, is suffering.
00:01:35.960 | And I actually just don't want to suffer.
00:01:37.360 | I know there's therapeutic massages where in order to get better you've got to feel
00:01:42.240 | that pain and crush those knots and stuff.
00:01:44.820 | But I just kind of want to relax and enjoy myself and just drift away and feel good.
00:01:50.880 | But because of this financial blind spot, I would say he's missing out on 100% to 200%
00:01:55.920 | of income because he just doesn't listen to his clients.
00:01:59.040 | I would happily pay him for 30 minutes if not 60 minutes if he was a great masseuse.
00:02:04.480 | But he just wants to go to town and do his own thing.
00:02:08.400 | So financial blind spots I think really impede us on the road to financial independence.
00:02:14.040 | And in this episode I just want to talk about several financial blind spots and also a latest
00:02:18.240 | financial blind spot that I think is really, really interesting in modern day society.
00:02:23.440 | So one, the first common financial blind spot I see is comparing someone's middle to your
00:02:29.480 | beginning.
00:02:30.640 | Some of the most clueless people about their money are in their 20s because hey, you're
00:02:34.400 | just starting to make money, right?
00:02:35.960 | Nobody can blame you.
00:02:37.480 | Yet ironically some of the most vociferous people who think they know it all also happen
00:02:42.320 | to mostly be in their 20s.
00:02:43.880 | And I think this is a huge and fascinating disconnect.
00:02:47.840 | They rage against the people who bought their own house by 28, accumulated a million dollars
00:02:53.520 | in after tax investments by 35, 40 and started making over $100,000 a year after going to
00:02:59.520 | graduate school.
00:03:01.120 | Yet they haven't given their life enough time to compound.
00:03:04.760 | It's as if they want to get ahead by refusing to work more than 40 hours a week.
00:03:08.920 | It's as if they want to go straight to the corner office.
00:03:12.040 | And that's a no-no.
00:03:13.040 | You cannot compare your beginning and with no experience, relevant experience to someone
00:03:18.840 | who's been grinding away for 10, 15, 20 years.
00:03:22.760 | So what's the repercussion?
00:03:23.760 | Well, I think you generate resentment, anger and bitterness towards a large swath of people.
00:03:30.520 | And with so much resentment you end up going to your local hardware store and buying a
00:03:34.080 | pitchfork to stab anybody who has more than you.
00:03:37.560 | Instead of taking action to improve your own financial situation, you use your negative
00:03:41.720 | energy to attack others and to try to bring them down to your level instead of working
00:03:46.400 | on yourself to bring yourself up.
00:03:49.520 | Two, thinking parenting is easier and cheaper than it is.
00:03:54.600 | For those suffering from this blind spot, they either don't have kids or are a parent
00:03:58.920 | working outside the home.
00:04:01.400 | Being a stay-at-home parent to a baby or a toddler is harder than almost any job I can
00:04:06.080 | think of because it is 24/7 and the stakes are so high.
00:04:10.320 | One look away could mean a bloody bonk on the head or a drowning, the number one cause
00:04:15.680 | of death of children under 4.
00:04:17.960 | As a result, when looking after a child, you can never mentally or physically relax 100%
00:04:23.400 | of the time.
00:04:25.020 | And over time, your nerves will begin to fray without relief.
00:04:28.840 | I've met so many working dads who think raising a child is easy simply because they don't
00:04:33.840 | take care of their kids most of the day.
00:04:36.480 | It's either their spouse or daycare that takes care of the child.
00:04:39.880 | And that's fine, that's normal, that's just the way some arrangements are.
00:04:44.000 | But what happens is that working spouse tends to take the stay-at-home spouse for granted
00:04:48.840 | and then the relationship begins to break down because nobody wants to feel this type
00:04:52.560 | of resentment.
00:04:53.560 | I've also encountered childless couples who criticize stay-at-home parents for hiring
00:04:58.040 | help.
00:04:59.040 | They think it's nuts for a stay-at-home parent to hire relief for several hours a week or
00:05:03.480 | a day so that the parent can take a shower, go to the bathroom in peace, exercise or spend
00:05:09.080 | quality time with friends and loved ones.
00:05:11.520 | Folks, it's hard being a stay-at-home parent.
00:05:14.120 | So if you don't have kids or you're not the stay-at-home parent, give some slack, otherwise
00:05:19.120 | there's going to be resentment, fighting, unhappiness, neglected kids, rebellious kids,
00:05:23.960 | divorce, financial ruin, and many more years of pain.
00:05:28.320 | The third financial blind spot is thinking everybody can just move to a lower-cost area
00:05:33.200 | of the country and be happy.
00:05:35.840 | Everybody knows the Midwest and South are lower-cost areas of the country than the coast.
