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Again, that's longangle.com. Hello, and welcome to another episode of All The Hacks, a show about upgrading your life, money, and travel. I'm your host, Chris Hutchins, and each week I sit down with the world's best experts to learn the strategies, tactics, and frameworks that shape their success. Today, I'm talking with Sam Dogan, known online as The Financial Samurai.

His website is one of the top personal finance destinations with over a million visitors each month. He's been writing there for over a decade and there is so much good content. The first time I found myself on your site, I think I ended up with at least 50 tabs open and I've read them for hours.

And this summer, his first traditionally published book came out called Buy This, Not That, How to Spend Your Way to Wealth and Freedom. And it's already a Wall Street Journal bestseller. He wrote the book to try to take the guesswork out of financial planning and shows readers exactly what to buy, how much to spend, and how to optimize every dollar they earn so they can maximize their wealth building and live life on their terms.

We're going to talk about the seven core principles of a financial samurai, how Sam engineered his own layoff and the principles you can use to do it yourself if you're thinking about changing jobs, how real estate can be a big source of passive income without actually needing to collect and manage dozens of rental properties around the globe, why we should all consider having our own online real estate, small business, or even side hustle, his 70/30 rule for decision making, especially when it comes to taking risk.

And because Sam is a few years ahead of me in the parenting journey, I have a few questions on that topic as well. So let's get started. Chris Hutchins works at Wealthfront. All opinions expressed by Chris and his guests are solely their own opinions and do not reflect the opinion of Wealthfront.

This podcast is for informational purposes only and should not be relied upon for investment decisions. Sam, congrats on the bestseller. Welcome to the show. Hey, thanks so much for having me. It's an honor and I appreciate the intro. You write a lot about money, but like you do in the book, I want to start with talking about the point of all these financial optimizations.

Surely it's not just to be a Scrooge McDuck sleeping on a pile of cash, right? If money is a means to the end, what is that end? You know, that's absolutely right. The reason why money is not the end goal is because it's just a tool. It's just a made up tool to help try to buy things that will provide for a better lifestyle.

If money was an object, the sole object for me, I would have kept on working in banking after my 34th birthday, but I decided enough was enough. I didn't like it anymore. After the 10th year and after the global financial crisis, I was like, this is not really what I want to be doing with my life.

I wanted to have more purpose. I wanted to feel that I was helping people, just regular people more. So I left. I left in 2012 at the age of 34 and I haven't been back to a day job since. You define happiness as progress. Is that right? That is my one word definition of happiness.

Progress. Whether it's progress in your finances, in your relationship with your significant other, with your children, with a hobby that you're trying to get better at. Progress is my one word definition of happiness. Is that the end goal is just making progress towards all the things you care about, is that how you view what money allows you to do or what life's for?

It's like one of those interview questions. Like, what is that one word, right? So that would be my word, but I don't know if that's the end goal. I think we always need to try to improve ourselves in whatever endeavor we take on. We should probably try to challenge ourselves in something that's a little bit scary, a little bit impossible sounding so that at least we don't look back with regret, having not tried our best or having not tried at all.

I want to go back to you. You started down this road of being 34 and leaving your day job. I know you engineered a layoff to leave that job. And I know you've actually written a book with now five editions about doing that. So first, how did you know that an alternate path would be the right move for your career?

And then I also want to get to how others can use some of those tactics to engineer their own layoffs. I started Financial Samurai July, 2009. That was literally the bottom of the global financial crisis. I'd lost 35% of my net worth in six months. That took 10 years to accumulate.

So I was really bummed out and I had graduated from business school part-time in 2006 and wanted to start Financial Samurai, but I didn't because I always had these excuses not to. I said, I want to go give back to my firm because they paid for 80 plus percent of my tuition.

Let's just focus. But then when the global financial crisis hit, I was thinking to myself, man, I need a backup. I need to start doing something new so that if I were to get laid off, I could write on Financial Samurai. And so Financial Samurai gave me that purpose, do something new to find something that I was passionate about, which was writing and connecting with people all over the world.

And it was in October, November, 2011, the year before I left banking for good, where I was in Santorini, Greece and it was 78 degrees sunny. I was hiking up the crater and for two hours, and then suddenly I was like, oh, there's like a nice bar with wifi.

