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Check our app for details. Ralph's. Fresh for Everyone. Today on Radical Personal Finance it's live Q&A. Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in 10 years or less.

My name is Josh Rascheitz. I'm your host. Today is Friday, September 23, 2022. And this Friday, as we do all Fridays in which I can arrange the appropriate technology, we do live Q&A. These Friday shows are open-line Friday. You can call in and talk with me about anything that you like and ask any questions.

It could be general questions about the world, about your personal situation. We can use this as a coaching perspective. You can make comments or provide feedback. Basically, chat with me about anything that you would enjoy chatting with me about. If you would like to gain access to one of these Friday Q&A shows, the way that you do that is sign up to support the show on Patreon.

And then I will give you the access codes and the appropriate time as to when I record the shows. So go to patreon.com/radicalpersonalfinance. Sign up to support the show there, and that will gain you access to one of these Friday Q&A shows. And I would love to speak with you on the next one.

We begin with Nick in New York. Nick, welcome to the show. How can I serve you today, sir? Hi, Josh. Thank you for taking my call. My question relates to how you go about answering the question of whether you should renovate the house you have versus sell it and buy something better.

The background is that we bought our home in 2017, and it was sort of the best home we could afford at the time. But it is considered a "starter home," so it's probably one of the cheapest type of units you can buy in our area. And I've been thinking about upgrading, and I have a hard time understanding what is the appropriate way of approaching the renovation versus selling and upgrading.

I feel like there are too many variables. The interest rate is never the same. If you buy a new one, you have the commission from the real estate agent. If you keep the one you have, you have the hassle of the renovation crew. So I was wondering if you have any advice on how to approach this.

It is a complex decision, and I don't have a perfect answer where if this, then that, where it's going to be very clear. I think the biggest factor would probably relate to the amount of time involved in the project, because time is the most precious commodity that you have.

So let's run a couple of scenarios, and then we'll talk about other factors. But let's say that you're looking at a renovation, and you say, "You know what? I think I've gotten estimates that we could complete the renovation that we want in 18 months for $50,000." Well, chances are that 18 months is going to turn into 36 months, and the $50,000 is going to turn into $100,000.

So you're actually looking at a 36-month timeline for your renovation. You're going to be uncomfortable in your home for 36 months, and you're going to spend $100,000 on the renovation. If your timeline is that after you finish the renovation, you're going to live in the house for the next 30 years, because you love the location, and you love everything about the house except for these upgrades that need to be done, then it would make sense to deal with the frustration of 36 months of discomfort and a lot of money spent, because then you would be able to enjoy the house for a long time.

But if you realize that, "You know what? Even if we accomplished all these renovations, and even if we dealt with the 36 months of frustration and hassle and all the money, etc., we would probably move in four or five years," then it's just not going to be worth it.

And I think that's the basic problem with upgrading a starter home. So in real estate, your number one factor is always going to be location. Location, location, location. That is the key thing. So a starter home is probably not a very desirable neighborhood home. It's probably a home that's in, "Okay, it was fine for a time," but it's probably not where you would like to be five years from now or ten years from now.

And if that's the case, no amount of renovations are going to cause you to be able to move location. The second factor of a starter home is going to be the basic bones of the house, the basic size, the basic footprint, etc. Now, you can adjust that, but in order to do it, it will generally cost a lot.

And that's a cost that if you're not in the house for a long time, you'll probably never recoup financially. So what I mean is if it's a smallish home, let's say it's a two-bedroom, two-bath home, yeah, maybe you could add an extra bedroom somehow without it being too big of a deal.

But if you've got to add a whole new wing with a new bedroom and a new bathroom and a new den and a new office, etc., then a lot of times you might even be overbuilding the location. So in general, if you're asking these questions, it's probably better just to sell the home and move up.

The other factor is you're not a contractor and you don't really want to be a contractor. And in that case, dealing with being a contractor and trying to fix things up and trying to do it, unless it's something that you genuinely want to do because it's in your skill set or it's in your area of interest, it'll probably keep you from doing the things that are more – it'll keep you from other activities that will be more enjoyable for you.

And then does it work out financially? It can work out financially, but – and you can find some of these charts online. I don't have the numbers memorized, but it doesn't work out financially usually in the short term. So what I mean is they talk – you can find estimates that contractors have made of if you put in a pool, here's what percentage of the pool cost you can expect to recoup, or if you put in a fence, or if you redo the kitchen, etc.

The problem is if you do those changes as a homeowner, you're probably not going to go for the highest profit margin. If you fix up your – if I came in and I were flipping your house, I would come into your house and I would say, "What are the basic features that this house needs in order to be very saleable?" And so it needs shiny new cabinets.

And then we would probably add a couple of flare features because you want people to come in and feel like they got a couple of features that are just above the normal finishes of the house. So it might be the flare, it might be stainless steel appliances or granite countertops or whatever the current trend is.

And so you add just a few pieces, but you basically come in and you do everything as cheaply and as quickly as possible. As a flipper. But as a home renovator, you're not going to do that. You're going to go into the kitchen and you're going to be thinking primarily about ergonomics and having the right drawers that will make this kitchen really a joy to be in and making sure the trash can is in the right spot compared to the dishwasher and making sure that when you pull out that corner cabinet, it has all the nice stuff and you're going to upgrade everything because you're going to want to live in it.

So that harms your profit potential. It doesn't mean that the house won't sell well down the road, but it means you're probably not going to recoup most of the costs of this. And so if you want to answer it financially, I think take an estimate of what your upgrades would cost and then ask yourself, if I were buying this house again, would I pay that much more for the upgrade?

Or would I pay more? In general, on most things, the answer is no. I remember a number of years ago, I sold a house that we were living in. And this house, I wanted to put in a fence around the bed. It had a fence, but I wanted to put in a privacy fence.

And I went out and I priced out the cost of wood, which was a lot cheaper then than it is now. And I was just staggered at the simple cost of putting a privacy fence around my backyard. And I thought to myself, if I were purchasing this house and it had a fence installed, I would value the fence at a couple thousand dollars.

But the actual cost of wood alone was going to be something like $7,000 for privacy fence in the backyard, let alone installation and effort and work to put it in. So those are the big factors that I think should be weighed. And I think that most people will find that if you love the house and you want to live there for a long time, you should renovate the house to make it exactly the home that you want.

I like the idea of having a home that is uniquely yours. I don't like the idea of just constantly upgrading and changing, etc. I feel like a house in that situation just doesn't ever acquire any of the personalized charm of being your house, that you've made how you want it.

So if you like the house and you could see yourself living there for a long time, then renovate it. Otherwise, unless you're a professional contractor or you want to be a professional contractor, a real estate investor, then I think it usually makes sense to sell it and move on and find something that someone else has already renovated to be how you like it to be.

Right. I was thinking on the financial front, I was thinking that given that the real estate agents, let's say, take a couple of percentage points commission, it's almost like if you decide to renovate, you have a few tens of thousands of dollars of free money that you would otherwise be paying to someone when you would buy a new house.

Is that a right way of thinking about this? I think it's worth thinking about, of course. The problem is it's famously difficult to get good prices on renovations. I passed it along as a little joke earlier saying it's going to cost twice as much and take twice as long.

But it's not a joke. It's going to cost twice as much and it's going to take twice as long. And so, of course, you could work out something with a contractor. You can say, "Okay, here's the price." And you can work out a way to protect yourself and to control the prices to some degree.

But it's not going to be as cheap to renovate yourself unless you're in that business and you know how to do it and you're going to engage with it. And I'll make a comment on that in just a moment. The other thing about the real estate agent is I would say it's vastly easier for you to sell the house as a minimal real estate commission than it is for you to renovate the house at a cheaper rate.

So if you want to get rid of your real estate commission, then you can either do it by owner or you can negotiate the commission and go with an inexpensive listing agent and simply offer a smaller commission. And/or you can focus on doing the upgrades that the house will need in order to be very saleable.

