Hacks to MAXIMIZE Your Wealth

00:00:00.000 | I didn't realize this but only about 5% of mortgage holders have adjustable rate mortgages and I've

00:00:05.360 | been talking about getting an adjustable rate mortgage since I started in 2009 and since I've

00:00:09.760 | been working in finance since 2003 well since I bought my property in 2003 and the idea is look

00:00:17.440 | interest rates and inflation have been coming down for 40 years in a row because of technological

00:00:25.520 | advances efficiencies learning about past cycles and yes we currently have elevated inflation now

00:00:31.760 | due to a global pandemic but you are seeing inflation top tick in July and I think that's

00:00:38.480 | going to fade into 2023 it's just the way it is yin yang finance when prices are up demand starts

00:00:43.840 | to get destroyed and then we get back to the normal steady state and so the idea with an arm is

00:00:49.760 | look you pay a lower rate than a 30-year fixed because of the time value of money if you're

00:00:54.240 | borrowing at a shorter fixed rate return the lender will pay you will lend to you at a lower rate

00:01:00.000 | and the thing is back in the global financial crisis days the median or the average home

00:01:05.920 | ownership tenure was about four and a half five years now the average home ownership tenureship

00:01:11.840 | is about 10 to 11 years the idea is you want to max your fixed rate duration of your mortgage

00:01:18.640 | with how long you plan to live in your home hello and welcome to another episode of all the hacks

00:01:23.920 | a show about upgrading your life money and travel i'm your host chris hutchins and each week i sit

00:01:29.120 | down with the world's best experts to learn the strategies tactics and frameworks that shape their

00:01:33.520 | success today i'm talking with sam dogan known online as the financial samurai his website is

00:01:39.520 | one of the top personal finance destinations with over a million visitors each month he's been

00:01:44.240 | writing there for over a decade and there is so much good content the first time i found myself

00:01:49.200 | on your site i think i ended up with at least 50 tabs open and i've read them for hours and this

00:01:55.200 | summer his first traditionally published book came out called buy this not that how to spend your way

00:02:00.960 | to wealth and freedom and it's already a wall street journal bestseller he wrote the book to

00:02:06.000 | try to take the guesswork out of financial planning and shows readers exactly what to buy

00:02:10.960 | how much to spend and how to optimize every dollar they earn so they can maximize their wealth

00:02:15.920 | building and live life on their term we're going to talk about the seven core principles of financial

00:02:20.640 | samurai how sam engineered his own layoff and the principles you can use to do it yourself if you're

00:02:25.840 | thinking about changing jobs how real estate can be a big source of passive income without actually

00:02:30.880 | needing to collect and manage dozens of rental properties around the globe why we should all

00:02:35.360 | consider having our own online real estate small business or even side hustle his 70 30 rule for

00:02:41.040 | decision making especially when it comes to taking risk and because sam is a few years ahead of me

00:02:46.000 | in the parenting journey i have a few questions on that topic as well so let's get started

00:02:50.640 | sam grats on the bestseller welcome to the show hey thanks so much for having me it's an honor

00:03:02.320 | and i appreciate the intro you write a lot about money but like you do in the book i want to start

00:03:07.280 | with talking about the point of all these financial optimizations surely it's not just to be a scrooge

00:03:12.400 | mcduck sleeping on a pile of cash right if money is a means to the end what is that end you know

00:03:18.400 | that's absolutely right the reason why money is not the end goal uh is because it's just a tool

00:03:25.200 | it's just a made-up tool to help try to buy things that will provide for a better lifestyle

00:03:30.720 | if money was an object the sole object for me i would have kept on working in banking

00:03:35.680 | after my 34th birthday but i decided enough was enough i didn't like it anymore after the 10th

00:03:42.480 | year and after the global financial crisis i was like this is not really what i want to be doing

00:03:47.440 | with my life i wanted to have more purpose i wanted to feel that i was helping people just

00:03:52.240 | regular people more so i left i left in 2012 at the age of 34 and i haven't been back to a day

00:03:57.600 | job since you define happiness as progress is that right that is my one word definition of

00:04:03.680 | happiness progress whether it's progress in your finances in your relationship with your significant

00:04:09.120 | other with your children with a hobby that you're trying to get better at progress is my one word

00:04:15.520 | definition of happiness is that the end goal is just making progress towards all the things you

00:04:20.320 | care about is that how you view what money allows you to do or or what life's for you know it's

00:04:27.520 | it's like one of those interview questions like what is that one word right so that would be my

00:04:32.240 | word but i don't know if that's the end goal i think we always need to try to improve ourselves

00:04:37.760 | in whatever endeavor we take on we should probably try to challenge ourselves in something that's a

00:04:44.480 | little bit scary a little bit impossible sounding so that at least we don't look back with regret

00:04:49.680 | having not tried our best or not having not tried at all i want to go back to you started down this

00:04:55.440 | road of being 34 and leaving your day job you know you've actually i know you engineered a

00:05:00.080 | layoff to leave that job and i know you've actually written a book with now five editions about doing

00:05:04.800 | that so first how did you know that that an alternate path would be the right move for your

00:05:09.920 | career and and then i also want to get to how others can use some of those tactics to engineer

00:05:14.160 | their own layoffs it happened well i started financial samurai july 2009 that was literally

00:05:19.920 | the bottom of the global financial crisis i'd lost 35 percent of my net worth in six months that took

00:05:25.360 | 10 years to accumulate so i was really bummed out and i had graduated from business school

00:05:30.320 | part-time in 2006 and wanted to start financial samurai but i didn't because i always had these

00:05:35.600 | excuses not to i said i want to go give back to my firm because they paid for 80 plus percent of

00:05:41.200 | my tuition let's just focus but then when the global financial crisis hit i was thinking to

00:05:46.240 | myself man i need a backup i need to start doing something new so that if i were to get laid off

00:05:52.960 | i could uh write on financial samurai and so financial samurai gave me that purpose

00:05:58.560 | to do something new to find something that i was passionate about which was writing and connecting

00:06:05.200 | with people all over the world and it was in october november 2011 the year before i left

00:06:12.080 | banking for good where i was in santorini greece and it was 78 degrees sunny i was hiking up the

00:06:18.640 | crater and for two hours and then suddenly i was like oh there's like a nice bar with wi-fi i was

00:06:24.960 | like oh let's uh let's have a beer and there's an eight euro mythos beer i was like wow that's

00:06:30.080 | expensive but uh give me one how how often am i going to go back to santorini at the top of the

00:06:35.120 | crater and in my inbox uh on my phone was a email from this advertising client in the united kingdom

00:06:42.960 | and he said hey sam i want to advertise on your website i'll put up this link and i'll pay you

00:06:49.360 | i think it's eleven hundred dollars i said oh eleven hundred dollars i'm actually closer to

00:06:53.600 | you right now than i am when i was in san francisco so i was like okay send me the code i will try to

00:06:59.600 | put it up on my phone and it's still pretty novel at the time right 2011 iphone wi-fi and then within

00:07:05.760 | 30 minutes he paypal 1100 bucks and i was thinking that's good money i was like give me another beer

00:07:12.400 | and that was when i thought ah there could be a life after banking and i enjoyed writing and

00:07:19.040 | i knew i wouldn't starve if i was able to negotiate a severance so there's two two components there

00:07:24.720 | one i want to ask is did you actually when you decided to leave get financial samurai to a place

00:07:30.240 | that it was going to replace your job or did you more just get it to a place that you saw

00:07:34.880 | an opportunity to do something different so my goal first of all was to save and invest at least

00:07:42.000 | 50 percent of my after-tax income every year until age 40 but i didn't last till age 40 i lasted till

00:07:49.520 | age 34 and the reason why was because i was able to negotiate a severance because during the global

00:07:56.080 | financial crisis you know talk about making lemonade i saw many people get laid off and some

00:08:01.120 | of them were my friends so i asked them hey is everything okay can i help you find a job do you

00:08:06.160 | want to interview with me you know i'm still surviving and a lot of them were thankful and

00:08:10.400 | we tried but i also asked them are they okay and they said yeah i'm okay because i got a severance

00:08:15.200 | equal to two to three weeks per year work two to three weeks worth of pay and that was when i

00:08:20.560 | realized oh well uh come 2012 i will have been at my previous firm Credit Suisse for 11 years

00:08:28.080 | so if they gave me two to three weeks worth of severance you know that's 22 to 33 weeks and if

00:08:36.000 | they could give me my deferred compensation because i was an executive director then and i had three

00:08:41.280 | years of deferred compensation in stock and cash and a private investment that they made us buy in

