RPF0568-You_Dont_Have_to_Be_Smart_to_Become_Financially_Independent...But_You_Cant_Be_Stupid_pt._2_of_5
00:00:00.000 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,
00:00:04.400 | skills, insight, and encouragement you need to live a rich and meaningful life now while
00:00:09.160 | building a plan for financial freedom in 10 years or less.
00:00:12.800 | My name is Joshua.
00:00:13.800 | I am your host.
00:00:14.800 | And today we continue with part two of my series, "You Don't Have to Be Smart to Become
00:00:19.740 | Financially Independent, But You Can't Be Stupid."
00:00:23.400 | And today we talk about expenses.
00:00:26.180 | This series is organized around my framework for wealth.
00:00:28.600 | Part one was increase income.
00:00:30.500 | If you can do nothing else with money except increase income, you'll naturally have more
00:00:34.460 | money.
00:00:35.820 | But step two is decrease expenses.
00:00:38.780 | Now I love to think and talk about ways of cutting expenses to the bone.
00:00:43.620 | I love to think and talk about really radical lifestyle decisions.
00:00:48.900 | But realistically, not many people will do those things.
00:00:52.600 | But here's the great news.
00:00:53.980 | You don't have to do those radical crazy ideas in order to be financially independent.
00:00:59.720 | You just can't be stupid with your money.
00:01:03.740 | Now if you look at the way that most people spend their money, there are a few expenses
00:01:11.820 | that make up a big portion of the error.
00:01:16.320 | And since this series is focused on simply avoiding stupidity, not trying to make you
00:01:20.820 | do something uber smart, just saying that you can't be stupid, let me talk to you about
00:01:24.640 | some big danger zones.
00:01:26.760 | Number one, the biggest expense that most of us will face in our life is taxes.
00:01:31.360 | Now taxes for the common man, which is what my approach is in this show, taxes are not
00:01:36.820 | particularly complicated.
00:01:38.720 | I'm going to assume for the purposes of this series that you are just simply working a
00:01:42.440 | job.
00:01:43.580 | As such, you're going to have employment taxes and you're going to have a certain level of
00:01:47.080 | income taxes.
00:01:48.800 | Here's all you need to do to save on your income taxes.
00:01:55.120 | That's it.
00:01:56.560 | Because most of the time, people who are earning a common man wage don't actually have that
00:02:03.140 | much in income taxes.
00:02:05.680 | So you can just move right on past that category for right now and focus on something else.
00:02:11.680 | Now if you are a six figure or multi six figure earner, then yes, you need to pay more attention
00:02:16.400 | to tax planning.
00:02:17.600 | But the average tax liability on somebody earning 50, $80,000 is very reasonable.
00:02:24.560 | Now if you didn't like my suggestion of, then let's move past it and here's the simple thing.
00:02:30.660 | Just put money in your 401k.
00:02:32.960 | If you don't have a 401k, put money in an IRA, fund one for you, fund one for your spouse.
00:02:38.120 | It's as simple as that.
00:02:39.560 | If you'll just put money in your 401k, you'll lower your income tax liability by a very
00:02:44.120 | reasonable amount and you'll have money down the road.
00:02:47.560 | It's very simple.
00:02:49.440 | Most people don't need anything more than that.
00:02:54.320 | Now what's the next big category?
00:02:56.900 | The biggest expense that most people have is housing.
00:03:01.960 | Here is all you need to know with regard to housing.
00:03:05.800 | Just choose a modest, comfortable house that's well built, buy it, finance it with a long
00:03:15.760 | term fixed rate mortgage and live in it for as long as you can possibly make happen.
00:03:22.960 | If you'll do that, everything will work out.
00:03:27.040 | The big errors here that most people make, the stupid things that they do, is one, they
00:03:31.520 | buy way more house than they can afford.
00:03:34.680 | And because your house is a driver of many other levels of expenses, they automatically
00:03:39.480 | put themselves into stupid camp.
00:03:43.120 | Here's why.
00:03:45.160 | Your house will dictate the kind of car that you drive.
00:03:48.280 | If you live in a modest neighborhood, then a modest car will not seem out of place.
00:03:53.480 | But if you live in a ritzy, glitzy neighborhood, a modest car will seem out of place.
00:03:58.160 | You can hide it in the garage, but most people will, in time, wind up putting themselves
00:04:03.400 | into a situation where they upgrade their car.