00:05:39.880 | That's just a no-brainer and I'm actively investing in these heartland states and cities.
00:05:46.440 | The demographic trend is inward because the cost of living is so much cheaper and there's
00:05:51.120 | technology that allows us to work from home and do telecommuting and so forth.
00:05:55.920 | However, not everybody can just go to the middle of America and feel happy.
00:06:02.240 | Well, one, they might not have family there, two, no friends, three, they might feel like
00:06:07.360 | a fish out of water.
00:06:09.320 | People naturally gravitate to people who look like them, talk like them, and have similar
00:06:14.080 | backgrounds.
00:06:15.080 | You look at it in the boardrooms.
00:06:16.880 | If one guy went to, let's say, Dartmouth, suddenly he or she has a lot of other friends
00:06:22.500 | who have gone to Dartmouth.
00:06:24.500 | If one man is from Zimbabwe, suddenly there's other people from Zimbabwe surrounded by him
00:06:30.240 | in the boardroom.
00:06:31.720 | And you look at your friends, probably they all tend to have similar backgrounds or they
00:06:36.560 | tend to look alike.
00:06:38.000 | So just to ask someone to move from, let's say, one city like San Francisco where the
00:06:42.920 | minority are the majority to, let's say, Des Moines where they would be the absolute minority
00:06:48.760 | would be harder for some than others.
00:06:51.660 | So what's the repercussion for missing this blind spot?
00:06:54.200 | Well, I think the number one repercussion is homogeneity in your offline community or
00:07:00.000 | online community and what happens is that an echo chamber is created where nobody can
00:07:05.360 | think for themselves because they're just all finding belief and truth from other people
00:07:10.740 | to portress their own beliefs.
00:07:12.720 | Okay, the fourth blind spot on the road to financial independence is underestimating
00:07:18.000 | healthcare costs in retirement.
00:07:20.440 | Because employers subsidize most and sometimes all of their employees' healthcare costs,
00:07:25.840 | employees either don't know what their true healthcare costs are or they take these benefits
00:07:30.400 | for granted.
00:07:31.400 | It's the same reason why so many freelancers get into trouble when it comes time to pay
00:07:35.180 | their taxes.
00:07:36.820 | When they were working full time as employees, their employer facilitated the payment of
00:07:40.600 | an estimated tax from each paycheck.
00:07:43.340 | If the government didn't require this practice, it would have a very difficult time collecting
00:07:48.320 | the majority of its tax revenue come year end because most people would have just spent
00:07:53.120 | it all.
00:07:54.120 | So if you suffer from this blind spot, it can be very devastating to your finances because
00:07:59.280 | you will likely not save or accumulate enough capital to generate enough passive income.
00:08:05.840 | To give you an example of how much healthcare costs, my family of three is going to pay
00:08:10.240 | $1,940 a month in premiums in the year 2020.
00:08:15.320 | It's a platinum plan, it's a great plan, but $1,940 a month is a lot of money and if we
00:08:22.280 | were to add a second child, we asked, the plan is going to go up $440 a month.
00:08:27.560 | So we're talking $30,000 a year in healthcare premiums.
00:08:32.280 | And if you don't account for that in your financial plans, independent plans, that's
00:08:37.720 | going to be a tough nut to swallow.
00:08:39.680 | Now of course there are other options, right?
00:08:41.700 | You can earn below 400% of the federal poverty limit to get subsidized healthcare.
00:08:47.240 | I don't know how good it's going to be, but you can definitely save on costs that way.
00:08:51.280 | You can go to health care ministries or you can just roll the dice and not have healthcare.
00:08:56.120 | But I tell you, if you have kids, little ones are always getting sick, they're always getting
00:09:00.160 | in trouble, they're getting hurt, and you don't really know the health of your child
00:09:03.600 | fully until maybe they're five years old or maybe 10 years old.
00:09:07.960 | So please, please account for healthcare costs before you leave your job.
00:09:13.360 | Don't take your job's healthcare benefits and other benefits for granted.
00:09:17.080 | Alright, the fifth blind spot on the road to financial independence is believing the
00:09:21.680 | only path to financial independence is through a high income.
00:09:26.280 | Since 2009, I've heard this complaint over and over again, how someone made a higher
00:09:30.960 | income, therefore he or she obviously was able to achieve financial independence by
00:09:36.000 | the time they were 40 or whatever the age may be.
00:09:40.080 | Everybody knows that the more you make, often the more you spend.
00:09:43.880 | You've seen countless examples and countless data showing this to be the case.
00:09:48.760 | It's often harder to stay financially disciplined if you have a higher cash flow.
00:09:53.160 | Think about all the athletes who've made millions and millions of dollars who ended up broke
00:09:57.880 | because that allure to spend because you have so much money is so easy and nobody told them
00:10:03.600 | otherwise.