00:08:48.320 | 2010 which were full of those quote toxic assets if i could get that severance and all my deferred

00:08:53.840 | compensation there was no reason why i shouldn't take that leap of faith because it bought years

00:09:00.320 | of living expenses most people listening to this are not i mean hopefully we aren't in the middle

00:09:05.520 | of a global financial crisis maybe just like a minor uh recession but you know are the tactics

00:09:11.680 | you use something that anyone could use or they really dialed into i'm in the financial company

00:09:17.680 | in the middle of a financial crisis yes these are the tactics that anybody in any organization can

00:09:24.640 | use because the biggest pushback i have is why would anybody give me a severance if i'm a decent

00:09:30.320 | employee right i'm great whatever the point is if you want to leave anyway and your heart is not

00:09:37.600 | into it your employer doesn't really want you they want someone who's hungry who wants to do their

00:09:42.160 | best to stay over time do whatever and if you are a manager in this environment still in this

00:09:47.760 | environment it is very hard to find a replacement it could take three months six months and once you

00:09:53.360 | find the replacement it could take three to six months to train them to be up to par with your

00:09:58.960 | level and so if you say peace out see you later two weeks notice you actually leave your colleagues

00:10:06.000 | and your manager in a lurch they're going to be scrambling to find your replacement and they're

00:10:10.960 | going to be suffering while they're looking for your replacement and so the idea of negotiating

00:10:15.600 | severance is to think about the classic win-win scenario how can you help your colleagues and

00:10:21.120 | your manager find your replacement provide seamless transition during that replacement

00:10:26.400 | finding and train them so that when you leave hopefully they'll save money and they'll replace

00:10:31.120 | you with someone who's hungrier cheaper and just more motivated in general and so that's the simple

00:10:37.520 | trade-off it's i'm going to help you make this transition easy and in return you're going to give

00:10:42.320 | me money or vested stock or something and how have you seen that work i'm sure you've gotten readers

00:10:49.200 | right back say this worked it didn't work what's the kind of hit rate the hit rate is high it's

00:10:54.720 | like 80 plus percent and a lot of people just come back to me and say i cannot believe i was able

00:11:01.680 | to leave on my terms i mean a severance can not only be just a severance check but it can be hey

00:11:07.840 | how about work three days a week out of five and we'll still pay you the same amount of money so

00:11:13.120 | if you're working 40 percent less it's kind of like getting a 60 percent raise if you do that

00:11:17.040 | for six months a lot of people be like hey i'll take that i mean that's pretty good belt don't

00:11:21.040 | have to work for two days a week shut it off and do my own thing i mean so it's really great and

00:11:26.160 | a lot of people have just surprised and shocked by how how they were able to negotiate something

00:11:33.280 | that they thought was not possible and in this day and age you know i think the reason why a

00:11:37.680 | lot of people will ghost people on the phone text message email or not you know they want to just

00:11:44.240 | break up over the phone is because they're afraid of confrontation and that's i would say like

00:11:48.800 | natural but it's also kind of cowardly right you want to face your oppressor you want to face

00:11:54.560 | the people who could help you and say look these are my reasons for leaving i've been a loyal

00:11:59.600 | soldier um and the other thing is companies are afraid of backlash this is one of the things that

00:12:06.000 | companies are really afraid of there's social media there's bloggers you can blow up a company

00:12:11.280 | online and say like a lot of bad things and like a tell all that's the last thing a company wants

00:12:16.640 | that's you know reputational damage and so companies understand this they don't want to

00:12:21.280 | get into a long litigation process they don't want to get their reputation smeared so they

00:12:26.000 | want to work with employees who have actually been there for at least a couple years three years

00:12:30.080 | and try to come up with a win-win scenario is that metric that you had at credit suisse of two

00:12:36.720 | to three uh you know weeks pay for every year worked is that a general benchmark that kind of

00:12:42.160 | still applies or what do you think kind of is a broad applic broadly applicable benchmark for

00:12:48.560 | a severance package one to three weeks and three weeks being at the high end maybe four weeks but

00:12:54.160 | it's usually one to three weeks and there's one thing that people don't really understand and that

00:12:59.440 | is to differentiate between the warn act which is a worker adjustment uh training notification

00:13:06.960 | and a severance so warn act pay is reserved for larger companies usually i think it's um

00:13:12.800 | in the hundreds or thousands of people and they do a mass layoff they're uh mandated by law to

00:13:19.600 | provide it's it's one to three months of severance pay or not severance pay actually one to three

00:13:27.200 | months of pay that's by law mandatory whereas a severance is optional a severance is the company

00:13:35.280 | can pay you or they won't pay you right and so the idea is a lot of people who get two months uh

00:13:41.680 | they think it's severance but it's actually mandatory warneck pay severance goes above

00:13:45.680 | and beyond that and so now you're you're on your own and you start financials or you're still let

00:13:51.760 | me think where i take this um i know there are a lot of people listening who might want to use some

00:13:57.680 | of these tactics so i'll link the book in the show notes because you know we're not going to spend a

00:14:02.400 | whole episode on how to engineer layoff though i'm sure we could um and can people reach out

00:14:07.360 | if they have questions or how do you feel about comments and feedback so yeah just go check out

00:14:12.880 | financialsamurai.com to buy how to engineer layoff it's about severance negotiations and i also have

00:14:19.760 | a lot of articles online about severance negotiations for free so you just google

00:14:25.040 | severance negotiation financial samurai leave a comment and i'll be able to see it because i can

00:14:29.920 | see it from the back end and if you have a question i can respond to it so you end the new book with

00:14:34.640 | seven principles uh is there one that stands above the rest well the one core principle that i have

00:14:40.640 | held on to for as long as i can remember maybe since middle school is to never fail due to a

00:14:46.800 | lack of effort because effort requires no skill and this is really really an important principle

00:14:53.920 | because life is not fair some people have better advantages than you wealthier parents some people

00:14:59.840 | are stronger naturally smarter whatever the case may be the playing field is never ever ever fair

00:15:06.160 | and we have to accept that but if we never fail due to a lack of effort that means we are always

00:15:13.040 | going to try our best and if we lose it's not going to be because we didn't try our best it

00:15:18.400 | can be because the opponent was faster quicker smarter whatever it is more connected but if we

00:15:25.440 | do our best we're always going to be satisfied and we'll never look back with regret having not tried

00:15:32.000 | our best is there a reason why you chose to have seven principle it seems like this is the core

00:15:37.200 | principle that you live by and have for a while um you know does it deserve to be elevated to be

00:15:43.440 | the core there are a lot of different things and so if you can adopt this core principle in

00:15:48.560 | everything you do whether it's doing your podcast writing uh at your job raising a family the key

00:15:57.120 | really is to i just hate looking back on life with regret and if you've seen um what is that

00:16:04.000 | wonderful movie at the end inception or actually at the beginning i don't want to be an old man

00:16:09.360 | full of regret dying alone you know so that's that's just the idea behind that core principle

00:16:16.320 | i also want to talk about the last one about thinking in probabilities and not absolutes

00:16:20.800 | i know you have a framework for decision making uh i know you also are a big fan of annie duke's

00:16:26.400 | thinking in bets and i'll just preface that she's coming on the show next week we're going to record

00:16:31.120 | an episode all about this but i know you've adapted your own rule the 70 30 rule and i'm

00:16:36.720 | curious how people can start to use that in their lives yeah so it is very important to think in

00:16:42.160 | probabilities and not absolutes so you don't miss out on opportunities think about if you had to

00:16:48.480 | feel you needed 100 certainty to make a decision how many opportunities would pass you by whether

00:16:55.280 | it's job opportunities whether it's the girl or boy that you like that you were too afraid to ask

00:17:00.000 | out because you were afraid of rejection it's such a shame to have to think in 100 probability

00:17:05.760 | and if you think about it as an investor investors don't think in 100 probabilities they think

00:17:11.760 | if i can get my investments right at least 51 of the time i'm gonna make a lot of money over decades

00:17:20.720 | and so my idea is to create a 70 30 decision making framework which states if you believe

00:17:27.360 | with a 70 probability or greater your decision is the correct one the right one then go with

00:17:34.000 | it with 100 conviction while having the humility knowing that 30 of the time hopefully less you'll

00:17:40.480 | get it wrong and so long as you don't die or something catastrophic happens you're going

00:17:45.520 | to learn from your mistakes and get better over time and so your other question was how do we hone

00:17:52.800 | that decision making probability framework and again if you adopt everything with a probability