00:04:06.240 | If you live in a modest neighborhood, in a modest house, chances are that your neighbors
00:04:10.080 | will probably be fairly modest in their financial doings, which means you're more likely to
00:04:14.960 | be invited to go on a picnic, or to go out in the boat this weekend, or go down to the
00:04:19.760 | lake, which are very modest ways of enjoying your entertainment for the weekend.
00:04:25.440 | If you live in a ritzy, glitzy neighborhood, you're more likely to receive invitations
00:04:28.880 | to go snow skiing out in Vail for the week.
00:04:32.680 | I like snow skiing in Vail, but it's hard to get away from a week of snow skiing for
00:04:36.520 | less than $5,000 for a couple.
00:04:42.040 | So your house drives many of your expenses.
00:04:47.000 | Your house purchase price also drives many of the internal expenses for your house.
00:04:53.380 | If your house is relatively modest, you can staff it, or fill it, with appropriate, high-quality,
00:05:01.240 | but modest appliances.
00:05:03.960 | But if your house is very ritzy, your modest appliances will seem very out of place.
00:05:09.080 | If your house is modest, then you can treat it with modest landscaping that you can maintain
00:05:15.040 | yourself.
00:05:16.200 | But if your house is ritzy, your modest landscaping starts to look out of place, and now all of
00:05:19.760 | a sudden you have to hire a gardener to take care of things.
00:05:23.600 | The simple decision on your house and your housing will drive almost every other category
00:05:28.720 | of your budget.
00:05:30.160 | So just choose something modest.
00:05:32.320 | Now you don't have to live down in a van down by the river.
00:05:35.600 | Just choose a modest neighborhood with modest homes.
00:05:39.000 | Buy a quality home.
00:05:41.720 | Finance it with a long-term, fixed-rate mortgage if you don't have the cash to pay for it.
00:05:47.640 | If you'll just have a mortgage and pay it off, you'll own a house.
00:05:52.960 | In the United States of America, a huge percentage—I'm grasping for the exact data, look me up, but
00:06:00.440 | my gut says it's like 30 to 40 percent—so a huge percentage of houses are owned debt-free.
00:06:06.840 | Just say a third.
00:06:09.400 | Most of the time those houses are owned not because somebody did some weird radical strategy
00:06:14.140 | of building it themselves or living in an igloo because they could build it cheap.
00:06:19.680 | Rather, they just bought a house, paid it off, made some extra payments here and there.
00:06:24.440 | It's not hard on a working man, common man's salary to take out a 30-year mortgage and
00:06:29.840 | pay it off in 18.
00:06:32.160 | Just requires some extra payments here and there.
00:06:35.200 | Requires some disciplined choices to go ahead and put extra money towards the mortgage instead
00:06:40.480 | of spending it.
00:06:43.480 | So control your house.
00:06:48.400 | Move as infrequently as possible.
00:06:52.360 | Moving is expensive.
00:06:53.840 | It's expensive to sell a house.
00:06:56.040 | It's expensive to buy a house.
00:06:57.860 | It's expensive in time and it's expensive in money.
00:07:00.840 | It's expensive because whenever you buy a house, you're going to have to fix a bunch
00:07:03.740 | of stuff that you didn't know about when you did your inspection.
00:07:06.720 | When you buy the house, you're going to have to decorate it.
00:07:08.480 | You're going to have to furnish it.
00:07:09.800 | The actual physical costs of moving are not insubstantial.
00:07:14.040 | So focus on just moving as little as possible.
00:07:18.460 | If you'll live a stable lifestyle and buy a home in a modest, comfortable, suburban
00:07:23.320 | neighborhood and stay there a long time, you will naturally wind up with a paid-for house
00:07:30.080 | and relatively low living expenses.
00:07:33.840 | That's sufficient.
00:07:38.840 | You don't have to be a genius.
00:07:40.760 | Now let's move on to vehicles, the number three category that most people spend a lot
00:07:44.760 | of money in.
00:07:45.920 | I think it's wonderful if you would like to get rid of your car and ride a bicycle full
00:07:50.600 | time.
00:07:51.600 | That is awesome and it will save you a ton of money.
00:07:53.880 | But you know what?
00:07:55.440 | You don't have to.
00:07:57.120 | I think it's super cool.
00:07:59.020 | If you want to buy a $2,000 car, drive it for five years and sell it for $2,000.
00:08:04.080 | But you know what?
00:08:05.080 | You don't have to.
00:08:06.560 | You can go and buy a new car.
00:08:09.760 | You can finance said new car.
00:08:13.320 | But here's what you can't do if you want to be wealthy.
00:08:16.220 | You can't buy a new car and finance a new car every three years.