I was like, oh, let's have a beer. And there's an eight euro Mithos beer. I was like, wow, that's expensive, but give me one. How often am I going to go back to Santorini at the top of the crater? And in my inbox on my phone was a email from this advertising client in the United Kingdom.

And he said, hey, Sam, I want to advertise on your website. I'll put up this link and I'll pay you. I think it was $1,100. I said, oh, $1,100. I'm actually closer to 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 put it up on my phone. And it was still pretty novel at the time, right? 2011, iPhone, wifi. And then within 30 minutes, he PayPal'd 1,100 bucks. And I was thinking to myself, whoa, that's good money. And I was like, give me another beer. And that was when I thought, ah, there could be a life after banking and I enjoyed writing and I knew I wouldn't starve if I was able to negotiate a severance.

So, there's two components there. One I want to ask is, did you actually, when you decided to leave, get Financial Samurai to a place that it was going to replace your job or did you more just get it to a place that you saw an opportunity to do something different?

So, my goal, first of all, was to save and invest at least 50% of my after-tax income every year until age 40. But I didn't last till age 40, I lasted until age 34. And the reason why was because I was able to negotiate a severance because during the global financial crisis, you know, talk about making lemonade, I saw many people get laid off and some of them were my friends.

So, I asked them, "Hey, is everything okay? Can I help you find a job? Do you want to interview with me? You know, I'm still surviving." And a lot of them were thankful and we tried, but I also asked them, "Are they okay?" And they said, "Yeah, I'm okay because I got a severance equal to two to three weeks per year work, two to three weeks worth of pay." And that was when I realized, "Oh, well, come 2012, I will have been at my previous firm Credit Suisse for 11 years.

So, if they gave me two to three weeks worth of severance, that's 22 to 33 weeks, and if they could give me my deferred compensation because I was an executive director then and I had three years of deferred compensation in stock and cash and a private investment that they made us buy in 2010, which were full of those "toxic assets", if I could get that severance and all my deferred compensation, there was no reason why I shouldn't take that leap of faith because it bought years of living expenses.

Now, most people listening to this are not - I mean, hopefully we aren't in the middle of a global financial crisis, maybe just like a minor recession. But are the tactics you use something that anyone could use or are they really dialed into, "I'm in the financial company in the middle of a financial crisis?" Yes, these are the tactics that anybody in any organization can use.

Because the biggest pushback I have is why would anybody give me a severance if I'm a decent employee, right? I'm great, whatever. The point is, if you want to leave anyway and your heart is not into it, your employer doesn't really want you, they want someone who's hungry, who wants to do their best to stay overtime, do whatever and if you are a manager in this environment, still in this environment, it is very hard to find a replacement.

It could take three months, six months and once you find the replacement, it could take three to six months to train them to be up to par with your level. And so, if you say, "Peace out, see you later, two weeks notice", you actually leave your colleagues and your manager in a lurch, they're going to be scrambling to find your replacement and they're going to be suffering while they're looking for your replacement.

And so, the idea of negotiating severance is to think about the classic win-win scenario, how can you help your colleagues and your manager find your replacement, provide seamless transition during that replacement finding and train them so that when you leave, hopefully they'll save money and they'll replace you with someone who's hungrier, cheaper and just more motivated in general.

And so, that's the simple trade-off, it's I'm going to help you make this transition easy and in return, you're going to give me money or vested stock or something and how have you seen that work? I'm sure you've gotten readers write back, say, "This worked, it didn't work", what's the kind of hit rate?

The hit rate is high, it's like 80 plus percent and a lot of people just come back to me and say, "I cannot believe I was able to leave on my terms". I mean, a severance can not only be just a severance check but it can be, "Hey, how about work three days a week out of five and we'll still pay you the same amount of money?" So, if you're working 40% less, that's kind of like getting a 60% raise.

If you do that for six months, a lot of people will be like, "Hey, I'll take that, I mean, that's pretty good, don't have to work for two days a week, shut it off and do my own thing". So, it's really great and a lot of people have just surprised and shocked by how they were able to negotiate something that they thought was not possible.

And in this day and age, I think the reason why a lot of people will ghost people on the phone, text message, email or not, you know, they want to just break up over the phone is because they're afraid of confrontation. And that's, I would say like natural but it's also kind of cowardly, right?