00:17:59.840 | matrix it helps you in making better decisions for example golden state warriors right let's say

00:18:06.000 | it's nba playoffs you know i love the warriors and you start thinking about okay before the game

00:18:11.600 | starts who's going to win and by how much and then after the game is over you'll find out who won and

00:18:16.640 | by how much and then you will basically compare the results to your estimates and you will hone

00:18:22.320 | your skills over time and i think you'll be able to look at things in a probability matrix and get

00:18:28.320 | better and it's not just basketball or you know who's going to win the dog show or how long your

00:18:33.920 | friend's marriage is going to last or whether they get into college or whatever it's everything

00:18:39.280 | everything once you start looking at things in a probability matrix things change and that is one

00:18:44.480 | of your key competitive advantages is there a common financial decision that you think people

00:18:48.800 | make where adopting this framework would kind of change the way they approach it in a positive way

00:18:55.440 | as an investor you have to be humble you have to be humble and you have to always accept that you

00:19:01.600 | will lose money that is the price you pay for putting money to work you will lose money so

00:19:07.600 | accept that and once you accept that loss you will be okay once you finally do start losing money

00:19:14.160 | and i think that is the thing that a lot of people have a problem with and that's managing fear of

00:19:20.080 | allocating their capital towards something that could make the money or could lose the money

00:19:24.000 | because we all know the pain of losing money is greater than the joy of making money so it's

00:19:28.720 | being able to accept that loss and try to improve your investing probability going forward i want

00:19:34.560 | to move on to another topic that i know is a a big component of your passive income which is real

00:19:40.080 | estate so i you don't seem to have the traditional financial independence real estate approach which

00:19:46.960 | is buy rental properties all over the country hire managers and manage them but it still makes up a

00:19:53.600 | good percentage of your income i'm curious how you arrived at this approach what it actually is

00:19:59.920 | and if you think it's probably a more applicable to people i didn't i didn't know there was a

00:20:04.960 | traditional fire way to do real estate as someone who helped kickstart the modern day firing movement

00:20:10.240 | in 2009 i didn't i didn't realize that well i mean this is just my perspective seeing the internet of

00:20:16.640 | people talking about financial independence it seems like everyone's goal is to just accrue more

00:20:20.960 | and more and more rental properties uh buy and then graduate to buy you know apartment complexes

00:20:27.040 | and i've always been someone who didn't want to manage being a landlord and so i've maybe gone the

00:20:34.240 | other direction which is like real estate let's just not focus on it much yes we own a home and

00:20:38.320 | some reets but then you kind of have this middle approach at least my perspective from reading

00:20:44.000 | the book and your site and i'm just fascinated about finding a middle ground in having real

00:20:49.600 | estate be a part of your portfolio without having to be a landlord at least as much of a landlord

00:20:54.560 | as some so the reason why i heavily invested in real estate was because i worked in equities

00:21:01.600 | banking equity so my compensation my promotion schedule all that was tied to the stock market

00:21:07.200 | so 50 of every paycheck and 90 of every year in bonus was tried it was allocated towards real

00:21:15.760 | estates to diversify my net worth and essentially my framework and my recommendation to the average

00:21:21.760 | person is to get neutral real estate as soon as you believe you're going to be in one place for

00:21:26.400 | five ten years and neutral real estate just means owning your primary residence it means you're

00:21:31.920 | going up and down with the market you're short real estate short if you're a renter because

00:21:37.520 | you're a price taker of ever rising rents and as prices rise property prices you're also getting

00:21:44.160 | hurt because it costs you more to buy if you ever want to buy the only way to be long real estate

00:21:50.400 | not the only way but the main way to be long real estate is to own more than one property

00:21:54.880 | that is the way you benefit from real estate appreciation because you can sell your rental

00:21:59.040 | property and you can collect rents and so my advice for people is to buy around age 30 or so

00:22:07.360 | and hopefully you have a stable job and you've found a place you like to live in to get neutral

00:22:13.600 | live in it for three to five years love it enjoy it accumulate that other down payment

00:22:20.000 | buy another place live in it for three to five years and do that over and over again let's say

00:22:26.880 | up to your limit where you can no longer deal with managing tenants and property and that limit is

00:22:33.760 | different for everybody and that limit can go higher or lower depending on if you're comfortable

00:22:37.840 | hiring a property manager for me i found that that limit was four properties primary residence plus

00:22:44.320 | four and that was it and they were all in san francisco so i was highly leveraged san francisco

00:22:49.680 | real estate in the economy but after i had my son in 2017 i just didn't want to manage that many

00:22:57.040 | properties anymore so i sold one my main one because there's a ton of turnover ton of problems

00:23:02.800 | and i reinvested about 550 000 of the proceeds into private real estate deals private real estate

00:23:11.200 | funds and syndication deals across the heartland of america because i wanted some of the proceeds

00:23:16.480 | to continue to be allocated to real estate but i really wanted to take advantage of my investment

00:23:21.280 | thesis that i came up with in 2016 which was to invest in the heartland of america thanks to

00:23:27.040 | technology and thanks to people wanting to go to lower cost areas of the country to live a better

00:23:32.640 | life save money and still make money and that was a great thesis and i got lucky in an unfortunate

00:23:39.760 | situation because the pandemic forced millions of people to work from home and so that accelerated

00:23:45.360 | that migration and i think that's a multi-decade trend and so my plan is to invest more of my

00:23:50.960 | capital in my asset allocation framework of 50 to real estate to more private real estate

00:23:57.520 | investments in the heartland so i can diversify my real estate portfolio earn more passive income

00:24:03.280 | and hopefully higher cap rates higher net rental yields so i can live my life and not have to go

00:24:08.960 | back to work so if i want to summarize it it's to get started it's not about buying rental properties

00:24:15.920 | as much as it is when you up you know buy a home that works for you and then when you outgrow that

00:24:21.600 | home just don't sell it by assuming you have the money for another down payment and turn it into

00:24:26.880 | a rental property and it's not assuming it's making uh being proactive and trying to save

00:24:31.600 | for a down payment for another home and the idea behind this is one you you enjoy your home you

00:24:39.040 | know your home the best if you live in it for five years and if you enjoyed it i'm sure other people

00:24:43.840 | enjoy it you probably painted do some things to make it nicer and the thing is you're going to

00:24:48.160 | get a mortgage that is a primary residence mortgage that is lower than a rental property

00:24:52.480 | mortgage and you can keep that mortgage once you rent it out you know and that is a strategic

00:24:59.040 | advantage of by about 0.25 to 0.5 percent and then you're going to get another primary mortgage to

00:25:05.600 | buy other property in five years maybe it's 10 years maybe it takes 10 years and the idea is

00:25:10.160 | there's a benefit where you're not only building wealth through real estate you're also using your

00:25:15.440 | capital to enjoy a better lifestyle you know most of us are going to be making more money in our

00:25:22.240 | careers some of us are going to grow our families and we're going to be able to appreciate the wealth

00:25:28.160 | that we're building and that's a win-win scenario which is why i like real estate better than stocks

00:25:32.640 | because you're not going to wake up one day seeing your stock go down 35 because it missed quarterly

00:25:37.040 | results by three percent right you're going to just enjoy your property and i think the best time

00:25:43.760 | to own the nicest house you can afford is when you have the most number of heartbeats in your home

00:25:49.440 | and that's usually your kids because that way you can amortize the cost and the pleasure of owning a

00:25:54.480 | nicer home across more people and after they're gone it's not like you're going to upgrade to a

00:25:59.600 | mega mansion no you're probably going to keep it because it'll feel lonely not having so many people

00:26:05.200 | in your house anymore or you might downsize tactical here two things when you get a new

00:26:10.480 | mortgage will they take into account the rental income of the house that you haven't started

00:26:15.520 | renting yet that's a good question they will hopefully what you're going to do is you're going

00:26:19.920 | to sign a lease this is the ideal scenario you sign a lease while you're in the process of buying

00:26:25.040 | your other home and that could take one to three months and once you have that rental income they

00:26:30.960 | will not account for 100 of the rental income banks will generally account for about 70 of that

00:26:36.000 | rental income in terms of their calculation for how much they're going to lend you money for your

00:26:40.160 | second third fourth home so take that into consideration because banks will consider okay

00:26:45.760 | if you're renting it out you know there's going to be vacancy risk as well so they want to be

00:26:51.920 | conservative so they use 70 which i think is fair but i think regular mom and pop landlords

00:26:57.600 | can outperform that 70 and probably rent it out for 90 to 95 and then i also know you're a fan