I don't think that saving on the real estate commission is usually going to allow you to do the full upgrades. Before I make any more comments, do you have a sense of what you would need to do to this house to make it appropriate for you? I think that pretty much the house was built in the '60s and everything that we haven't changed already is from the '60s.

So effectively, we're talking about needing a new kitchen, needing a new bathroom. The siding has asbestos, so the siding has to be changed at some point. So effectively, anything that we haven't touched requires to be touched. So I would like a bigger house, so related to your footprint, the footprint coming from earlier.

But I guess if everything was brand spanking new, I think that we would be happy with the current footprint. Have you gotten any estimates or done any actual calculations of what a new kitchen would cost you to be the style of kitchen that you would like to have? I think the kitchen is probably between $20,000 to $30,000, which is, I guess, roughly the real estate agent commission that we talked about.

Right. So I can't do any more than offer the things to analyze, which is, of course, what you're doing. What I would say is I don't think it's going to work out financially unless you're going to be there for a long time, especially if you're hiring all the work done.

Let me make the comment I suppressed earlier. Fixing up a house that you live in can be a fantastic financial idea. If I had to live completely tax-free in the United States and I had basic handyman skills, one of the things that I would do would be buy fixer-uppers, move into them, live in them, fix them up while I'm living in them as a side hustle, and then flip them and sell them for a profit.

I have known a lot of handy people who have done that and who have done very well at it. And you can do this at different levels. You can do this as a real estate flipper who's hiring the crews and somebody comes in and they have the eye for it, they understand what needs to be done to make the house attractive, and they hire the crews done.

That's a very legitimate business model. You can do this as a DIYer. I know several people very closely who this is what they do. They buy old houses, they fix them up, and then they rent them out or flip them. And they do the work themselves and they're very good at it.

You can do it. It's just for most of us it's not something that we really want to do. And so if it's something that you're interested in, if you enjoy the idea of designing a kitchen and figuring out the way to get the best deal on the cabinets and hiring the appropriate tradesmen to come in and help you when necessary and you're going to do some of the stuff yourself, I think that can work out really, really well.

But if it's something that is not appropriate for you, and if you're going to go out and you're going to pay retail, and if you're going to upgrade the kitchen to be how you want it rather than upgrade it for good resale value, then I think financially you're probably better off sell the house and go and buy another house.

So your exact numbers will have to tell the story. But I think the consensus advice from most people's experience would be financially it's probably better for you if you have the money and you're thinking about changing houses anyway, go ahead and upgrade to a house in a better neighborhood and choose a house that is already ready for you to move into rather than trying to put a bunch of money into a house unless you're going to be there for a long time.

So that again I want to make very clear. That's the caveat. If you have a house that's in a great neighborhood, I have a friend of mine who… We have that. We have the neighborhood. That may be the argument in favor of it. I have a friend of mine who was a young guy, young couple.

They bought a house that was a little bit older, but it was in a wonderful, very attractive neighborhood in South Florida. And he started off simple, and then he wound up basically doubling the size of the house, put a huge addition onto the house, a lot of money into the addition.

But the idea was I'm going to live here for the next 40 years because this neighborhood and this town, his business was very stable. It was very likely that he was going to be working in the same town for the foreseeable future. And so that will work out financially in his best interest because he could make the house exactly how he wanted it for long-term living.

That leads to a tremendous benefit for the family, stability. We know everything that's right with this house, everything that's wrong with this house. We've made it exactly how we want it to be. And then in the long term, the resale value will be there abundantly. And in the short and medium term, you'll be able to enjoy all those nice upgrades that you put a lot of care and thought into.

So I guess I think don't make it a financial decision, not even exclusively, but don't even just make it a financial decision. Make it based upon what neighborhood is the best for us, what's going to give us the best lifestyle. If this house has that long-term potential, then yeah, upgrade the house and be thankful that you can upgrade it and have it just how you want.

Make it just how you want so you can enjoy living there for a long period of time. If it doesn't have those basic features that you're going to want, then go and find a house that does. And then make that house your own, the one that you really want.

All right. Thank you very much, Joshua. My pleasure. We move on to Tom in... It says Munich. It says Munich BY. Where is that? Hi, Joshua. Can you hear me well? I can hear you well. Yeah, I'm in Germany, Europe. Perfect. What does BY stand for? Sorry? What does BY stand for?

My phone screen says Munich, BY, like Bravo, Yankee. It's Bayern, the country, the province. Okay. I don't know my German provinces yet. Welcome to the show. How can I serve you today, sir? Thank you very much. So I was calling because I have a question related to career as well as life choices.

I am currently here in Munich. I'm working here. I just finished my master. I'm 26. But I don't see that great future for Europe in this moment, especially considering inflation, the world that we are having nearby. But also in terms of resources, particularly about water and rare earths that we don't have.

We don't have that many here. So I'm considering moving somewhere else, in particular Canada. What would you suggest me to do in this moment, considering that I'm entering in the work markets right now? I'm working for Amazon right now. And I just started. So I don't want to leave that early after just a couple of months that I'm here.

But at the same time, if I have the opportunity to get a better future somewhere else, I think I should take it. So I'm quite torn about it. Right. Are you single? Yes, but I have a girlfriend since a long time. So I should also consider her in the overall picture.

You're going to need to consider her in the overall picture if you're going to stay in a relationship with her. No question about that. And that is going to be probably your biggest factor. Because if you're going to continue in a relationship with her, then every decision you make is going to be colored in light of that.

If you're not going to continue in a relationship with her and you're going to make a decision, a fresh new decision as a single 26-year-old man, then you have a very different decision criteria. Finishing your master's, is there a particular market where you are the most employable, where your current skills are most in demand?

I think, well, probably something related to data analysis would be a good place to go, as well as finance. Are you drawn from a cultural perspective? I'm not talking about the amount of water or the specific economics. Are you drawn to a certain part of the world from a cultural perspective or from a desire to be there and check things out?

I don't think so, right now. Well, I think, so first, I think your biggest decision to start with, with considering the difference between living and working in Europe versus living and working in North America, and I'm going to use the word North America before we get to Canada, but I think your question, you're going to have to start with a cultural analysis.

So, Europe has many really wonderful aspects to it, and for people who fit well into the European culture, then I think Europe will offer a better lifestyle for many people. So, let me define that, noting that I have not lived in Europe, I have just simply studied this, read a little bit, listened to a lot of people, and kind of formed my own opinion.

So, you should assess my opinions based upon whether you think they're actually true or not, based upon your experience. For somebody who wants to have a job and who wants to have ample benefits, lots of time off, very restricted work weeks, something approaching safety and security in a job, that person wants to have a very homogenous society with a lot of benefits provided by the government, you want to have children and raise them in a local scenario, send them to the government schools, take advantage of all of the perks that you get from the European style of capitalism, then I think Europe is a really great cultural fit.

And I think that Germany has certainly been a leader in that space for a very long time, as far as the hottest economy and the most options. I think Switzerland offers a really remarkable set of benefits for somebody who's employable in Switzerland, just a really good, solid kind of lifestyle opportunity.

If you're somebody who appreciates more opportunity, you're somebody who doesn't see yourself as just a rank and file employee who's happy to come to work, do his job and go home, if you're looking for more opportunity, more upside, then I think the North American experience is certainly more attractive.

And in many aspects of engineering, you can see this if you look at the wage disparity and the lifestyle disparity. What I do is I spend a lot of time reading on like the expat forums on Reddit, and I listen to the people argue this out, and basically the key comes down to culture.

If you like the culture of opportunity, you're going to make vastly more money in North America, specifically the United States, more than Canada, but I think Canada is included in that. And you're also going to, than you are in Europe, but it's going to come with a more competitive environment, it's going to come with a higher level of expectation of work, it's going to come with less paid time off, it's going to come with less maternal leave time, and all of those things that kind of come with the European system.