You want to face your oppressor, you want to face the people who could help you and say, "Look, these are my reasons for leaving, I've been a loyal soldier". And the other thing is companies are afraid of backlash. This is one of the things that companies are really afraid of.

There's social media, there's bloggers, you can blow up a company online and say like a lot of bad things and like a tell-all, that's the last thing a company wants, that's reputational damage. And so, companies understand this, they don't want to get into a long litigation process, they don't want to get their reputation smeared, so they want to work with employees who've actually been there for at least a couple of years, three years, and try to come up with a win-win scenario.

Is that metric that you had at Credit Suisse of two to three weeks pay for every year worked, is that a general benchmark that kind of still applies or what do you think is a broadly applicable benchmark for a severance package? One to three weeks and three weeks being at the high end, maybe four weeks, but it's usually one to three weeks and there's one thing that people don't really understand and that is to differentiate between the Warn Act, which is a worker adjustment training notification and a severance.

So, Warn Act pay is reserved for larger companies, usually I think it's in the hundreds or thousands of people and they do a mass layoff, they're mandated by law to provide one to three months of pay, that's by law, mandatory, whereas a severance is optional. A severance is the company can pay you or they won't pay you, right?

And so, the idea is a lot of people who get two months, they think it's severance, but it's actually mandatory Warn Act pay, severance goes above and beyond that. I know there are a lot of people listening who might want to use some of these tactics, so I'll link the book in the show notes because we're not going to spend a whole episode on how to engineer layoff, though I'm sure we could and can people reach out if they have questions or how do you feel about comments and feedback?

So, yeah, just go check out financialsamurai.com to buy How to Engineer Layoff. It's about severance negotiations and I also have a lot of articles online about severance negotiations for free. So, you just Google "severance negotiation financial samurai", leave a comment and I'll be able to see it because I can see it from the back end and if you have a question, I can respond to it.

So, you end the new book with seven principles. Is there one that stands above the rest? Well, the one core principle that I have held on to for as long as I can remember, maybe since middle school, is to never fail due to a lack of effort because effort requires no skill.

And this is really, really an important principle because life is not fair. Some people have better advantages than you, wealthier parents, some people are stronger, naturally smarter. Whatever the case may be, the playing field is never, ever, ever fair and we have to accept that. But if we never fail due to a lack of effort, that means we are always going to try our best and if we lose, it's not going to be because we didn't try our best.

It can be because the opponent was faster, quicker, smarter, whatever it is, more connected. But if we do our best, we're always going to be satisfied and we'll never look back with regret having not tried our best. Is there a reason why you chose to have seven principles? It seems like this is the core principle that you live by and have for a while.

Does it deserve to be elevated to be the core or what do you think about that? Life is complicated. There are a lot of different things and so, if you can adopt this core principle in everything you do, whether it's doing a podcast, writing at your job, raising a family, the key really is to - I just hate looking back on life with regret and if you've seen - what is that wonderful movie at the end, Inception or actually at the beginning, I don't want to be an old man full of regret, dying alone.

So, that's just the idea behind that core principle. I also want to talk about the last one, about thinking in probabilities and not absolutes. I know you have a framework for decision making. I know you also are a big fan of Annie Duke's thinking in bets and I'll just preface that she's coming on the show next week, we're going to record an episode all about this, but I know you've adapted your own rule, the 70/30 rule and I'm curious how people can start to use that in their lives.

Yeah. So, it is very important to think in probabilities and not absolutes, so you don't miss out on opportunities. Think about if you had to feel you needed 100% certainty to make a decision, how many opportunities would pass you by, whether it's job opportunities, whether it's the girl or boy that you like, that you were too afraid to ask out because you were afraid of rejection.

It's such a shame to have to think in 100% probability and if you think about it as an investor, investors don't think in 100% probabilities. They think if I can get my investments right at least 51% of the time, I'm going to make a lot of money over decades.

And so, my idea is to create a 70/30 decision-making framework which states, if you believe with a 70% probability or greater your decision is the correct one, the right one, then go with it with 100% conviction while having the humility knowing that 30% of the time, hopefully less, you'll get it wrong and so long as you don't die or something catastrophic happens, you're going to learn from your mistakes and get better over time.