00:27:03.360 | of an adjustable rate mortgage does that change with a strategy of turning your past properties

00:27:09.520 | into rental properties no so i didn't realize this but only about five percent of mortgage holders

00:27:16.560 | have adjustable rate mortgages and i've been talking about getting an adjustable rate mortgage

00:27:20.720 | since i started in 2009 and since i've been working uh in finance since 2003 well since

00:27:26.880 | i bought my property in 2003 and the idea is look interest rates and inflation have been coming down

00:27:35.040 | for 40 years in a row because of technological advances efficiencies learning about past cycles

00:27:42.400 | and yes we currently have elevated inflation now due to a global pandemic but you are seeing

00:27:47.920 | inflation top tick in july and i think that's going to fade into 2023 it's just the way it is

00:27:54.080 | yin yang finance when prices are up demand starts to get destroyed and then we get back to the

00:27:59.600 | normal steady state and so the idea with an arm is look you pay a lower rate than a 30 year fixed

00:28:05.520 | because of the time value of money if you're borrowing at a shorter fixed rate return the

00:28:10.080 | lender will pay you will lend to you at a lower rate and the thing is back in the global financial

00:28:15.760 | crisis days the median or the average homeownership tenure was about four and a half five years

00:28:22.160 | now the average homeownership tenureship is about 10 to 11 years the idea is you want to max your

00:28:29.760 | fixed rate duration of your mortgage with how long you plan to live in your home so to get a 30 year

00:28:36.160 | fixed rate mortgage and pay one percent higher interest rate for 30 years doesn't make sense

00:28:41.440 | if you're planning on selling your home or refinancing or paying it off in 10 11 years

00:28:47.200 | so that is the idea to help you save money and not be afraid of taking out an arm because in my in my

00:28:54.000 | opinion we're going to be in a long-term low interest rate environment for the rest of our

00:28:57.920 | lifetimes so when we bought a home we said we're probably not going to be here more than 10 years

00:29:02.000 | let's do a 10-year arm yeah smart we ended up selling that or we moved out we moved to a new

00:29:07.200 | home and we're like well we got three years left on the arm if i were to convert that to a rental

00:29:11.840 | then i would go back to a point of adjustable rate so if you want to keep something forever

00:29:16.960 | and rent it after you live there then you really are more towards the 30-year cycle than the five

00:29:22.160 | or 10-year cycle that's true but in a declining interest rate environment over the past 40 years

00:29:27.520 | what happens is your arm resets at the same rate or generally lower that is but basically what's

00:29:32.880 | been happening for 40 years so let's say so i took out a 7-1 arm in 2020 right so people are like oh

00:29:39.120 | that was a mistake you could have got a 30-year fix for 30 years and i'm saying it's not a mistake

00:29:45.120 | because the 7-1 arm was at 2.125 percent the best 30-year fixed rate i could get was about you know

00:29:50.800 | 2.875 percent maybe or maybe three percent and by 2027 when the arm resets i'm pretty certain that

00:29:59.600 | it's going to reset at a same rate or lower because we're going to back down to trend in terms of

00:30:04.320 | inflation and interest so when an arm resets it just generally resets back to the same rate or

00:30:09.760 | lower over the past 40 years obviously sometimes you can get unlucky but if you believe the trend

00:30:14.160 | is down or low it'll be fine and an arm people need to understand has a maximum reset rate for

00:30:21.360 | the first year usually by two percent so my arm rate could go from 2.125 to 4.125 to me it's not

00:30:29.040 | a big deal because probably about 20 percent 25 percent of the principal has already been paid

00:30:34.400 | down and then the following year it can only go up by a maximum of one percent and there's a

00:30:39.440 | lifetime cap to an arm which mine is seven percent which sounds scary but for the first seven years

00:30:45.840 | of the arm it was saving you know 0.75 to one percent interest by not getting a 30-year fixed

00:30:52.720 | so you're only losing until like maybe year 10 or 11 or 12 and it's not really losing it's just it

00:30:58.800 | was a suboptimal decision yeah i built a comparison calculator to try to really dial in and optimize

00:31:05.680 | this particular thing and i found that it was about what you just said two to three years till

00:31:10.720 | the break even point but i think it's rare to have interest rates be elevated at least in my opinion

00:31:18.640 | and where we're going for more than a handful of years and so you know i would say if you have a

00:31:24.560 | 10-year arm and you're seven years into it and rates are low probably a good time to refinance

00:31:29.040 | that yeah you can always refinance yeah so i i think one common misconception is you don't have

00:31:34.240 | to wait until the end of the 10-year fixed period to do something about it so if you're seven years

00:31:39.120 | in and rates are still low maybe refinance then if you're nine years in and rates are really high

00:31:44.160 | and you haven't refinanced we'll know that for the next three years you're still going to be

00:31:48.320 | breaking even from all the savings and hopefully that over that period of time rates will drop

00:31:53.120 | again uh and you'll be able to do something the only other thing you didn't mention is i actually

00:31:58.240 | think that in periods right now we have high interest rates we have high inflation but rents

00:32:03.440 | are also up and so if you're using your unadjustable rate mortgage for a rental property it's very

00:32:09.600 | possible that if your interest rates go up because of rates rising it might also be in line with some

00:32:16.160 | a situation we have now like inflation where rents are also rising and so you might be able to recoup

00:32:20.960 | some of that incremental interest cost with higher rents well yeah i mean everybody needs to understand

00:32:28.080 | uh finance is not in a vacuum it's yin yang finance like inflation is up because the economy

00:32:35.680 | is great and job market is strong and people are getting paid more and rents are going up

00:32:41.200 | and so forth right but there is an inflection point and we need to be aware of that and that

00:32:46.880 | inflection point is probably right now and i think inflation is going to go back down

00:32:52.160 | so we're not helpless animals you know you're right we can refinance before the fixed rate

00:32:58.080 | period is over if we're afraid and we want to extend that term or we can sell the property

00:33:02.960 | or we can pay down principal so that when we do refinance or when it does reset less of the

00:33:07.920 | percentage goes to interest there are so many things we can do and that is a mindset that i

00:33:12.720 | want people to get into it's kind of like the debate between you know doing a Roth conversion

00:33:19.440 | or not and that is and in the past i was like ah don't do the Roth conversion because you're

00:33:26.080 | basically giving up you're paying the government the inefficient government first all the taxes

00:33:30.720 | and you give up all your basic strategies to lower your taxes in the future such as moving to a low

00:33:37.040 | cost or low income or no income tax state and so forth but as i've gotten older i see the wisdom

00:33:43.360 | in the Roth we can talk about them later but you know that's something people need to think about

00:33:49.360 | we are dynamic we can do things to all we always have an opportunity to do things

00:33:54.400 | to improve our financial situation so i know i know you've had a lot of success in real estate

00:33:59.760 | i also know that you've talked about a vacation property that maybe wasn't the best decision so

00:34:05.280 | i'm curious to get your take on vacation properties i think a vacation property is a

00:34:10.160 | suboptimal use of funds because you're not going to use it enough uh to be able to make it a good

00:34:16.320 | financial decision versus you know renting a vrbo or airbnb or whatever to you want to diversify

00:34:22.960 | where you vacation if you always go back to the same place over and over again it also gets boring

00:34:29.520 | but if you buy a vacation property you're going to feel committed to having to go back to that

00:34:34.880 | place to make it worthwhile so i bought a vacation property terrible timing in 2007 because i was

00:34:40.800 | making the most money ever and i just got promoted and i thought my income would just go up so the

00:34:46.320 | number one mistake i made was modeling a high income for a long period of time and then i also

00:34:54.000 | thought i got a deal getting it for about 15 off and then it ended up going down another 40 to 50

00:35:00.880 | so that was a great lesson learned about not forecasting your income extrapolating it so

00:35:07.440 | long into the future and also not buying things you really don't need but the good thing about

00:35:12.400 | this vacation property is that i kept paying the mortgage i paid it off it's paid off and my dream

00:35:19.440 | for buying the vacation property was because i took my wife my girlfriend at the time i was on

00:35:24.480 | our first date in california to lake tahoe at the resort squaw creek and i decided you know what it

00:35:29.680 | was such a special moment i wanted to own that piece of moment and one day maybe we could take

00:35:34.400 | our children there and my forecasting for having children was very delayed but we just got back

00:35:41.120 | from the vacation property with our two children and they had an amazing time and it was really

00:35:45.680 | really a priceless moment and now the vacation property is a very small percentage of my net

00:35:51.280 | worth so at the end of the day i think it worked out and are you able to rent it out in the off