00:10:05.080 | If you believe the only way to wealth is through a high income, then unfortunately you've already
00:10:09.660 | defeated yourself, you have weakened your money mindset.
00:10:14.000 | You'll believe working on a side hustle like driving a car, assembling furniture or flipping
00:10:19.200 | burgers is beneath you.
00:10:21.060 | You won't be willing to put in your dues.
00:10:24.740 | You probably won't be willing to put endless hours in an online entrepreneurial endeavor
00:10:28.300 | either because you think only "special people" with money can do something unique.
00:10:33.760 | And sadly, that's just not true.
00:10:35.680 | Think about when you were a kid, and I'm living this now as a high school tennis coach and
00:10:40.340 | as a father to a toddler.
00:10:42.420 | The ideas and the creativity and the hustle is endless.
00:10:46.540 | And somehow or another when we become, I don't know, 21, 25, we just get beaten down by the
00:10:52.020 | workplace and our creativity and hustle disappears.
00:10:56.820 | I am sure that all of you guys have something else to offer besides your day job that will
00:11:02.100 | allow you to make money.
00:11:04.420 | Please don't believe that other jobs are beneath you.
00:11:08.220 | Nothing is beneath you if you want to achieve financial independence.
00:11:11.360 | You got to go out and do it.
00:11:13.420 | You got to save your money and you got to find other ways to make extra money.
00:11:18.020 | Curing blind spots is hard.
00:11:20.660 | And the reason why I introduced so many different financial archetypes is because it allows
00:11:25.940 | people to ponder and consider what their future might entail.
00:11:30.860 | One such financial archetype is a family of four with two kids under 18 living in a high
00:11:35.860 | cost of living area.
00:11:37.780 | There's nothing unusual about this financial archetype.
00:11:41.340 | According to the National Oceanic and Atmospheric Administration, coastal counties of the US
00:11:46.420 | are home to over 126 million people or 40% of the nation's total population.
00:11:52.460 | Meanwhile, according to Statista, the average family has 1.9 aged under 18 children.
00:12:00.460 | In other words, a family of four living in an expensive city is quite common.
00:12:03.980 | And to understand and describe the pressures of raising two children in a high cost of
00:12:09.060 | living area where 40% of the American population lives, I wrote a guest post on CNBC entitled
00:12:15.060 | "It Now Costs $350,000 a Year to Live in a Big City with Family."
00:12:20.780 | And then it did well and then MarketWatch decided to pick it up and write their own
00:12:24.760 | spin that said "This budget shows a $350,000 salary barely qualifies as middle class."
00:12:31.300 | And then with one last final poke, MarketWatch tweeted out the budget and they said "$350,000
00:12:39.140 | and still struggling" and highlighted my $350,000 budget.
00:12:44.020 | Finally, this tweet caught the attention of Alexandria Ocasio-Cortez, AOC, who retweeted
00:12:50.180 | the budget and said "struggling?
00:12:53.140 | With what, math?"
00:12:54.820 | And I thought this was a great response because it was humorous and she retweeted it out to
00:12:58.860 | her 5.6 million followers.
00:13:01.300 | This is great because it got people talking about important things such as money and happiness,
00:13:07.180 | the purpose of grinding so hard at your day job to make money that I don't think will
00:13:12.260 | make you any happier, the importance of staying on top of your finances and living within
00:13:16.660 | your means, whether it's worth being a two-income household when you have kids and have to pay
00:13:22.180 | for daycare, the importance of contributing to your retirement plan, and so forth.
00:13:28.500 | It got America talking, which is all a personal finance educator can talk about.
00:13:33.620 | I'm not here to judge how you spend your money, but I'm here to show you how money can be
00:13:38.640 | spent quickly and look at these various blind spots.
00:13:43.300 | And what AOC doesn't realize is that as an unmarried 30-year-old woman, she might very
00:13:50.260 | well turn into the family of four one day who has to survive off $350,000 raising two
00:13:56.340 | kids in an expensive city like Washington DC.
00:13:59.340 | I fully expect her to be a rising star in the Democratic party for at least another
00:14:02.540 | decade if not two, and as a result she should prepare herself for financial life in DC or
00:14:09.380 | if she goes back to the New York City area.
00:14:12.660 | Same thing, it's equally as high cost to live there if not more.
00:14:16.780 | AOC makes $174,000 a year, which is pretty good, it puts her in the top 5% of all income
00:14:23.060 | earning Americans.
00:14:24.380 | However, the salary has been capped since 2009 given objections by the American people
00:14:29.700 | who give Congress a low approval rating, so I don't think that income is going up anytime
00:14:34.300 | soon and if AOC wants to buy a house, it's going to be tough in Washington DC where the
00:14:40.300 | median price detached home is around $820,000 as of the fourth quarter of 2019.