And so, your other question was, how do we hone that decision-making probability framework? And again, if you adopt everything with a probability matrix, it helps you in making better decisions. For example, Golden State Warriors, right? Let's say it's NBA playoffs, you know, I love the Warriors and you start thinking about, okay, before the game starts, who's going to win and by how much and then after the game is over, you'll find out who won and by how much and then you will basically compare the results to your estimates and you will hone your skills over time and I think you'll be able to look at things in a probability matrix and get better.

And it's not just basketball or who's going to win the dog show or how long your friend's marriage is going to last or whether they get into college or whatever, it's everything. Once you start looking at things in a probability matrix, things change and that is one of your key competitive advantages.

Is there a common financial decision that you think people make where adopting this framework would change the way they approach it in a positive way? Well, I think as an investor, you have to be humble and you have to always accept that you will lose money. That is the price you pay for putting money to work.

You will lose money, so accept that. And once you accept that loss, you will be okay once you finally do start losing money and I think that is the thing that a lot of people have a problem with and that's managing fear of allocating their capital towards something that could make them money or could lose them money because we all know the pain of losing money is greater than the joy of making money.

So it's being able to accept that loss and try to improve your investing probability going forward. Getting the crew together isn't as easy as it used to be. I get it. Life comes at you fast, but trust me, your friends are probably desperate for a good hang. So kick 2024 off right by finally hosting that event.

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And I've always been someone who didn't want to manage being a landlord. And so I've maybe gone the other direction, which is like real estate. Let's just not focus on it much. Yes, we own a home and some REITs, but then you kind of have this middle approach, at least my perspective from reading the book and your site.

And I'm just fascinated about finding a middle ground in having real estate be a part of your portfolio without having to be a landlord, at least as much of a landlord as some. So the reason why I heavily invested in real estate was because I worked in equities, banking equities.

So my compensation, my promotion schedule, all that was tied to the stock market. So 50% of every paycheck and 90% of every year in bonus was allocated towards real estates to diversify my network. And essentially my framework and my recommendation to the average person is to get neutral real estate as soon as you believe you're going to be in one place for five, 10 years and neutral real estate just means owning your primary residence, it means you're going up and down with the market, you're short real estate, short if you're a renter, because you're a price taker of ever rising rents and as prices rise, property prices, you're also getting hurt because it costs you more to buy if you ever want to buy.

The only way to be long real estate, not the only way, but the main way to be long real estate is to own more than one property. That is the way you benefit from real estate appreciation because you can sell your rental property and you can collect rents. And so my advice for people is to buy around age 30 or so and hopefully you have a stable job and you found a place you like to live in, to get neutral, live in it for three to five years, love it, enjoy it, accumulate that other down payment, buy another place, live in it for three to five years and do that over and over again, let's say up to your limit where you can no longer deal with managing tenants and property.

And that limit is different for everybody. And that limit can go higher or lower depending on if you're comfortable hiring a property manager. For me, I found that that limit was four properties, primary residence plus four, and that was it. And they were all in San Francisco. So I was highly leveraged San Francisco real estate in the economy.

But after I had my son in 2017, I just didn't want to manage that many properties anymore. So I sold one, my main one, because there was a ton of turnover, a ton of problems, and I reinvested about 550,000 of the proceeds into private real estate deals, private real estate funds and syndication deals across the heartland of America, because I wanted some of the proceeds to continue to be allocated to real estate, but I really wanted to take advantage of my investment thesis that I came up with in 2016, which was to invest in the heartland of America, thanks to technology and thanks to people wanting to go to lower cost areas of the country to live a better life, save money and still make money.

And that was a great thesis. And I got lucky in an unfortunate situation because the pandemic forced millions of people to work from home. And so that accelerated that migration. And I think that's a multi-decade trend. And so my plan is to invest more of my capital in my asset allocation framework of 50% to real estate, to more private real estate investments in the heartland, so I can diversify my real estate portfolio, earn more passive income and hopefully higher cap rates, higher net rental yields.

So I can live my life and not have to go back to work. So if I want to summarize it, it's to get started, it's not about buying rental properties as much as it is when you buy a home that works for you. And then when you outgrow that home, just don't sell it.

Assuming you have the money for another down payment and turn it into a rental property. And it's not assuming it's being proactive and trying to save for a down payment for another home. And the idea behind this is one, you enjoy your home. You know, your home, the best, if you live in it for five years and if you enjoyed it, I'm sure other people enjoy it.