00:35:56.080 | time something that maybe in 2007 the platforms weren't didn't exist to make it easy but now

00:36:01.440 | maybe makes the equation different oh yeah i mean 2007 wasn't the stone ages it was in the

00:36:07.840 | rental program at the resort and then after several years i decided to move it out to a

00:36:13.600 | private rental property manager and that yeah it generates 500 000 bucks a month pretty consistently

00:36:22.880 | i mean it's high high season during the summer and in the winters and then really sparse during

00:36:27.680 | october november so actually it generates passive income but it wasn't a good financial decision at

00:36:35.760 | all and it was tough it was like that albatross on my neck for a while like i really had to

00:36:41.680 | fight it and get through it um but now it's it's fine it's just it is what it is it's part of the

00:36:48.160 | game of you make mon you win some you lose some yeah we recently looked at vacation properties

00:36:53.840 | in napa and because there just aren't a lot of airbnbs and i ended up we ended up buying a picasso

00:37:01.440 | i don't know if you've you've looked at this company it's like a fractional fractional real

00:37:06.160 | estate so basically you buy one eighth of a home so imagine it's it's as if eight people came

00:37:11.360 | together and bought a home together except you don't they have the marketplace so you don't have

00:37:15.760 | to find the other seven um right well i hope you enjoyed uh you'll probably enjoy it more than i

00:37:20.960 | enjoyed my lake tahoe property because it's tahoe's uh sonoma napa's hour hour and a half

00:37:26.160 | away well it's closer right so hopefully it's an hour and a half away family is nearby and we only

00:37:33.040 | we only paid an eighth of it and we only get an eighth of the year which means we only really

00:37:38.160 | use six weeks a year but it's more efficient yeah yes it's much more efficient let's turn

00:37:42.480 | away from physical real estate and and kind of talk about you know online real estate my web

00:37:47.200 | presence my website uh maybe a business i run because i know you've said that people are are

00:37:52.320 | quick to have their social media profiles but maybe they don't have this hub in the middle

00:37:55.920 | to tie it all together that can help them build something online could you talk a bit about why

00:38:00.640 | you think that's important yeah so in the old days 10 20 years ago we would just have a resume

00:38:06.160 | that we would submit and you know it would be tossed into the trash right seven seconds people

00:38:11.120 | spend on a resume and that's it nowadays everybody googles who you are what you do what you stand for

00:38:16.960 | what you believe in and so having your website is vital and thinking about your brand is also vital

00:38:24.080 | if you want a job if you want to do new things i decided to go with financial samurai.com because

00:38:29.680 | i was working in finance when i started the site and i just wanted to have this really cool sounding

00:38:34.160 | name i used to live in japan for two three years and my girlfriend and now wife is half japanese

00:38:40.000 | and i love it i love the japanese culture and i thought it was great and i think everybody needs

00:38:45.600 | to plant their flag on the internet and own their domain instead of letting a social media company

00:38:52.640 | own you look if you write content on twitter facebook whatever they own you they have the

00:39:01.200 | content and they're getting rich right you are helping them get rich instead why don't you get

00:39:07.280 | yourself rich by planting your own flag branding yourself online and sharing with the world what

00:39:12.640 | you stand for it's the green marble theory is my my belief that if you have a janky crusted

00:39:19.360 | green marble if you put it on ebay someone will want to buy it and the reason why is because

00:39:25.120 | there's something like five six billion people online now and it just it's the law of attraction

00:39:31.280 | we're all connected you just have to put yourself out there and good things will happen if you stay

00:39:35.920 | the course long enough period of time put another way do you think everyone should kind of write or

00:39:42.560 | produce content somewhere on the line and and own the place they do it so they can build an audience

00:39:47.680 | or build a business around it well i think you need to it depends on what you want if you want

00:39:53.840 | to be hired as a consultant or build your business or whatever you should probably be a thought leader

00:40:00.000 | and the thing that you care about the most what i've seen it's interesting the the vc community

00:40:05.840 | which is it's it's fascinating because i think being a vc is one of the best jobs in the world

00:40:10.640 | you invest other people's money you don't have to prove yourself for 10 years because that's the life

00:40:14.960 | of the fun and you're just collecting big bucks you know two percent of fees under management and

00:40:19.600 | you get a percentage of the profits if it turns out well and what these folks have done it's very

00:40:25.120 | competitive to attract capital and get your companies to accept your capital right they've

00:40:30.800 | created they've hired thought leaders to write and be on social media and have their websites

00:40:36.800 | and write for the vc company's blog every day every week to showcase their knowledge what they're

00:40:43.760 | doing and their brand because it's so competitive and noisy out that you need to figure out how to

00:40:50.160 | make yourself stand out and how to attract the right people that you want for your business

00:40:54.560 | yeah as a former vc i think if you love that job it's great uh i found that you know at the

00:41:01.360 | time in my life and maybe things have changed since then but i was like i really wanted to

00:41:06.000 | build products and so as much as it was a great lifestyle uh job right you you're invested like

00:41:12.880 | all the things you said i was like i don't want to watch all these people build things i want to

00:41:17.200 | build them so i'll just caveat that like it sounds as it's glamorous yes you can make a lot of money

00:41:22.320 | but at the end of the day if if what you love is actually you know building the thing and not

00:41:27.840 | supporting those doing it it might not be the most fulfilling career even if you make a lot of money

00:41:32.640 | i think that's really admirable that you left the cushy vc job to actually try to build something

00:41:37.520 | and then actually successfully sell it i mean that's amazing to me and what i find amazing

00:41:43.200 | is that there are vcs who have no building experience they don't know how to operate

00:41:46.880 | a company or start a company and that's kind of amazing to me because as an entrepreneur you're

00:41:55.200 | hopefully leaning on their expertise and experience but it also shows that you can do anything you

00:42:01.120 | want uh the world is your oyster so whether you have any experience or nothing and you just went

00:42:07.040 | to business school and you know learn case studies you can be a vc too awesome it's funny because i

00:42:12.480 | think one of the reasons that i left being a vc was that i i kind of had this feeling of imposter

00:42:18.400 | syndrome because i hadn't actually built and grown and scaled a company uh like you mentioned however

00:42:24.880 | i now look back and realize that those two skill sets are incredibly different and the skill set of

00:42:31.520 | a vc is actually much more in line with the skill set of a professional investor than with an

00:42:37.280 | entrepreneur and or a manager or a ceo and so i think at one point in my career i thought i couldn't

00:42:41.920 | be a vc because i've never built a company now that i've built a company i'm like i couldn't be

00:42:46.000 | a vc because i don't want to be a professional investor and um my former manager uh or andy

00:42:53.600 | racliffe who started wealthfront who i sold my last company to told me he said when someone asked

00:42:58.800 | him should i be a vc he says well do you like to invest in stocks on your own do you like to pick

00:43:03.440 | stocks in your brokerage account and if you don't you maybe ask yourself do you really like investing

00:43:08.960 | and i always thought that was strange because i always thought of vc as like the second you know

00:43:15.120 | career of an entrepreneur and as you look as i looked deeper and deeper at some of the most

00:43:20.160 | successful venture capitalists of all time many of them were not entrepreneurs uh many of them are

00:43:25.840 | much more adept at picking companies evaluating businesses than they necessarily were at starting

00:43:31.120 | them but boy did i think that was my my flaw that's why i thought i couldn't be a vc in the

00:43:36.400 | first place so um i've evolved that position over over time but you know you mentioned putting up

00:43:43.600 | something online starting to write people some people in the world will find it and if they do

00:43:48.720 | you know you can have a business you can also start side hustles one of the things that i've

00:43:53.120 | really appreciated on your site that i would love to talk a little bit about is some of the kind of

00:43:58.480 | personal and and financial and maybe tax benefits of running a business because something i've

00:44:05.520 | learned with this podcast is that when you're employed you know you you know your salary

00:44:11.680 | and then you usually know what gets deposited in your bank account and at the end of the year you

00:44:14.960 | might owe some taxes or not but it's a pretty straightforward equation but when you run a

00:44:18.960 | business it's actually really confusing because there are a lot of things that might be deductible

00:44:23.920 | that maybe work when you worked at a company so you actually maybe you don't make that much money

00:44:28.160 | but a lot of the things you spend your money on are less expensive you've written on your

00:44:32.880 | site about how vacations can be free if you talk about the vacation how uh you know your car can

00:44:38.480 | be depreciated as a business expense you talk a little bit about some of the exciting things

00:44:43.120 | maybe not those two that running a business can afford you also the idea i had a decision 10 years