So depending, I think one of those should be more attractive or less attractive to you than the other. In terms of resources, before we go to resources, I said that the challenge is that Canada is running this kind of interesting mix of the two. So Canada and the United States are in some ways very, very similar, very culturally similar, but Canada has gone in a much more progressive direction, has tried to mold itself in the European system, but it has a different flair to it.

And so I don't think it's quite as European as Germany is, but it's also very different than the United States. And so Canada could be a good balance of somebody saying, "Hey, I like the culture where it's not just all about beating down the tall nail, it's about some competitive environment," then Canada can be a good fit.

But I think the clearest example, though, is between the United States and Europe, and then Canada is kind of a balance between them. Back to resources. So now we get into the question of prognostication. What's going to happen with the future of Germany? What's going to happen with the future of really any country?

I don't know that this is so important to you as a 26-year-old single guy. So if you're trying to be settled in a place and you're trying to make a 40-year plan to say, "I want to settle down, I want to raise my children in this place, I want to make sure that I—and I want to have a very stable lifestyle," then I think that would be the more important area of planning.

But if you're a single 26-year-old guy who's highly qualified, has good academic credentials, then I think going to a place that offers the best opportunities now and then creating a plan B for the place where you might want to be down the road, to me, that is going to make more sense.

Because at this stage of your career, barring any significant family obligations, your goal should be to go where you can make the most money the fastest and get onto the highest growth curve of your career that's possible. And as a 26-year-old single guy, I don't think you need to be worried too much about water shortages and things like that.

I think you can have a relatively simple backup plan for that. And so I wouldn't worry too much about that over the long term. I would deal with that as a plan B scenario rather than as a plan A kind of form of planning. So I do think Germany has big challenges.

The demographics are bad in Germany. Germany's industrial base relies very much on the world as we know it. I've been talking a lot about that book, The End of the World as We Know It. The author talks a lot about Germany, and Germany is not on the winning list.

But that's also Germany has the power, right? It is the powerhouse of Europe, the economic powerhouse of Europe right now. So I feel like it's too extreme to say, "Oh, well, Germany's just going to fall apart," at least not in the short term. Canada has abundant natural resources, but the problem is the country-- So the benefits in favor of Canada are, number one, abundant natural resources, vast amounts of water, vast amounts of timber, vast amounts of oil, and so many other mining resources, etc.

The problem with Canada is that most of the Canadian land is basically inhabitable. You have this tiny, tiny strip where virtually all Canadians live, and then you have vast swaths of uninhabited forest. So when you actually try to go to Canada and set up a life, unlike a place like the United States that has a huge country and has the population distributed all across the country, in Canada, you wind up in basically a very small number of these urban enclaves.

You wind up in the Toronto area, or you wind up in Vancouver, or if you're in the energy business, you wind up in Edmonton or Calgary or something like that. But most of the population is compressed into this tiny little strip along the southern border. So you don't get any of the benefits of water security unless you're living away from the city.

And if you're in the Toronto area, you have these intense pressures of you can't afford a house, you have high taxes, unaffordable housing, crazy kind of economy. And the demographics of Canada are not any better than Germany. Canada is desperately recruiting immigrants from all around the world to try to come there, to try to keep alive.

Now Canada has the benefit of being very close to the United States, but it just has its own unique challenges. So I guess to me it seems a little premature as a 26-year-old guy, and I'm just going to call you a single guy unless that changes, to make those things your primary factors of plan A.

What I would do is I would make a plan B. Canada has a wonderful plan B. Get yourself a residency visa for Canada so you have the option in the coming years to move there. It might take a while, it might take a few years, but go right now to wherever you can get the best employment opportunities to make as much money as possible to put yourself onto a completely different – onto the fast track towards financial freedom.

And then as things develop in the next few years, then figure out what you really need as far as the long-term lifestyle approach. Okay, that's totally clear. Just to build on that, would you suggest to pivot from a current career and orient towards something that is more profitable, let's say, or keep on building where I am, I'm currently are, and then just see what other opportunity will come on later on?

If you have to choose between a career focus that is something that you're deeply interested in and that you feel is a good fit for you, or something that makes a lot of money, I think you should pick option A. Because in all likelihood, I think you'll make the most money working in a career that you're interested in and that you think is something that's a good fit for you, for the features that it offers you, rather than just trying to go and make a lot of money.

People who just go first and try to make a lot of money, they don't have – I don't think they maximize their lifetime earnings because they retire early, whether that means at 35 or 55, they wind up retiring early because they just were in it for the money. And I think more importantly that in a sense, they waste the most valuable years of their lives.

They waste their 20s and their 30s and their 40s and their 50s doing something that they're doing just for the money when they could have been doing something that they really wanted to do at which they could earn money. I don't want to say that working just for money is a bad thing.

I think any of us who've ever been unemployed or any of us who've noticed people around the world who are desperate for employment, I would never depreciate the concept of simply working. I would say stay employed. Doing a job because it pays you money is a very good and valid reason to do a job.

But you personally don't have to make that choice. You personally can choose to do something that is a career that you're interested in, that provides you with the lifestyle features that you find pleasure in, and something that you think is a good fit for you, for your skills, for your temperament, for your education, for your abilities, for everything.

And I think that when you choose something on that basis, there's a good chance you'll wind up more devoted to it, you'll work harder, you'll produce more, you'll be more productive, and you'll wind up earning more in that in the long run rather than just going for the thing that pays the most.

So if I have to choose between A or B, I'm going to choose A, the job that I like, that I want to do, and I'm going to make my finances fit that job, while recognizing that I don't think you generally have to choose between A or B. So when I do career coaching, I say start with A, right?

Start with the career that you're genuinely interested in, and the one that you think reflects well on your personality, the one that allows you to feel like you're making a meaningful contribution to the world, or your industry, or your area of study. But then, once you've established that, then look to see how can I make this more profitable?

And I think most people can maximize their profit far more than they do in their existing careers. Okay. That makes total sense. Do you understand what I was saying about plan A versus plan B of worrying about things like water security and those kinds of things as a 26-year-old guy?

Yeah, I got that. It's more the fact that I was a bit worried about the opportunity to leave and to maybe start a career somewhere else. It's more visible now that in the medium to long term, I was a bit worried that maybe borders will close and immigration will become a bit more difficult in the long term.

Right. That's why I was thinking about that. I think that's possible but unlikely. I think the opposite is likely to be the long term forecast. And I think Canada is the perfect example. I know of very few countries that are working harder than Canada to recruit immigrants to come to their country.

Do you agree with me? Yeah. Okay. Why are the Canadians doing that? I mean, as you said before, probably the fact that their demographic is not that good. Right. So, they need to back up their workforce. Right. They're dying. They're dying. They have this huge country and a very small population.

And the very small population that they have – and let me give you the context, right? Canada has a geographic area that is larger than the United States but Canada has 10% of the population of the United States. The United States itself is vastly underpopulated, especially when compared to Germany or any other European country that has a much longer history.

So, the Canadians are sunk demographically. They have a huge country and they have a tiny population right now. And their tiny population has had no babies for many, many decades. And so, they're desperately trying to recruit immigrants from all around the world and they have been doing that for many, many years now.

And this is leading to all of the various changes in the society that is normal when you do that. But I think that a country like Canada is more of a leading indicator of what the future looks like. Because demographically, these demographic changes aren't likely to – these demographic changes aren't going to – if they change at all in the future, right?

If as a population we start having lots more babies, that change will happen very slowly and it will not happen everywhere. So, what Canada is doing I think is much more an indicator of what the world is going to look like in the future than the opposite. The world is going to be calling out for immigrants.

All of the major leading wealthy countries today are going to be calling out for immigrants desperately. Especially as long as they have territory, right? I think of a place like Singapore, right? Which doesn't need any more immigrants. Why? Because they don't have – they have a wealthy society and they needed them for a while.