00:14:47.660 | And if she wants to send her kids to private school, which many Congress men and women
00:14:52.740 | do, well that's going to set her back even more.
00:14:57.740 | It's crazy how much private school is in the DC area, just look at Georgetown Prep, it's
00:15:01.620 | around $40,000 a year for high school, and if you look at Sidwell Friends where Obama's
00:15:07.180 | daughters went, it's $45,000 and up.
00:15:12.420 | And if you assume a 3% to 5% annual tuition inflation, there's just no way on a $174,000
00:15:20.300 | income she can provide all this for her children.
00:15:23.900 | And let's also forget about sending the two kids to AOC's alma mater, Boston University,
00:15:30.100 | according to their own website, it costs $72,000 a year to attend.
00:15:35.100 | And again if you assume inflation, I would say by the time her fictitious children, let's
00:15:40.540 | say who were miraculously born today, attend in 18 years, the cost is going to be about
00:15:45.740 | $170,000 a year.
00:15:49.180 | So what are the solutions?
00:15:50.620 | Well, one, be okay with public grade school and university.
00:15:54.900 | Don't think just because you went to a private university, your kids have to go there as
00:15:58.540 | well.
00:15:59.540 | We've talked about this ad nauseum, it's okay to go to public grade school like the majority
00:16:03.940 | of the American population.
00:16:05.700 | Two, do some side hustling.
00:16:08.820 | Members of Congress are supposedly able to earn an additional 15% of the annual rate
00:16:12.960 | of basic pay, so that's another $28,400 a year of outside earned income.
00:16:18.700 | Three, lose or quit.
00:16:21.180 | She is a very popular woman, there is an unlikely chance she will lose when she's up for re-election
00:16:25.580 | on November 3rd, 2020, but if she does or decides to quit, I'm sure she could get a
00:16:29.940 | multi-million book deal like every popular politician before her.
00:16:35.100 | Four, find a spouse or a wealthier spouse.
00:16:38.700 | It's a little funny that she highlighted my budget of $350,000 a year, where if she found
00:16:45.380 | a spouse that made an equal amount of money of $174,000 a year, their combined income
00:16:50.700 | would be $350,000 a year.
00:16:52.780 | It's funny how that goes full circle, doesn't it?
00:16:55.740 | When AOC is in the top 0.1% of power, she will naturally run in circles with other people
00:17:01.620 | of power and great wealth, so I see no reason why she can't find an equal partner who
00:17:06.500 | makes at least $174,000, if not more.
00:17:11.060 | And then the final solution, have fewer children or no children because children are expensive
00:17:16.620 | and it should be a reasonable ask to not have children before first being able to take care
00:17:20.940 | of yourself.
00:17:22.500 | Thinking about how many better adjusted children there would be if parents had a stable household
00:17:28.220 | with stable finances, maybe there would be less angry people, less murders, less crime.
00:17:35.880 | Good things could happen if more parents are more present and more financially stable.
00:17:40.000 | So in conclusion, I hope everybody is aware of their blind spots on the road to financial
00:17:45.120 | independence.
00:17:46.260 | We all have them.
00:17:47.460 | You have them.
00:17:48.460 | I have them, which is part of the reason why I write and podcast so much, is because I
00:17:52.300 | want the financial samurai community to tell me where I'm missing something.
00:17:56.460 | The best teacher is experience and why not get those who have experienced what you or
00:18:02.300 | I will eventually go through to share their thoughts and their wisdom.
00:18:06.420 | I know it's easy to make fun of people who are different from you, who live in a coastal
00:18:11.780 | city, who make $350,000 a year, who's a different race, speaks a different language,
00:18:16.860 | all that stuff.
00:18:17.860 | But I challenge you to keep an open mind, keep an open mind and realize that might be
00:18:23.500 | you one day or maybe someone is living a different life than you and going through different
00:18:30.420 | types of struggles.
00:18:32.340 | And one person's struggle is no different than another person's struggle.
00:18:36.540 | So hopefully through reading and listening, we can all be more empathetic and understanding
00:18:40.840 | to different situations because who knows, we might find ourselves there one day.
00:18:45.260 | Thanks everyone for listening.
00:18:47.020 | I always appreciate it.
00:18:48.300 | And if you enjoyed this podcast, I'd appreciate a positive review on iTunes or wherever you
00:18:53.380 | listen to this podcast.
00:18:54.940 | I plan to continue for a long, long time, at least one podcast a week, maybe more once
00:19:01.340 | I get more in the groove with my free time now that my boy's in school.
00:19:05.420 | And if you want to see AOC's budget, go ahead and check out the post on my website.
00:19:10.780 | I spent a little bit too much time trying to get all the details right.
00:19:14.580 | Have a great week everyone and I'll see you guys around.