00:44:49.840 | ago to run a lifestyle business or try to blow it up and take funding and you know run a big

00:44:55.600 | business and try to make mega millions and at the poker table i decided with my friends who are all

00:45:00.960 | trying to make the mega millions that i would run a lifestyle business because i just got out of

00:45:05.280 | banking and i wanted a better lifestyle so to go back and try to kill myself to write a you know

00:45:09.680 | run a business to make a lot of money it was just totally the antithesis of what i wanted to do and

00:45:14.880 | so the idea is with a lifestyle business or just with a business in general you want to think about

00:45:19.520 | those expenses that are personal expenses that also overlap with your business right so those

00:45:26.320 | things include internet costs you need internet to run your business your iphone you need or

00:45:33.120 | whatever your mobile phone to run your business the monthly subscription on on that you have to

00:45:38.720 | have a board meeting every single year for your business i think that's the the rule you don't

00:45:42.960 | have to have it in your mom's basement you know with free water you can go to hawaii or wherever

00:45:48.480 | you want with your consultants uh your editor whatever it is you know you can pay for their

00:45:53.600 | fair and have your board meeting there at something you know somewhere more pleasurable

00:45:58.640 | and so the idea is identify those crossover points where you need them for your personal life anyway

00:46:04.320 | and your business and that is where you can probably write off a lot of your expenses but

00:46:10.800 | of course i'm not a cpa so ask your cpa but the worst thing that can happen is not like you're

00:46:16.240 | going to get thrown in jail there's like 70 000 pages on the tax documents in america we make

00:46:22.000 | mistakes all the time the worst case is you know you're going to get a letter and say you know this

00:46:26.560 | you actually did this wrong you got to pay this because you didn't pay it and maybe you have to

00:46:30.800 | pay like a five percent penalty fee per year for example so that's something that people need to

00:46:36.560 | understand it's not like the movies where you're just thrown in jail and your life is over people

00:46:41.040 | are trying to figure out things on their own and you know the irs they're actually hopefully good

00:46:46.480 | people they're good people because they're trying to clarify and simplify and explain

00:46:51.600 | their convoluted tax laws it's crazy but that's that's my thoughts in general yeah and i would

00:46:59.600 | say you you don't have i wouldn't go and just like expense everything and and hope that it'll work i

00:47:04.880 | but i do think there are a lot of things if if there's a gray area and you're not sure the worst

00:47:09.760 | case isn't as bad as you might think um yeah what about a couple tactical questions now that i'm

00:47:16.000 | over here running a company uh on my own what do you do what what was your choice for your business

00:47:23.040 | when it comes to retirement plans how do you do that on a personal level with your business so

00:47:28.960 | we have uh the sep sep ira plan and basically you can contribute i think it's up to 25 of operating

00:47:36.880 | profits operating profits not revenue not net profits operating profits to the sep ira plan for

00:47:43.280 | yourself and your employees so it's just my wife and me and what i also did for when i had more

00:47:49.920 | time before my son was born was i did some freelancing consulting whatever rideshare

00:47:55.840 | stuff just any stuff that i could make money so i created a solo 401k as well and so i was

00:48:01.600 | able to contribute to my solo 401k and get the sep ira plan going and what people don't realize

00:48:08.560 | or some people don't realize as employees is the maximum 401k contribution is not just 20,500 per

00:48:15.040 | employee in 2022 it's actually way more i forgot the exact number but it's something like 60,000

00:48:20.960 | plus we can look it up but the employer can contribute even more than the maximum the

00:48:26.720 | employee contribute through profit sharing and so that's something you got to think about before

00:48:31.440 | you quit your job or join a startup or whatever what is that 401k match because it's often not

00:48:38.960 | just three percent or five thousand dollars or whatever it could be tens of thousands of dollars

00:48:43.920 | if your employer is really on good financial footing and is really providing a lot of

00:48:49.440 | benefits to their employees yeah i think something to just keep in mind is that if you were able to

00:48:56.000 | on a freelance or self-employed basis make maybe 10 less than your work salary because of some of

00:49:03.920 | these benefits maybe better retirement contributions maybe more efficient business deductions you know

00:49:10.160 | you might actually be able to get by on less income than you would not to mention if you move

00:49:15.360 | to a lower cost of living area you could definitely get by on less income one area that i want your

00:49:20.400 | take on is on health insurance because that's one expense that you're going to have to pay on your

00:49:24.560 | own for people worried about what that means leaving their job and starting a company and

00:49:30.400 | having to cover their own health insurance how have you approached that there are a couple ways

00:49:34.720 | to approach it but what we did was we sucked it up and we decided to pay 100 of our health care

00:49:41.440 | insurance we got a platinum plan for the for the family of three once my wife left her job in 2015

00:49:48.480 | as well she engineered her layoff as well at 34 and a half and we paid full freight which was 1800

00:49:54.560 | 18 to 1900 a month at the time and now with a family with two kids we pay about 2300 a month

00:50:03.360 | for a gold plan and so we are not getting any subsidies and i think it's fine we we don't need

00:50:09.440 | any subsidies but strategically if you want to get subsidies from the government you would have

00:50:14.720 | to earn less than 400 percent of the federal poverty limit per household size so for example

00:50:21.520 | the federal poverty limit for one person is something around two thousand seven hundred

00:50:25.360 | dollars to thirteen thousand dollars so if you can make as close to that as possible then you will

00:50:32.560 | get as much health insurance subsidy as possible so this is why you hear a lot of multi-millionaires

00:50:38.880 | let's say you know you have two or three million dollars that generate and you have household of

00:50:42.800 | four and your investments let's say three million generates sixty seventy thousand dollars of income

00:50:49.200 | you can get health care subsidies as a multi-millionaire technically and that's

00:50:53.120 | actually what a lot of people do now whether that is going with the spirit of the intention

00:50:58.800 | of the subsidies is another matter but what we did we pay full freight but it's a business expense

00:51:05.440 | right so if we have a 20 marginal income tax rate it's twenty three hundred dollars a month

00:51:11.840 | technically minus twenty percent and that's our expense so i don't think i even knew that that

00:51:17.040 | was a business expense uh so that's a interesting thing and you your wife works at the company too

00:51:22.400 | can you talk a little bit about managing finances with a couple bringing them into the business

00:51:28.000 | i think there's a couple places to take that but i know you you have a few unique opinions on

00:51:32.800 | managing finances with your partner yeah i think if you love your partner you should strive to make

00:51:38.960 | them financially independent of you right because financial dependence i think is one of the worst

00:51:45.440 | things because we're all adults here your partner you you had a life before you met each other

00:51:50.640 | and i feel that a lot of fights uh with your partner can be due to money that's top three

00:51:57.840 | reason and so having financial independence with your partner and having your own bank accounts

00:52:04.080 | separate accounts actually is like a release valve for stress that if money becomes an issue

00:52:09.200 | you can just oh i'm gonna go spend my own money it's okay so that's one of my philosophies make

00:52:13.680 | your partner financially independent if you really love them now a lot of people are against that

00:52:19.040 | they say oh we're a one team everything is great we're never gonna divorce yada yada yada okay

00:52:24.640 | that's great to do what you want but this is my philosophy uh in terms of bringing her on the fold

00:52:30.240 | um once i helped her engineer her layoff and get a severance in 2015 because we had a pact if i

00:52:36.400 | was able to negotiate a severance at 34 and a half and leave she's three years younger than me i said

00:52:42.000 | you too can negotiate a severance when you're 34 35 and come join me if everything you know works

00:52:47.440 | out great and so everything did work out fine and so i helped her negotiate a severance and

00:52:53.840 | we ended up you know incorporating financial samurai and we have our little business and the

00:52:59.440 | idea is look we're we are a team i do the front end i do the writing and she does the editing

00:53:05.600 | and she does um the filing of the taxes and that's how it goes and we pay ourselves a salary um

00:53:11.760 | and it's an equal salary and we just treat it as a fun lifestyle business it really is like

00:53:18.320 | we can't believe that there's actually income coming in from what we would do for free it's

00:53:22.400 | just fun and if you look at articles on financial samurai it's storytelling it's talking about

00:53:28.400 | difficult situations it's not seo optimized affiliate post after affiliate post like a lot

00:53:34.640 | of you know sites can do and we could do that too but it's just so soul-sucking that we just

00:53:39.840 | want to write stories and tell tell what's going on in our lives one thing that i think is very rare

00:53:45.760 | is that in this space so many people who are in the financial independence route who've quit their

00:53:50.720 | job and can work from anywhere end up moving to low cost of living places yet you're still in