But now they have a very, very small land mass. So, if you're dealing with a country like Germany or Canada or the United States, these countries need people. And so, the people that they want are qualified, educated people. And the immigration pathway is going to be smoothed in. Even the United States, which I think is perhaps the most difficult country in the world to immigrate to today.

The United States will be forced in the next decade to fix its immigration system somehow to smooth the process. Because otherwise the United States is going to have a very hard time attracting the immigrants that it needs and wants while they are available. So, I don't think that countries are going to close down to immigration.

But I don't think that you should wait just in case they're wrong. And so, as a backup plan, I would say go ahead and start the process of applying for Canadian residency. Get a residence permit, if possible. And then make your decision about moving to Canada after you have the residence permit.

But that still gives you at least – if today you started your application process to move to Canada, you would have three years minimum from today before you would actually have to go and move to Canada in order to maintain your residence permit and start the pathway to citizenship.

And so, it could be something where you start that process and you have a three-year plan to go to the place that you think your career is going to be best served right now. And then after three years, then you have a plan to move to Canada, live in Canada for three years, become a Canadian citizen.

And then if you want to continue in Canada, great. Or if you have another opportunity, then at that point you could always leave Canada knowing that for the rest of your life, you could come back to the land of abundant timber, abundant water, etc. Okay. Perfect. Makes sense. I think as a 26-year-old single guy, you shouldn't be thinking about safety in that sense.

Meaning it's simple. All you need, you need some prepping supplies where you live, you need a passport and a credit card, and the ability to travel to another place, and you need skills that are in demand. But I think worrying about the water or the long-term economy of a place, right now you should be focusing on what you can control, which is the job that you personally have.

Okay. Okay? Okay. That's it. Great. Call back in the future and let me know. Thanks for watching. I'd love to keep in touch and hear how your transition is going. Now for a limited time at Del Amo Motorsports. Get financing as low as 1.99% for 36 months on Select 2023 Can-Am Maverick X3.

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Offer in soon. See dealer for details. We move now to Vincent from the Bronx. Welcome, sir. How can I serve you today? Hey, thank you so much. I've been listening to you for years and I appreciate everything that you do. That's a good intro. I found you years ago because I was researching the fire movement.

And long story short, it's kind of ebb and flow to my life. But one of the things that I noticed that your position has evolved slightly, but not you personally, but I guess the advice that you give is about the stock market, more specifically the U.S. stock market. And essentially that it's an essential component of building wealth and it's inflation proof, somewhat anyway.

But my question to you is, how can we be sure or at least why is it a good bet that the U.S. stock market will continue to go up, I guess, indefinitely or, you know, on average, 7 percent or, you know, per year? You know, and I've of course, you know, you recommended it.

I've read into Peter's eye and I somewhat agree with his position. I think it's a little extreme with regard to China and so on and so forth. He does say that the U.S. is, you know, in store for some pain, maybe less so than the rest of the world.

But I feel like it's a huge assumption for a lot of people that the U.S. stock market will continue to go up indefinitely on average. And I think it's a huge blind spot in people's planning. You know, so lately what I've been doing and I guess, you know, I don't know if it's the best move, but from that perspective is, you know, I've invested in I-bonds.

That's a big thing that came up recently and also I tend to like bonds. So I just want to know what your perspective was on those thoughts. Thank you. No, it's a very fair and cogent question. So to begin with, I'm sure that my opinions and positions have changed over the years.

But let me precisely state what my current opinions are so that at least we can know what I think and then argue for and against it rather than any kind of perception of someone else of my opinions. So first, at its core, I do not think that the stock market always has to go up.

So I'm not saying the stock market is always going to go up, nor am I saying a nominal rate. What I mean is 7% or 9% or 5%. I'm not predicting any kind of specific rate of increase that the stock market will go up by. When I calculate a return of a portfolio, I do my best to use a somewhat conservative estimate that reflects the history of the stock market that we have, the recorded history of the stock market.

So I will frequently use 7%, but that's not a prediction that it will go up at 7%. Rather, it's a reflection of the history that we have to study. And the fact is we have to use some number, and the number that we use is going to make a big difference in the numbers of the calculation.

So when I have my financial calculator sitting in front of me and I have to put in an annualized rate of return for a portfolio, I need to use a number. And so I'll use 6%, 7%, 8%, because I feel like these accurately reflect the fact that all of the recorded data that we have from the modern era on the performance of the US stock market indicates that if the future looks something like the past, these would be a good and useful estimate for us to use.

That's not to say that the stock market won't go down. I try to frequently, in an effort to inure investors against emotional panic, I try to frequently remind people that you should expect about a 15% variability in your portfolio in any given year. In any given year, your portfolio will go up by 15%, down by 15%, in a fairly random pattern.

I try to remind people that about every three years you should expect about a 30% move in your portfolio, which means sometimes it'll go up by 30% and sometimes it'll go down by 30% over three years. I try to remind people that every decade or two you should expect a 50% change in your portfolio.

And so I put numbers to that. If you've got $300,000, then let's do easier math. If you've got a million dollars, then a 15% change means you're going to have any random year up and down 150 grand. Any random three years, you're going to have up and down 300 grand.

Any random decade, you're going to have up and down $500,000. That's the variability that we have in the stock market. So those are the numbers that I use because I think they reflect an appreciation of the legitimate volatility of the era that we live in, the unknowns of the future.

But I think they're fairly grounded in the history that we can point to as evidence and say, "Look, this is what has happened in the past." Now, why do I think the stock market is a good place for money, for some money, in the future? As I see it, the stock market, and here I'm referring specifically to U.S.

publicly traded markets, and they can include other countries, but I'm referring to the United States. This reflects the current development that we have of the modern system that provides access to capital. So the stock market is a fairly new invention in the history of mankind. There are certain preconditions that are necessary for the stock market to flourish as it has flourished for the last more than a century.

Some of those preconditions are pretty big preconditions, things like societal stability. You have to have peace and a harmoniously functioning society. You have to avoid significant amounts of war. While certainly in the United States, we have times when the United States has been at war, I think the United States itself has not been attacked and demolished like some other places have been.

So I think it's very instructive to go and consider and say, "What happened to the London Stock Exchange during World War II when London was destroyed? What happened in other places where there's been war? What has happened to stock exchanges when there's been societal collapse, civil war, and strife, etc.?

And if we do that, then I think it can help us to realize that stocks are not guaranteed. And while I personally think the United States has many more reasons for optimism of the stability, etc., of the country, I think it's important to say, "What happened to the Lebanese stock market recently with what they've been facing, etc.?" We should be aware of these things.

So if you study them, it's not that stocks are guaranteed in the long term, but that access to capital that is available in the stock market and people's interest in trading stocks and owning stocks on an individualized, fractionalized basis, this is a development of the modern era that has a pretty good and solid long-term history now.

And so as long as we can maintain those preconditions, the only thing I can see that would upset the confidence that I have in the stock market would be the invention of a new system that can solve those capital needs of businesses better. The stock market fundamentally serves a very important role in society, and it allows companies to flourish, it allows individuals to invest in those companies, it allows individuals to invest in those companies on a limited liability basis, and these are all things that make our lives unquestionably better.

I do not want to go back to a world before the New York Stock Exchange existed. I want to live in the world that we live in, which has allowed the flourishing of public capital markets, while acknowledging that there has been harm done at various times in history by those markets run amok.

So when I look at the stock market, I see it as a reflection of the modern age and of basically the way our lives work. It's a utility of the modern age in much the same way that electricity is a utility or the Internet is a utility. It's something that did not previously exist, but that we have invented as humankind because it makes our lives better.

And so I look at the stock market in the same way they look at electricity, simply that if the stock market in the United States were shuttered, completely closed, then very quickly a new black market would break out. Just like if the entire electrical grid in the United States went down, let's assume that we had a massive EMP attack and the worst fears of those who fear electromagnetic pulses came true, and the entire, was it three grids in the United States, all three grids were knocked out.