You'll probably paint it, do some things to make it nicer. And the thing is, you're going to get a mortgage that is a primary residence mortgage that is lower than a rental property mortgage. And you can keep that mortgage once you rent it out, you know, and that is a strategic advantage of buy about 0.25 to 0.5%, and then you're going to get another primary mortgage to buy other property in five years.

Maybe it's 10 years, maybe it takes 10 years. And the idea is there's a benefit where you're not only building wealth through real estate, you're also using your capital to enjoy a better lifestyle. Most of us are going to be making more money in our careers. Some of us are going to grow our families and we're going to be able to appreciate the wealth that we're building and that's a win-win scenario, which is why I like real estate better than stocks because you're not going to wake up one day seeing your stock go down 35% because it missed quarterly results by 3%, right?

You're going to just enjoy your property. And I think the best time to own the nicest house you can afford is when you have the most number of heartbeats in your home and that's usually your kids because that way you can amortize the cost and the pleasure of owning a nicer home across more people.

And after they're gone, it's not like you're going to upgrade to a mega mansion, no, you're probably going to keep it because it'll feel lonely not having so many people in your house anymore, or you might downsize. Tactical here, two things. When you get a new mortgage, will they take into account the rental income of the house that you haven't started renting yet?

That's a good question. Hopefully what you're going to do is you're going to sign a lease. This is the ideal scenario. You sign a lease while you're in the process of buying your other home and that could take one to three months. And once you have that rental income, they will not account for 100% of the rental income.

Banks will generally account for about 70% of that rental income in terms of their calculation for how much they're going to lend you money for your second, third, fourth home. So take that into consideration because banks will consider, OK, if you're renting it out, there's going to be vacancy risk as well.

So they want to be conservative. So they use 70%, which I think is fair, but I think regular mom and pop landlords can outperform that 70% and probably rent it out for 90 to 95%. And then I also know you're a fan of an adjustable rate mortgage. Does that change with a strategy of turning your past properties into rental properties?

No, so I didn't realize this, but only about 5% of mortgage holders have adjustable rate mortgages. And I've been talking about getting an adjustable rate mortgage since I started in 2009. And since I've been working in finance, well, since I bought my property in 2003. And the idea is, look, interest rates and inflation have been coming down for 40 years in a row because of technological advances, efficiencies, learning about past cycles.

And yes, we currently have elevated inflation now due to a global pandemic. But you are seeing inflation. Top tick in July, and I think that's going to fade into 2023. It's just the way it is. Yin Yang finance, when prices are up, demand starts to get destroyed and then we get back to the normal steady state.

And so the idea with an arm is, look, you pay a lower rate than a 30 year fixed because of the time value of money. If you're borrowing at a shorter fixed rate return, the lender will lend to you at a lower rate. And the thing is, back in the global financial crisis days, the average home ownership tenure was about four and a half, five years.

Now, the average home ownership tenure ship is about 10 to 11 years. The idea is you want to max your fixed rate duration of your mortgage with how long you plan to live in your home. So to get a 30 year fixed rate mortgage and pay 1% higher interest rate for 30 years doesn't make sense if you're planning on selling your home or refinancing or paying it off in 10, 11 years.

So that is the idea to help you save money and not be afraid of taking out an arm, because in my opinion, we're going to be in a long term, low interest rate environment for the rest of our lifetimes. So when we bought a home, we said, we're probably not going to be here more than 10 years, let's do a 10 year arm.

Yeah, smart. We moved out, we moved to a new home and we're like, well, we got three years left on the arm. If I were to convert that to a rental, then I would go back to a point of adjustable rates. So if you want to keep something forever and rent it after you live there, then you really are more towards the 30 year cycle than the five or 10 year cycle.

That's true. But in a declining interest rate environment over the past 40 years, what happens is your arm resets at the same rate or generally lower. And that is basically what's been happening for 40 years. So let's say so I took out a 7-1-1 arm in 2020, right? So people are like, oh, that was a mistake.

You could have got a 30 year fix for 30 years. And I'm saying it's not a mistake because the 7-1-1 arm was at 2.125%. The best 30 year fix rate I could get was about 2.875% maybe, or maybe 3%. And by 2027, when the arm resets, I'm pretty certain that it's going to reset at a same rate or lower because we're going to back down to trend in terms of inflation and interest.