00:53:57.520 | where i am the bay area you know not a state with the highest income taxes um you know maybe in the

00:54:03.360 | country what do you say to people that think you're crazy for staying here when you could

00:54:08.560 | live anywhere why do i say well i grew up overseas for 13 years six different countries i've been to

00:54:15.520 | 60 countries i've lived on the east coast i've been to the midwest many many times for business

00:54:21.280 | and i've lived in san francisco for 20 years now more than 21 years and i say i love the san

00:54:27.280 | francisco bay area it's beautiful there's a lot of culture the food is amazing it's perennially

00:54:32.880 | ranked top two in the country i can fly to hawaii if i want to there's tremendous amount of job

00:54:38.800 | opportunities consulting opportunities and i get to look at the ocean every single day out of my

00:54:44.000 | house on all three levels and i feel great and so yeah there's a price to pay for that and that is

00:54:49.440 | the median home price in san francisco is 1.8 million uh and the reason why the median home

00:54:54.320 | price is 1.8 million is because you have 24 year old engineers who are making 200 to 300 thousand

00:54:59.600 | dollars a couple years out of college everything is rational the media forgets that the opportunity

00:55:05.680 | of each city is what drives the cost not the other way around and so for much of my life especially

00:55:11.680 | after i left in 2012 i just thought wow there's so much opportunity uh yes it's expensive but

00:55:18.000 | you know there's consulting here there's a meetup here i mean it's just so fun and it's beautiful

00:55:22.960 | it's not like look i know the media likes to focus on the one street in the worst neighborhood in san

00:55:30.400 | francisco and blow it up i mean it's really good media you know they're really smart about that

00:55:34.480 | but if you actually come to san francisco it's an amazing city and i've been everywhere and so

00:55:39.760 | i could have done hawaii honolulu is my second favorite city but it's very expensive in hawaii

00:55:45.760 | and adjusted for the income opportunity or the fun things you can do it's a little bit too

00:55:51.520 | expensive actually um in my mind as someone who also lives in the bay area i i share a similar

00:55:58.000 | sentiment not that you know my wife and i both work for a company that we could be remote right now

00:56:02.640 | a podcast i could do from anywhere but i tend to think that money's purpose is is like we said at

00:56:08.640 | the beginning at all and we love living here the opportunities here are great and you know for us

00:56:15.280 | it's not yes we could save more money somewhere else but if money's goal is to allow you to do

00:56:21.360 | things you love then that's we're using it right now to spend more to stay here i mean i understand

00:56:27.120 | the hatred against san francisco because if you can't comfortably afford to live in a place

00:56:33.360 | you might hate it right it's just logical you gotta like shack up with a roommate when you're

00:56:37.440 | 40 years old you can't eat what you want or go what you want it's natural and i understand that

00:56:42.640 | and what i've also noticed is that we tend to accumulate the amount of wealth that will enable

00:56:49.440 | us to afford to live in a place we want to live so if i didn't live in san francisco and if i lived

00:56:54.480 | in let's say austin uh i would probably just work as hard as i could to make enough money to cover

00:57:01.520 | my expenses in austin where the median home price is let's say five hundred thousand or six hundred

00:57:05.360 | thousand and be comfortable with that but i like a challenge and it's really fun i have my friends

00:57:10.400 | here i have my network here i play tennis i just got back from playing tennis earlier before this

00:57:15.200 | podcast and it's just you are where your friends and family are i love it here uh so i don't see

00:57:21.200 | moving anytime soon but speaking of travel and moving and going to other places i know before

00:57:26.560 | kids and the pandemic you did a lot of traveling and a lot of the conversations we have about

00:57:31.760 | travel and i know a lot of our listeners are just now having built up a lot of big balance of points

00:57:37.360 | and getting past the pandemic thinking about where to go i'm curious if you have any suggestions from

00:57:42.720 | all the travels you've done of where people might want to take a trip to or check out something that

00:57:47.600 | maybe is not the obvious place oh man my favorite place is malaysia because i also grew up there in

00:57:57.040 | my middle school teenage years and that was like exciting the food is the best top three in the

00:58:02.960 | world it's very inexpensive i love angkor wat cambodia it's so hot it's like 95 degrees and

00:58:09.360 | humid but the temples are unbelievable i love southeast asia southeast asia is a great great

00:58:16.560 | region friendly people people speak english the food is amazing and the cost of living is low so

00:58:23.520 | i love that i went to europe probably 20 to 20 different countries in europe i love it as well

00:58:30.480 | i love the lifestyle the attitude of living not for work but living for living's sake it's just

00:58:36.240 | that one of those things where after you see like five gothic churches they all start looking the

00:58:41.040 | same so i i enjoyed mallorca spain mallorca was amazing the spanish culture you eat tapas at 10

00:58:48.720 | pm you enjoy life the water the beaches so and then amsterdam amsterdam is kind of like the san

00:58:56.240 | francisco of europe where people are pretty chill you know weed is available everywhere

00:59:02.560 | and there's really diverse culture and i love amsterdam as well i haven't been to mallorca

00:59:07.760 | amsterdam's amazing i want to come back to malaysia because i think it's a country having

00:59:12.880 | been there i i don't often hear a lot of other people go there that don't have some family there

00:59:19.280 | or some business reason to be there so if someone's thinking right now listening to this saying

00:59:23.280 | i'm malaysia i've never really thought about going there what would you tell them to think about as

00:59:27.760 | a trip not you don't need to plan a whole week or two itinerary but what are a few highlights of

00:59:31.920 | something they should do other than my favorite is just eat all the roti canai you can find on

00:59:36.720 | the street that would be like my path uh but what would you tell someone to think about as a they

00:59:41.440 | plan a trip well malaysia you know it's it's a peninsula surrounded by water on three sides

00:59:48.080 | and the beauty is uh the food is amazing right uh the mamak stalls the roti canai um the milk

00:59:56.320 | fish the chicken fish all that stuff the ganguk belacan gotta check that out you can go to

01:00:01.440 | kuala lumpur for sure you know see the palace see the batu caves go on these excursions but go

01:00:07.680 | to the pulau which are the islands um on the east and west and or go to penang and see the turquoise

01:00:17.040 | water and go scuba diving uh 70 feet down and still see the water and have nobody around you

01:00:24.320 | my favorite uh trip was to this resort called the tara's resort it's an island and there's

01:00:30.800 | an island on the east side and we just had it was kind of like you know the movie the beach

01:00:35.440 | i think it was the beach with leonardo dicaprio it was kind of like that you would take a dinghy

01:00:40.800 | out you'd go scuba diving you'd come to this cove there'd be some little sharks around turquoise

01:00:46.160 | water and it was just unbelievable believable so it's the tara's resort i would check that out

01:00:51.200 | awesome yeah i i don't feel like i gave malaysia its justice on our trip it was part of our eight

01:00:58.000 | month backpacking trip around the world and uh but it was it was awesome the only thing i don't

01:01:03.920 | know if this is still the case but the one thing i remember very specifically because it was a big

01:01:08.400 | problem was that the atms in malaysia would not accept any of my two or three american bank cards

01:01:16.320 | and so we showed up in malaysia with probably seven dollars in cash and went to the atm and

01:01:23.200 | it didn't work and we could not get cash so how'd you get the cash so i ended up going online and

01:01:30.480 | finding some local community in the tech community so there was these events called

01:01:35.600 | bar camp which are like unconferences that i'd gotten to know and i just went like koala lumpur

01:01:40.400 | bar camp emailed the list serve and was like can anyone here meet me in koala lumpur and i can pay

01:01:46.480 | pal you money and you can bring me cash but my new plan is never go to a country uh without at least

01:01:53.760 | like maybe a hundred dollars of cash we literally probably had like seven dollars which could get

01:01:58.960 | you a lot farther in malaysia than i imagined but not too far but not too far wow okay well uh yeah

01:02:07.360 | so yeah bring cash and again the the terrace beach and spa was on redang island redang island so

01:02:14.320 | awesome i also want to talk a little about parenting we've we've kind of hit on it a little

01:02:19.120 | bit here and there but we haven't gone deep i know not everyone in this uh conversation listening has

01:02:24.480 | children but you've written so much about it i'm at home with a two-year-old and a two-month-old

01:02:30.240 | and it's been top of mind for i don't know the last two and a half years and there are a bunch

01:02:34.640 | of decisions that have to be made that you highlight in the book i'd love to just run

01:02:38.640 | through a few things get your perspective and see where it goes sure uh by this not that half of it

01:02:45.680 | is about making optimal decisions with some of the most important things that most of us will face