That would be really, really bad. Really bad. It would be horrific and millions and millions of people would die very quickly because of that. But we would not forget how to produce and create electricity. People would immediately start on a localized basis producing electricity and using electricity on a localized basis.

And then eventually we would rebuild the large power grids again that have served our life so well. The technology, once it is known and once it is realized that it makes things better, in order for it to disappear, either you'd have to obliterate all human beings, which is not likely, or you would have to invent a new technology that makes the old technology obsolete.

And if you look at the world that we live in, this is the case in every realm of finance. Insurance contracts were a fundamentally new technology several hundred years ago. But today those insurance contracts have developed incredibly well in sophistication, and they smooth all of our lives and our lives are undeniably better due to the development of insurance in all of its applications.

Money, as we've developed money, for all of the goods and the bads that we want to look at, I don't want to go back to a world without money. And while I may not be the biggest fan of the Federal Reserve notes, I will very quickly acknowledge the fact that those Federal Reserve notes have been instrumental in building the comfortable and wonderful life that I enjoy.

And the stock market is a reflection of that. So what I'm seeking to say is I can't say that the stock market is always going to go up in value, because history would say that to be a foolish thing to say. But as a technology, a way of distributing ownership of companies, a way of allowing individuals to come together to form corporations that have limited liability for their shareholders, as a way of allowing shareholders to invest their money and enjoy fractional growth, fractional ownership of companies that are good stewards of their money and grow it, I don't see that going away unless somebody can point to me a technology that is superior to it.

So now, what are some of those risks that do need to be considered? Well, I think one very serious risk and legitimate risk is a complete economic upheaval. So here, of course, we would point to the Great Depression in the United States. Or we could point to the bombing of London in World War II.

We could point to the recent hyperinflation in Lebanon and the disaster there with their banks recently, or any number of things around the world. And we could say, now we understand, or now this is why I, Joshua Sheets, why I myself am such a loud proponent of diversification, and why, unlike most financial advisors, I talk about things like preparedness.

Because the financial markets are incredibly sophisticated and effective when they work well, but when they don't work well, when there's a disruption, you would really like to have a little farm with a well, with abundant water supply, like I was talking about with the previous caller, and in a place where there's abundant food, and you would love to have easy access to energy, and you would like to have that community be stable, where you're not going to deal with societal disruption or a civil war, or worry about getting shot in the street, etc.

And that's basically the argument of preparedness, of physical preparedness. So as I see it, these things go together, that if the stock market were to fail, then-- Excuse me, I couldn't get to my mute button fast enough. If the stock market were to fail, then we should be prepared for a world in which there was a complete collapse of the financial system.

But I-bonds don't protect you in that system. Bonds don't protect you in that system. What protects you in that system is living in a securigated neighborhood where you know your neighbors, and you form a homogenous group that is able to work together and trust one another, and you've got security for your neighborhood, and you've got food in your pantry.

That's what protects you from a collapse of an economy. That's what protects you from a collapse of society. That, or leaving the place where there's a collapse and going somewhere better. So here again, I point to Venezuela. Why have I talked so much about Venezuela? What's happening in Venezuela?

What has happened in Venezuela? What is happening today, etc.? And that's where I point you to. Venezuela had a completely--or I guess we should point to Russia. Another good example would be Russia. Russia had, a couple years ago, a highly functional system. The Russian government was very, very diligent about managing its foreign reserves and getting the country out of debt and building up lots of power for the government.

The Russian stock market was powerful, and people were investing in it, etc. And then the war happened, all the sanctions happened, and the Russian-- and basically Russia was transformed overnight. And while I want to hasten to say that that transformation has not been as-- from internal to Russia--has not been as obviously immediately destructive as I expected it to be, I think still their stock market is closed.

So anybody that was investing in the Russian stock market for the purpose of kind of long-term growth and speculation on the companies, those particular investments are not accessible to them right now. The Russian ruble has not fallen apart. They can still buy food, they can still function, but now millions of young men are being called up and drafted into military service.

Things are very, very difficult for them. And so what protects you in that situation? Well, the thing that protects you from being drafted into military service is not to be in a place where your country is going to draft you. It's to be able to go across to the other side of the world, have a second citizenship from a peaceful nation that's not going to draft you.

That's why I talk so much about second citizenship and international diversification from that perspective. And then also what protects you from a close of the stock market? Again, back to the community, having diversified investments in other places and having the ability to get access to those things. So I think the stock market is likely to continue in the future, much as it has been up till now, with the normal variations and gyrations.

And that's why I think it makes sense for people to continue to fund their 401(k)s, fund their IRAs, invest that money in stocks, etc. But of course, I think wise diversification is a factor. I'll come to your question on bonds in a moment, but wise diversification would include things like having some physical assets.

Those physical assets could be physical rental houses. It could be physical tools, guns, saws, chainsaws. It could be watches or jewels or gold coins, things that aren't reliant on the stock market, that aren't as easily reportable and traceable as electronic entries in an account book. Again, look at Russia.

Imagine that you are a – the context is different, but let's just imagine it. Russia is a modern state. Moscow is a modern, gleaming metropolis. Imagine that you, three years ago, were a thriving middle-class person. You had bought a house. You were paying it down. You were saving money.

You were investing in the stock market. You were investing in whatever the local version of a retirement account is, etc. You were kind of building your life with those expectations. Then your government goes and says, "We're going to go and expand into Ukraine. We're going to take back our territory in Ukraine because Ukraine is Russia, blah, blah, blah," and they initiate a war.

Immediately, everything falls apart. You lose your job because the Western company that you were working for pulls out or they fire you because they don't want to work with Russians. You lose your – you still have your bank accounts, but you lose the ability to spend them around the world.

You lose, very quickly, your freedom. You're drafted into war to go off to fight some war that, whether you want to fight or not, the point is to say the idea that a government could force you to go and fight for them is the ultimate expression of slavery. If you want out of that, you have to think laterally about the solutions that would have saved you from that situation.

That's why Americans should be thinking about that today. Canadians should be thinking about that today. Germans should be thinking about that today because we don't know what the world looks like 20 years from now. But that doesn't mean that we shouldn't invest into stocks. I think that that's my basic argument in favor of, yes, investing in stocks, but recognizing that there are other forms of investment, other forms of protection, other forms of insurance that are important as well.

Let me now talk to your bond question. There's nothing wrong with bonds, nothing at all. I-bonds, treasuries, anything can serve as a valuable piece of the financial – a valuable tool in the financial toolbox. That's all these things are, is they're financial tools. We should look – the way that we decide what we invest in is simply – should be in all situations, we should look at what our goals are for the money and then ask ourselves what opportunities or what tools do I have that could help me achieve those goals and then choose the best tool for that application.

So why are – let me give a couple of examples, then we'll turn to bonds. If I'm looking for a tool to give my child his weekly allowance so that he can go and spend money on something this week in a store, the tool for that is a $20 bill or whatever the local version of that is.

If I'm looking for a tool that will allow me to save money to pay a contractor to replace my kitchen on my house like the previous caller, then the tool for that is going to be a bank account that I can write checks from where the money is going to be stable and not go down by whatever percentage.

Looking at you, Bitcoin, right? So I want it in U.S. dollars in a bank account and I want an FDIC-insured bank account because I'm going to save up $100,000 there to be able to write a check to my contractor to pay for my house renovation. If I'm looking for a tool that allows me to instantaneously send money to the other side of the world and to do it without the risk of getting canceled by PayPal and Venmo and Stripe and the bank because I've got an unacceptable political opinion, looking at you, Canada, then all of a sudden, Bitcoin looks really, really attractive to me in that scenario.