00:08:20.920 | And you can't buy a new fancy car and finance a new fancy car that goes down in value every
00:08:25.720 | three years.
00:08:28.400 | But you don't have to buy used cars.
00:08:31.820 | You don't have to ride bicycles or motorcycles or scooters.
00:08:35.280 | All those things are cool.
00:08:37.600 | Here's what you need to do at the very least.
00:08:40.420 | Don't be stupid.
00:08:41.600 | If you're going to buy a new car, choose a quality car.
00:08:46.120 | Do your shopping first in the Consumer Reports guides rather than on the local showroom floor
00:08:50.720 | and choose quality over flashiness.
00:08:53.880 | If you'll choose a quality car, even if you buy it new and you finance it, that car should
00:08:59.760 | last you for a long time.
00:09:02.120 | Think carefully about your needs and your future needs so that you don't have to automatically
00:09:07.460 | change cars in three years because you were short-sighted or stupid and you bought a two-door
00:09:12.640 | car when you were pregnant with a baby.
00:09:15.480 | That didn't work.
00:09:16.480 | That wasn't a good plan.
00:09:17.760 | So go ahead and buy a new car if that's what you need, but buy a carefully chosen, reasonable
00:09:23.320 | car, and keep it for a very long time.
00:09:29.600 | If you buy a new car and keep it for 20 years, there is almost no meaningful difference between
00:09:36.460 | the impact of your buying a new car versus the three-year-old car.
00:09:42.860 | Even if you financed it, it was paid off for 15 years.
00:09:47.120 | Just buy a nice car that's reasonable and keep it for a very long time.
00:09:54.760 | That's simple.
00:09:56.000 | That's doable.
00:09:57.800 | Now what other expenses?
00:09:59.120 | Well, from here, you need to think carefully about the other big budget items in your life,
00:10:05.880 | and these budget items will be unique to you.
00:10:08.480 | For some people, you'll need to consider the cost of private schooling.
00:10:14.080 | Other people, you'll need to just simply control a little bit of the cost of your vacations
00:10:20.280 | or your hobbies.
00:10:22.400 | But you can still go on vacations.
00:10:23.960 | You can still have great hobbies and save a lot of money.
00:10:27.520 | Just think a little bit modestly.
00:10:31.280 | Don't reach and stretch for the second beach house.
00:10:36.880 | Just go and stay at a hotel on the beach for a week.
00:10:40.960 | Don't reach and stretch for the big giant RV.
00:10:45.280 | Just buy a simple pop-up and use it.
00:10:48.000 | Don't reach and stretch for the huge boat.
00:10:51.080 | Just buy the modest boat.
00:10:53.120 | If you'll do the simple things like that, you can keep your expenses down while also
00:10:57.480 | maintaining an entirely comfortable and sufficient lifestyle, and you can become financially
00:11:03.200 | independent in a reasonable amount of time.
00:11:06.320 | You don't have to be smart to become financially independent, but you can't be stupid.
00:11:13.280 | So don't be stupid.
00:11:15.360 | If you're not into the radical weird stuff, live the normal approach to life.
00:11:21.480 | Just don't be stupid with your expenses.
00:11:28.840 | Thank you for listening.
00:11:29.840 | You've honored me with your time and attention, and I'm grateful for that.
00:11:34.040 | And I hope that I've effectively served you today with some ideas and strategies and tactics
00:11:38.880 | and techniques and tools that will help move you towards your goals.
00:11:43.600 | Before you go, three simple requests.
00:11:46.000 | One, if there's an idea that's been helpful to you in today's show, make a plan to take
00:11:51.720 | action on it.
00:11:53.760 | Listening does lead to learning, but learning in and of itself doesn't automatically lead
00:11:59.160 | to a life change.
00:12:01.520 | It's action that leads to a life change.
00:12:05.520 | So take action.
00:12:07.160 | Two, take something that was helpful to you in today's show and share it with somebody
00:12:12.840 | that you care about.
00:12:14.400 | I'm depending on you to be a co-laborer with me in helping me to propagate the message
00:12:21.600 | that I'm seeking to share.
00:12:24.080 | That helps the person that you are engaging with, and it also helps you because teaching
00:12:29.920 | others is one of the most effective ways for you to learn and for you to cement your learning.
00:12:36.680 | Three, if there's an idea that's been specifically helpful to you, and if you're gaining financial
00:12:42.040 | benefit from Radical Personal Finance, I'd be grateful if you'd consider paying me for
00:12:46.760 | this work voluntarily.
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