So when an arm resets, it just generally resets back to the same rate or lower over the past 40 years. Obviously, sometimes you can get unlucky. But if you believe the trend is down or low, it'll be fine. And an arm, people need to understand, has a maximum reset rate for the first year, usually by 2%.

So my arm rate could go from 2.125% to 4.125%. To me, it's not a big deal because probably about 20%, 25% of the principal has already been paid down. And then the following year, it can only go up by a maximum of 1%. And there's a lifetime cap to an arm, which mine is 7%, which sounds scary.

But for the first seven years of the arm, it was saving 0.75 to 1% interest by not getting a 30 year fixed. So you're only losing until like maybe year 10 or 11 or 12. And it's not really losing. It's just it was a suboptimal decision. I built a comparison calculator to try to really dial in and optimize this particular thing.

And I found that it was about what you just said, two to three years till the break even point. But I think it's rare to have interest rates be elevated, at least in my opinion, and where we're going for more than a handful of years. And so I would say if you have a 10 year arm and you're seven years into it and rates are low, probably a good time to refinance that.

Yeah, you can always refinance. Yeah. So I think one common misconception is you don't have to wait until the end of the 10 year fixed period to do something about it. So if you're seven years in and rates are still low, maybe refinance. Then if you're nine years in and rates are really high and you haven't refinanced, we'll know that for the next three years, you're still going to be breaking even from all the savings.

And hopefully that over that period of time, rates will drop again and you'll be able to do something. The only other thing you didn't mention is I actually think that in periods right now we have high interest rates. We have high inflation, but rents are also up. And so if you're using your unadjustable rate mortgage for a rental property, it's very possible that if your interest rates go up because of rates rising, it might also be in line with a situation we have now, like inflation, where rents are also rising.

And so you might be able to recoup some of that incremental interest cost with higher rent. Well, yeah, I mean, everybody needs to understand finance is not in a vacuum. It's yin yang finance like inflation is up because the economy is great and job market is strong and people are getting paid more and rents are going up and so forth.

Right. But there is an inflection point and we need to be aware of that. And that inflection point is probably right now. And I think inflation is going to go back down. So we're not helpless animals. You're right. We can refinance before the fixed rate period is over if we're afraid and we want to extend that term, or we can sell the property or we can pay down principal so that when we do refinance or when it does reset, less of the percentage goes to interest.

There are so many things we can do. And that is a mindset that I want people to get into. We are dynamic. We always have an opportunity to do things to improve our financial situation. I know you've had a lot of success in real estate. I also know that you've talked about a vacation property that maybe wasn't the best decision.

So I'm curious to get your take on vacation properties. So one, I think a vacation property is a suboptimal use of funds because you're not going to use it enough to be able to make it a good financial decision versus renting a VRBO or Airbnb or whatever. Two, you want to diversify where you vacation.

You always go back to the same place over and over again. It also gets boring. But if you buy a vacation property, you're going to feel committed to having to go back to that place to make it worthwhile. So I bought a vacation property. Terrible timing in 2007 because I was making the most money ever and I just got promoted and I thought my income would just go up.

So the number one mistake I made was modeling a high income for a long period of time. And then I also thought I got a deal getting it for about 15% off. And then it ended up going down another 40 to 50%. So that was a great lesson learned about not forecasting your income, extrapolating it so long into the future and also not buying things you really don't need.

But the good thing about this vacation property is that I kept paying the mortgage. I paid it off. It's paid off. And my dream for buying the vacation property was because I took my wife, my girlfriend at the time, I was on our first date in California to Lake Tahoe at the resort at Squaw Creek.

And I decided, you know what? It was such a special moment. I wanted to own that piece of moment. And one day, maybe we could take our children there. And my forecasting for having children was very delayed. But we just got back from the vacation property with our two children and they had an amazing time.

And it was really, really a priceless moment. And now the vacation property is a very small percentage of my net worth. So at the end of the day, I think it worked out. And are you able to rent it out in the off time? Something that maybe in 2007, the platforms didn't exist to make it easy, but now maybe makes the equation different.

Oh, yeah. I mean, 2007 wasn't the Stone Ages. It was in the rental program at the resort. And then after several years, I decided to move it out to a private rental property manager. And that, yeah, it generates 500,000 bucks a month pretty consistently. I mean, it's high season during the summer and in the winters and then really sparse during October, November.