If I'm looking for a tool that allows me to say, "How can I own a piece of a company, a small piece of a company, that is making money, that has customers, that is expanding its base all around the world?" then a stock looks really, really attractive because that's what it is.

If I'm looking for a tool that allows me to lend money to another entity at a stated rate of interest and I'm happy with that rate of interest and I consider it guaranteed and safe and I can get by with it, then a bond looks really, really attractive. That's fundamentally what a bond is.

That's what it does. You're lending money to a company or to a government, to a municipality, etc. for a stated rate of interest. As long as you own that bond and as long as they make their payments, you'll get your money back. That's what they are. That's how they work.

So the applicability of that tool or the appropriateness of that tool will depend upon the goals of the person that is making the decision. I've talked extensively here in Radical Personal Finance. I'm different than most financial advisors. I encourage the appropriate use of whole life insurance. When I talk about it, I specifically say that it is invalid to compare the financial performance of a whole life insurance policy to that of a piece of stock, a stock investment.

Because when you do that, you're choosing two different tools that have two different risk profiles. Insurance companies run their portfolios primarily based on fixed income investments, bonds, because the tool that they need is a tool that gives them certainty of being able to pay their claims. That is what they do.

That's why they need it. That's why they choose bonds. Because those bonds give them certainty and they can match their expected outflows of paying insurance claims with their investment portfolio. Now back to your situation. If somebody is looking for a tool that allows them to save some money for five years and at a certain rate of interest and a guaranteed return, a bond is perfect.

Go buy a five-year bond. Where I disagree with the use of bonds is if somebody's tool is to say, "I want to build up large amounts of wealth over an expected timeframe of investment of decades." And my reason for that is simply this. Owners of companies generally get richer than lenders to companies.

Owners get richer than lenders. And you can go and see this all throughout society. That people who own companies that do well generally get richer. It's not to say that all of them do. You could own one company that goes bankrupt and wish you, instead of starting the company, had gone and invested the money and lent the money to someone else.

But if you own enough companies and you have enough diversification, owners get richer than lenders. Stockholders, because of the increased risk that they take with variability and volatility, get richer than bondholders do. Companies have to pay the bondholders first. That's why bonds are safer than stocks because bondholders come before stockholders in the liquidation of a company, but they pay the bondholders a fixed rate of interest, where they allow the stockholders to participate in the shares of profit.

So if you give me 20 or 30 years, I can't think of any scenario in which somebody who's lending to a company is going to make more money than someone who is owning that company. As long as there's sufficient diversification in a portfolio for the potential bankruptcy of any one particular company or any one particular industry.

That's my argument. I don't see how you could get it the other way around. And so the appropriateness of a bond is either as a dampening effect on a portfolio, to say I'm going to have 80% stocks and 20% bonds to dampen out the return so there's cash inflows from the bond portfolio or the bond portfolio is affected by interest rates, inversely to the stock portfolio, that's the modern portfolio theory applicability of bonds, or that you need it for a specific cash outflow that's in a certain period of time.

But if you're just investing for the long term, investing for your retirement, investing for your children's wealth, your children's children's wealth, etc., then you want to own companies and participate fully in the profits and then have appropriate financial planning that's going to allow you to protect yourself against those variations of the ups and downs of the portfolio so that you don't have to sell when times are bad.

And that's why I think in the long run stocks are going to do much better than bonds. It's just a basic idea that owners get wealthier than lenders. Vincent, I know you fell off in the middle, so I don't know what you heard or what you didn't hear, but that's my answer to your various questions.

I called right back in. Thank you so much. I mean, look, I'll be honest with you. I don't think the stock market's going to go away. My prediction, if you will, is more of a Japan-style malaise. And I think there will be individual successes, plenty of them. But I'm wondering if as a whole the stock market is going to continue to go up, or at least on average 7% a year.

Again, in my opinion-- a problem that's not my show-- I think I'm tending towards more inflation protection. But in the end, I definitely will lose if, of course, the stock market does go up. But I don't know. I guess that's where I'm at. But I really appreciate everything that you said, and I will definitely listen to this two or three times.

I really do appreciate the comprehensive answer. Good. I don't think that your prediction is wrong. Let me rephrase. I don't think that your prediction is inconceivable. So Japan has been a leading example, a leading indicator that we've looked at since the 1990s to say what happens when a country makes these certain decisions, and how is that reflected over the fullness of time.

I think there are some peculiarities to the Asian markets of Japan, of the Japanese finance system is not the same as the American finance system by any stretch of the imagination. The Japanese corporate culture and the basic function of companies is not the same as it serves in the United States.

So I think there are things that you should be aware of, but I don't think that your prediction is crazy. What I think you should do is say, "Here's the scenario that I think is likely, and then how can I best invest for my family's financial goals in that scenario?" And that's what you're doing.

And then concurrent with that, I think that you should simply always say, "Is there a way that I can protect myself if I'm wrong? Is there a way that I can make sure that if I'm wrong with my prediction, that I've bought insurance for myself to know that I can still be okay even if my predictions are wrong?" And that, to me, seems like the best path.

And so you go with your primary scenario. If you need to bet big on something to make it work, then that's maybe a choice that you make. People do that. But if you can simply protect yourself from-- if you can go with your primary scenario of what you expect-- and here's the other thing.

If your returns from your actions, the expected returns of your portfolio are sufficient for you to accomplish your goals with a minimization of risk, then that's adequate. You don't need to shoot for 20% returns. There are a lot of people that have gotten burned recently with the volatility of the Bitcoin marketplace and other cryptocurrencies because they said, "Well, I'm going for 300% returns like everyone else had." And now they're hurting for that.

So if you can get your returns with a minimal amount of volatility and you can reach your financial goals, that's a good thing. I just think that if you're talking about a long-term future, I myself, I'm going to bet on companies. I'm going to bet on the best companies of the United States and the world.

I'm going to bet on owning those companies rather than lending to them because I think that all of recorded history would indicate that that's probably the plan that has the best possibility of long-term success. John of Pennsylvania, welcome to the show. I'm going to serve you today, sir. Hey, Joshua.

Thanks for taking my call. I'd like to meet Tom from Germany online. Maybe we can make some kind of international anxiety group. I should start the forum for that, the Radical Personal Finance International Anxiety Group. Yeah, that'd be perfect. But today I'm having a good day and I'm worried about much, much smaller things.

So what I've been trying to keep up some momentum today. I've been out of work for a couple of months now. I resigned from my position and I'm trying to reassess and look around and get a lot of home projects done, things like that. I have this unfortunate dual personality problem of being both frugal and a pack rat.

But I'm also sort of a bounded pack rat. We have a very modest home. I'm segmented only to a shed and one half of a garage that I can really stuff things into. I'm purging a lot of stuff. It's really hard for me to do. I'm one of these Marie Kondo persons that can really find – everything sparks joy is the problem.

So I see value in things that other people would just find to be garbage. But I made a little bit of money. I made a few hundred dollars selling some things. But one of the things I'm really struggling with is specifically I built up a certain amount of things around tooling, pretty large tools, woodworking tools, various things that in my mind I justified for a long time because I consider them good things to have around to teach my kids as they get older.

They're only six and eight now. But to teach them trade things and woodworking stuff, metalworking things, welding, and I have lots of large tools. I'm sort of just realizing I like the space more or I probably should value the space more than I do because, for example, my kids are more into mountain biking or things like that.

I'm trying to free up space and generally really just encourage myself to spend the money on things that they're actually telling me they're interested in rather than some theoretical interest they may or may not have in the future, whereas I could just go in the future, rebuy all these tools that I'm selling now.

So I'm looking for a little bit of mindset and perspective on that as far as how weighing out deals now for potential future hobbies or things to do with the kids versus if I sold enough of this stuff, I could go out and buy my kid one of the nicest brand new mountain bikes or just justify that cost a lot more easily because I'd have a nice space to start with.