01:02:51.680 | so ask away the the first thing that i just thought was really surprising was a post you

01:02:56.240 | wrote about how the financial benefits of kids and i know that one of the conversations that

01:03:00.960 | you've probably had with plenty of people when they're talking about kids is ah kids are so

01:03:04.400 | expensive and you actually wrote a little bit about the fact that maybe they're not as as

01:03:09.440 | expensive as you think because of the way they change your life the issue is uh yes there's

01:03:15.520 | studies that say kids are going to cost 250 grand through 18 years old and then obviously college is

01:03:20.880 | crazy expensive and the problem is parents we parents want the best for our children uh we love

01:03:26.400 | them more than anything else in the world so we're willing to be priced inelastic and spend as much

01:03:31.440 | money on education or toys or reading materials or whatever right however you know they don't

01:03:38.320 | have to be as expensive as you you know read about and think about if you can allocate more time to

01:03:45.760 | them so that's one of the things that i've discovered and talking to a lot of parents is

01:03:49.920 | the parents who are working all day all night and don't spend a lot of time with their kids

01:03:55.760 | have this proclivity to try to spend more money on their kids to try to make up for that lost time

01:04:01.840 | but if you can find yourself spending more time with them more than the average

01:04:06.320 | parent who spends time with their child which is about 120 minutes a day if you have a college

01:04:11.920 | education you will find that you don't need to spend as much time as you think as much money

01:04:16.880 | as you think because you are having so much fun playing and doing things that require no money

01:04:22.800 | at all and the same is true with vacations i know you mentioned that before you had kids you know is

01:04:28.320 | always the vacation concept was a big lavish international trip and recently with kids i

01:04:33.840 | know you haven't been traveling internationally as much and so i know that's one cost that came

01:04:38.720 | down are there other things that you now spend less on because you have kids yeah i mean definitely

01:04:43.520 | we're not traveling on by plane anymore because it's such a painful experience with young children

01:04:48.960 | under five you know they won't be able to sleep well they you know they might cry what if the

01:04:54.240 | plane is delayed by three hours and you got a one-year-old or two-year-old that would be like

01:04:58.080 | a disaster it's kind of like losing the lottery um so we've done a lot of staycations uh tahoe

01:05:04.960 | sonoma napa and as a result we've been to explore the great northern california region so that saved

01:05:12.160 | us a lot of money now what else have we what else have we saved money on with regards to children

01:05:18.640 | i mean we don't go out to eat a lot uh you know we're we're you're filling we have an au pair so

01:05:24.560 | we're filling five mouths now or i guess four because the the youngest isn't eating but we're

01:05:28.880 | filling four mouths and and so it's just easier to cook we have dinner early so for us we've saved a

01:05:33.840 | lot of money not going out to dinner all the time which pre-kids was a much more common occurrence

01:05:39.200 | yeah so yeah less going out um learning how to cook more and cooking more those are definitely

01:05:45.360 | things and just appreciating and utilizing uh nature around us you know we would go for hikes

01:05:52.480 | we'd teach them about rocks and trees and deciduous trees and evergreen trees and just appreciating

01:05:59.680 | all the free things around that maybe we didn't appreciate before because we know about it already

01:06:04.320 | we we you know as adults we learn about everything and now we got to spend money to try to entertain

01:06:08.880 | ourselves but for children everything is new everything is a learning experience and i think

01:06:14.000 | it's been pretty wonderful in that regard i mean you also mentioned the the rising cost of education

01:06:20.080 | i'm curious how you've thought about approaching 529 savings for college how much to put in there

01:06:26.320 | and and all of that so i think the rising cost of tuition that is rising faster than the rate

01:06:33.440 | of inflation is kind of a racket and it's kind of a racket because colleges don't guarantee

01:06:39.040 | any graduate a job right if they grad if they guaranteed a minimum paying job then it wouldn't

01:06:44.080 | be a racket but i think you know charging seven eight percent ten percent every single year forever

01:06:48.880 | while everything online is for free you can learn everything right youtube blog posts uh you know

01:06:54.640 | even like the college lectures they put online so why are we spending so much money on tuition

01:07:00.080 | and why are colleges these great colleges still only accepting a same level number of people

01:07:05.920 | if they really want to educate and help humanity right there they have a different motive they want

01:07:12.720 | to keep their status keep their eliteness all that stuff and keep people out that's my cynical view

01:07:18.720 | but i think that's the realistic view as to why things have not changed in terms of tuition and

01:07:24.400 | acceptance rates uh in terms of 529 plan unfortunately you know we have to think about

01:07:30.320 | our children and play this game because education is the most important thing we can provide our

01:07:35.920 | children if you're educated you can have the courage to take risks do things to make you money

01:07:41.920 | and live a better life so for 529 plan i think it's a no-brainer to contribute to it we have

01:07:46.800 | super funded our child's children's 41529 plans the year they were born and so we can't fund it

01:07:54.400 | for another five years and if we over fund it it's fine because you can just write a different

01:08:00.320 | person's name as the beneficiary right if your child ends up being a genius gets a grant scholarship

01:08:05.680 | and all that and you don't you know you got a hundred thousand left over just change the name

01:08:10.080 | change it back to yourself change it to your nephew niece aunt wants to do graduate school whatever

01:08:16.160 | 529 plan is one of the best ways to transfer wealth in a responsible way instead of just

01:08:21.760 | giving money to transfer wealth for the use of education i'll actually say there's a great hack

01:08:27.760 | which is if you get a scholarship you're actually allowed to fee free take the money out uh that was

01:08:33.280 | given as a scholarship so um you know if you don't have anyone other siblings other you know people

01:08:39.680 | you want to give the money to you can actually take it out in that circumstance um how have you

01:08:44.560 | thought about you know living in san francisco i know this is a topic in the book that i was

01:08:48.880 | excited to read public versus private school and spending money for education um when there

01:08:55.760 | is public education as well i went to public school uh through high school well no high school

01:09:02.400 | college graduate school all public school i went to international private schools when i was

01:09:06.640 | in the foreign service in malaysia taiwan philippines and zambia so i have um a ratio

01:09:15.120 | it's that you can go to private school if it fits your kids needs if the net tuition

01:09:21.360 | of one child um if your gross income is equal to at least seven times the net

01:09:28.160 | tuition of one child so in other words if the tuition net tuition costs 20 000 you got to make

01:09:36.080 | at least 140 000 to be okay sending your child to private school because remember your goal is

01:09:43.360 | to also put your oxygen mask on first and save and invest for your retirement as well

01:09:48.320 | and it used to be the multiple is more like five times but i've upped it to six to seven

01:09:54.480 | it might continue to go up because i feel that education is more and more free and accessible

01:09:58.640 | to everyone therefore the idea of spending more and more money on private school just doesn't

01:10:03.920 | make sense because after let's say you send your kid from private school from kindergarten through

01:10:09.920 | four years of college it's about 780 000 without any returns here in san francisco just for normal

01:10:18.080 | private schools and college if you slap on a four percent rate of return which is pretty reasonable

01:10:23.920 | and pretty achievable it's like 1.1 million dollars that you're going to spend so think about

01:10:29.600 | it from your child's perspective who doesn't know better but who will know better based on your

01:10:33.840 | tutelage would they rather go to public school and have a check for 1.1 million dollars when they

01:10:40.480 | graduate from college or you know farmed out over you know a five-year period so they don't spend

01:10:45.120 | all their money and go crazy or would they rather go to private school ask your children that give

01:10:51.600 | them that dilemma and then also ask yourself what you can do in terms of accelerating your retirement

01:10:58.000 | if you had 1 million dollars more as well so those are my thoughts i think it's not the

01:11:02.960 | end-all be-all whether you go to private school public school i think what's most important is

01:11:06.880 | that you develop your social skills communication skills and actual practical knowledge so that you

01:11:12.400 | can get a good job or start your own business yeah i love how in the book you take questions

01:11:18.320 | like this and you help approach the average person on how to think about them from both sides so

01:11:24.080 | i definitely think anyone listening should check it out it's linked in the show notes so you can

01:11:28.400 | find it there or really wherever books are sold where else uh can people find everything you're

01:11:34.240 | working on you can just go to financialsamurai.com and if you want to leave a comment you can leave

01:11:39.360 | a comment i'll see it and i'll respond to it if you have a question you can buy buy this not that

01:11:45.040 | anywhere books are sold but you can check out the landing page at financialsamurai.com/btnt

01:11:51.520 | for buy this not that as well awesome thank you so much for being here yeah no worries

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