I'm not tripping over 500 things. I don't know if there's any thoughts you have around that kind of thing. I think it comes down to mastering the opportunity cost. I'm convinced that the secret to life is understanding the concept of opportunity cost. And when I reflect upon that in my own life, it provides so much clarity of decision making.

And I think for children and for everything is that what am I giving up in order to make the decision to do what I'm doing right now? So I know your story and the listeners know your story because you've been calling in for years. But let's just use some examples.

And so John is very close to financially independent, if not fully financially independent, depending on what day he calculates the numbers and what numbers he uses. He doesn't want to quit forever, but that's why he's kind of been in and out of employment over the last few years. And you've got a six year old and eight year old.

And last year when you were unemployed for a time, you guys you did take the trip around the United States, right? You took a camper and went around the United States for a while? We had the camper. We did more local trips. And we took many more road trips without the camper all around.

Great. So I'm saying that intro to say I'm going to use travel while acknowledging that travel, family travel, etc. is not great for all people and it can be very difficult, stressful and not fun for a lot of people. But that's what I always use because I enjoy it.

So if what I'm giving up by having a big garage full of woodworking tools is the ability to buy a sailboat and go sail around the world for the next 10 years, and if that's what I really want to do, then I would see those woodworking tools as a point of as an imprisoning device rather than as something that I want to own.

So I look at stuff oftentimes in this way to say that ownership of stuff has a genuine opportunity cost. That the more stuff I own, the less freedom that I have. And so that would reflect a little bit of my personality simply that I don't want to lose my freedom.

On the other hand, I have lots of things, right? I have a library, a physical library with 2000 books in my library that I haul around the world with me. And that's a real hassle. And so what's my opportunity cost of those things though? I want, even though that stuff that weighs me down, it's physical items, it's all physical books that weighs me down, that is to me an investment into my children and into their education.

So how I look at it is that if I didn't have that library, then I would have kids that played video games all day. So the opportunity cost is I don't want kids that play video games all day. I want children that are smart and well-read and intelligent and interested in life.

And so I want to have that library. And so there is, I can go through two, I can have a physical item, and if what I'm giving up in the one sense is freedom, then I'll get rid of the item, and if what I'm giving up in the other sense is something that I don't like, then I'll keep the item.

And so you have to get clear on what your opportunity cost is. And so for you, if you have a big lathe and a bunch of saws and all of the gear that you need, if what you're giving up is adventures with your children because you can't, or the things that they need or want, by having all that junk lying around, then yeah, it would be obvious to get rid of the junk.

On the other hand, there's a reason that you're into that stuff. And so maybe getting rid of the stuff would be giving up on the dream that you always had of setting up a shop and actually following through and getting yourself a nice shop where you can create the kinds of things that you're capable of creating.

And that could be something that's really useful to them to have some of the mechanical knowledge that is available to them as well. So I, of course, don't know the specifics, but what I would say is that you have to get clear on what the opportunity cost is. And so you ask yourself that question.

And so here are the questions that allow you to flesh out opportunity cost. Number one is, knowing what I now know about owning this particular woodworking device or this particular lathe or whatever it is, or this gear, this set of gear, knowing what I now know, if I were going to get into this again, or if I were going to buy this stuff again, would I buy it again?

Let me just pause for your answer. Knowing what you now know, John, if you were going to buy all that stuff again, would you buy it over again if you had the chance? Most of it, no. Okay. So if the answer is most of it, no, then the right solution is probably to get rid of most of it.

Because if you wouldn't buy it over again, then you get rid of it. And let me contrast that with my book collection. I have a library of 2,000 books. And by the way, this is entirely -- I have a show in the annals of Radical Personal Finance called "How I Digitized My Entire Library." That entire library of 2,000 -- I did digitize my entire library.

But over the last three years, I've gone from zero books, zero physical books, because I had digitized the entire collection, to now owning 2,000 volumes of assorted books. And if I answer that question, if you say, "Joshua, knowing what you now know, if you had to buy all these books over again, would you do it?" I would pull out my credit card and I would start buying the exact same titles of all of the books that I have bought, because it's been done very, very intentionally, very clearly, and I would repeat the whole process.

If my library burned down, I would start buying books next week. So the answer to that question is a very clear and illuminating answer in most situations. It's not to say that it will be that way forever. There's a very good chance that 10 years from now, that entire library will be boxed up, stuck in storage somewhere, and/or given away to somebody else who would value it.

But for right now, it reflects a set of tools that I need and want to accomplish goals in my life. So that question alone is the most useful question. And if you ask yourself -- it's my version of the Marie Kondo question. It's not, "Does this spark joy or not?" It's, "If I had to buy this over again, would I buy this over again?" If the answer to that is no, then the answer is you should probably sell it.

And then the other thing is just trying to reflect on, "What is keeping this keeping me from doing?" So if I have this collection of woodworking tools, what is this keeping me from doing that I would also like to do? And if the answer to that is something that you want to do, then it will be easier for you to emotionally part with this stuff.

Beyond that, there's probably some hoarder instincts and whatnot for those who have a deep affliction of the disease, that some people who are more experienced can deal with the psychology of that. I've never gotten that deep into it, but that's how I would approach it. >> Yeah, no, I'm not quite that deep, and I appreciate the context of opportunity cost.

And really, I think the answer to what's keeping me from getting rid of a lot of this stuff is sunk cost more than anything, because it's not just – most of these tools were acquired pretty frugally, but it wasn't frugal in my time. I spent a lot of time sorting through things and finding good deals and upgrading things.

And there's a back story to that, but it's all in the past, and I can't do anything about it, so I need to just move past that. When I get in these modes, I try to really grab onto the momentum I have from getting rid of things, because on the flip side of that, other opportunity cost is – I struggle with buying my kid, who's still growing and will likely grow out of his bike.

I don't want to – I think, "Oh, $1,000 for a bike. That's a lot of money." But I'm literally "spending" or losing hundreds of thousands of dollars by not working right now, so I have more time with him to do these things. So it's so Pennywise and Tom Forch to not invest in the right gear to do the things he is interested in doing, or both of them are interested in doing with me right now.

So just that context, which I have trouble keeping in front of my head day to day, because frugality kind of trumps it in the forethought. I really need to sit down and be like, "Okay, that's just dumb. I'm giving up so much more just by giving up my employment right now to be with him, to have time." Then to ride around on secondhand or shoddy gear just doesn't make sense sometimes.

Yeah. Just remember – Yeah, I appreciate the context. Yeah, just – so two comments on that. Number one, we have to train ourselves very diligently to ignore the sunk costs while trying to make good decisions for where we are today. The sunk cost is gone and we can't change it.

Recently I've been talking about cars. Let's say that somebody was trying to be frugal with his car purchase and he went out and he bought a $60,000 car and he couldn't have afforded it by any stretch of the imagination. Now the car is worth $30,000. It's cut in half and his family is hurting financially because he bought too much car.

Well, that's a sunk cost. No matter what you do, the car is never going to be worth the recent money. So all you can do – the $60,000 – what you can do is simply reflect upon the fact that I now own a $30,000 car and all of the time that I spent, all of the money that I spent, it's gone.

It's dead. It literally doesn't exist. It's gone forever. It's just a sunk cost. I can learn a lesson from it, but today I'm dealing with a $30,000 car. Now, what is wise for me to do today with a $30,000 car? And that's why I've tried to emphasize – even in that series I've been doing – I've tried to emphasize that it's not necessarily wise to just run out and sell the car just because it violates.

You have to think thoughtfully about it. So in your situation, you have to ignore the sunk cost of the time invested in acquiring the equipment, and you have to look at the actual value of the equipment today. That value can be monetary or it can be another expression of value.

For example, this equipment might be the key to something or it might be equipment that is hard to get of such high quality today. So you have to look at it with its actual value today and then make a fresh new decision from it. The second thing – so unrelated to that, but related to the topic you made about money and the value of a $1,000 bike versus hundreds of thousands of dollars of income – that's a false equivalency.

And I think we need to guard against false equivalencies. There is zero connection between the amount of money that you spend on a mountain bike for your son and the amount of money that you could be earning if you were working. And the two don't need to be considered in the same path.

This is a big logical fallacy that I think a lot of people do in financial planning, in their own thinking. And I'll give an example. Let's say that there's somebody who really values automobile experiences. This is the kind of person that really loves a great car and they're super into supercars.

So they go out and they spend $250,000 on a beautiful supercar and they keep it shiny and they got a beautiful garage to keep it in. Does that automatically mean that because this person values an expensive supercar that when they go to a restaurant they should automatically order the most expensive bottle of wine on the menu?

Assuming that it's obvious that the person doesn't also value expensive wine. It's a false equivalency. So the fact that you may choose to spend lots of money in one area of your life doesn't mean that you have to spend lots of money in every area of your life. So the fact that you are choosing not to work right now at a paying job has nothing to do with how much money you should or should not spend on your son's bicycle.

And you shouldn't feel guilty for giving your son a $200 bicycle just because you could go out and earn $200,000 a year. You shouldn't feel guilty about giving your son a $200 bicycle if that's the bicycle that you have chosen that is best for him and his needs at this point in time.

But you also shouldn't feel – you also should make the separate decision and say, "Hey, just because I'm not working doesn't mean that I shouldn't go and spend the $1,000 to give my son the tool that he actually needs to fulfill his potential in this particular area of interest." So if there is a genuine difference between a $1,000 brand new top of the line bicycle and a $200 used bicycle, that should be considered as a discrete concept for analysis, not a false equivalence of what you could be doing with your time.

That's a logical fallacy and you should reject that. That's great. No, I appreciate the check there. I do this all the time. I am convinced that one of the things that we've got to do is be very diligent about studying and using logic ourselves and then teaching our progeny to study and use logic because we are living in what feels very much like a generational shift where we're bereft of basic logical analysis.

And yet, most of life, if you apply simple logical analysis, is pretty simple. So we've got to be in very – that's why I took the moment to point it out – that we've got to be in tune with it and talking about it and build a new culture where we're aware of our biases and we're aware of the fallacies and then we work within those to make good decisions.

So thanks for the call, John. And we move on to Peter in New York. Peter, welcome to the show. How can I serve you today? Hey, Joshua. How are you? Very well, sir. I have a question. I have a relatively young son. Do you think it's a good idea to put him on our credit card to help him build credit or is that a bad idea?

How young? He's under a year. I have struggled with this question. I've struggled with the question. Short answer is I haven't put any of my children on my credit cards. So that'll give you my actual answer. But I'll deal with a couple of the factors. I think that a credit score, a good credit score, is an important component of modern life.

And so I'm not in the camp of the no credit score is the great solution. But I'm biased because I've been burned so many times by spending excess money and by the good credit score. And so logically, it's kind of like my focus on debt. It's like logically, I think that debt is a very important tool to get ahead faster.

And emotionally, I hate debt because I hate that it kind of does to my future. So I have the same wrestling match with regard to a credit score. Is logically, I look at it and I say that having a good credit score will smooth out your life and your lifestyle in many ways.

And will allow you to save significant amounts of money. But emotionally, I know so many people who would be better off with a zero credit score. And I don't know how you predict that long in advance. So I don't think it's necessary at one. I think that the bigger risk at one is probably identity theft more than anything else.

And so I think that if you do, regardless of whether you choose to put him on or not, you should freeze his credit. So that he's not at risk of identity theft. Which I believe is the biggest risk. And I think I would not, I mean I have not chosen to put any of my young children on a credit card.

Or to start a credit file for them in any way. When you get to someone who is say early teens, etc. Then I think it's more of a conversation. And I don't think that, I'm not aware of any reason why doing it much earlier than that is that compelling for the purposes of a credit score, etc.

So let me just stop there and say that it's not a priority for me. And I'm very conflicted about the concept at all. Because it's fraught with so many difficulties. And I think it needs, I think in order to make the right decision, it needs a good bit of judgment on behalf of the parent who is coaching the child.

Into the unique attributes, unique personality of that child. So that that child can get good advice on the subject. Interesting, yeah. The credit freezing thing, that's a good idea. That's something I'll do this weekend. I actually hadn't thought about that. It is important because the credit theft, ID theft, identity theft is probably the biggest risk of financial loss that most people face.

And it's the kind of, and young children are a target. Most identity theft comes from a relative or a loved one or a friend that you know. Somebody snooping around in your files, somebody who comes into your home during a dinner party and slips into your office and opens up the cabinet that has your children's social security cards in there.

And that person, or an ex-spouse or someone like that who's a family member who's been estranged. And so that's the biggest risk. And the very simple way of protecting against that is locking, of course, all of your financial records and physically and/or under passwords, etc. And also protecting your children by freezing their credit.

And so I think that there's zero downside to freezing credit and many reasons to do it. Cool, yeah, easy to do this weekend. Good, go for it. And if I can come up with, the reason I hemmed and hawed for a moment is it's interesting that I've, there's this world of kind of hacking the system.

Where sometimes people will give advice and it sounds good on the surface and yet I look at it more carefully and I think, but that doesn't actually do anything. So for example, I've seen this in like the Instagram space. Somebody will post a financial advice and they'll say, by the time my kid's 15, my kid's going to have his own LLC and working for his own LLC and blah, blah, blah, blah.

And you look at it and you say, but that doesn't actually do anything for you. And so I think that this is, to me, this feels, the idea of putting your one-year-old on your credit card to build a credit history kind of feels like the same basic error. Is that maybe you could do it, maybe.

I don't know, I've never tried. If the credit card will issue it, probably. Maybe you could do it. But why would you and does it actually give you anything or does it actually just make kind of a hassle? So I'll tell you what I have done though is I own the domain names for all of my children, their first name and last name.

So if you're looking for something that I think you should do for your one-year-old, that's the thing that I think you should do is purchase their domain name, the .com version of their domain name. So at least you can own that and you can pass that along to them at some point.

That's a good one. Yeah, I know lots of people have done the email address thing too. They've locked down a proton or gmail account for them when they're prenatal. Well, the other thought I had is what if my wife and my credit falls apart and it screws up his credit score?

I mean I was sort of thinking our credit's great now. Oh, we can hack the system doing that but what if it goes the other way and you sort of screw them up? That was the other possibility. It's a fair argument. It's a fair argument. I have a hard time figuring out.

FICO doesn't publish the formula and I have a hard time figuring out exactly how being a cosigner on somebody's or being an authorized user on someone's credit, exactly how that affects someone's credit score. So it certainly is a percentage of it and it can have an effect but as far as the size of the effect, it's hard for me to know.

So I just look at it and say, "It's kind of a hassle." If you want your child to have a credit card for convenience of expending or for safety or emergencies, etc., then do it when your child is able to actually physically understand what the credit card is and that will give plenty of time on the credit file for it to work.

Sounds good. Have a good weekend. Thank you for the call, Peter. Great and interesting question. I would encourage all of us and I myself am included in that but I encourage you that always think about advice that you get and see if it actually makes sense. Like I said, sometimes I see things that seem somebody will give a piece of advice and you say, "Oh, that sounds so cool.

I want to do that." But it's just that it sounds cool and you get to it and you say, "It may sound cool but it sounds cool to an ignorant person rather than to somebody who actually understands." So if you don't understand why you should do something, if you don't understand why you should buy a certain financial product or you don't understand why you should take a certain action, then don't just think that automatically you're ignorant.

Maybe it's better for you not to do it at all and there are good reasons not to do it. That's it for today's show. Thank you so much for listening. I hope that you have enjoyed the show. If you'd like to join me next week, go to patreon.com/radicalpersonalfinance. Patreon.com/radicalpersonalfinance.

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