So actually, it generates passive income, but it wasn't a good financial decision at all. And it was tough. It was like that albatross on my neck for a while. Like, I really had to fight it and get through it. But now it's fine. It's just it is what it is.

It's part of the game of you win some, you lose some. We recently looked at vacation properties in Napa, OK, because there just aren't a lot of Airbnbs. And we ended up buying a Picasso. I don't know if you've looked at it. It's like a fractional, fractional real estate.

So basically, you buy one eighth of a home. So imagine it's as if eight people came together and bought a home together. Except they have the marketplace so you don't have to find the other seven. Right. Well, you'll probably enjoy it more than I enjoyed my Lake Tahoe probably because Sonoma and Napa is an hour and a half away.

Well, it's closer, right? So hope you enjoy it. It's an hour and a half away. Family is nearby. And we only paid an eighth of it and we only get an eighth of the year, which means we only really use six weeks a year. But it's more efficient. Yeah.

Yes, it's much more efficient. Quick interruption. As you just heard, Amy and I bought a Picasso in Napa, and it was one of the fastest big purchases we've ever made, because as soon as we learned about it, it just felt like the best way to buy and own a second home.

And it's been absolutely amazing. In fact, ever since we closed, I've been trying to see if they would partner with the show, because as you all know, I end up seeking out most of the brands I work with because I truly love their products and services. And I only want to work with partners where I feel that way about the company.

Well, since recording this episode, I've actually partnered with them. So while you'll hear more in a future episode, I just want to share that if you go to all the hacks dot com slash Picasso, you can get free early access to new listings and twenty five hundred dollars or more in closing credits.

That's all the hacks dot com slash Picasso P.A.C.A.S.O. OK, back to the show. So let's turn away from physical real estate. I want to talk about online real estate. I web presence my website, maybe a business I run, because I know you've said that people are quick to have their social media profiles, but maybe they don't have this hub in the middle to tie it all together.

They can help them build something online. Right. Could you talk a bit about why you think that's important? Yeah. So in the old days, 10, 20 years ago, we would just have a resume that we'd submit and it would be tossed into the trash, right? Seven seconds people spend on a resume and that's it.

Nowadays, everybody Googles who you are, what you do, what you stand for, what you believe in. And so having your website is vital and thinking about your brand is also vital if you want a job, if you want to do new things. I decided to go with financial samurai dot com because I was working in finance when I started the site and I just wanted to have this really cool sounding name.

I used to live in Japan for two, three years, and my girlfriend and now wife is half Japanese and I love it. I love the Japanese culture and I thought it was great. And I think everybody needs to plant their flag on the Internet and own their domain instead of letting a social media company own you.

Look, if you write content on Twitter, Facebook, whatever, they own you, they have the content and they're getting rich, right? You are helping them get rich. Instead, why don't you get yourself rich by planting your own flag, branding yourself online and sharing with the world what you stand for?

It's the green marble theory is my belief that if you have a janky, crusted green marble, if you put it on eBay, someone will want to buy it. And the reason why is because there is something like five, six billion people online now. And it's the law of attraction.

We're all connected. You just have to put yourself out there. And good things will happen if you stay the course long enough period of time. Put another way, do you think everyone should kind of write or produce content somewhere on the line and own the place they do it so they can build an audience or the business around it?

It depends on what you want. If you want to be hired as a consultant or build your business or whatever, you should probably be a thought leader and thing that you care about the most. What I've seen, it's interesting, the VC community, it's fascinating because I think being a VC is one of the best jobs in the world.

You invest other people's money. You don't have to prove yourself for 10 years because that's the life of the fun. And you're just collecting big bucks, 2% of fees under management. And you get a percentage of the profits if it turns out well. And what these folks have done, it's very competitive to attract capital and get your companies to accept your capital, right?

They've hired thought leaders to write and be on social media and have their websites and write for the VC company's blog every day, every week to showcase their knowledge, what they're doing and their brand, because it's so competitive and noisy out that you need to figure out how to make yourself stand out and how to attract the right people that you want for your business.

As a former VC, I think if you love that job, it's great. I found that at the time in my life and maybe things have changed since then. But I was like, I really wanted to build products. And so as much as it was a great lifestyle, like all the things you said, I was like, I don't want to watch all these people build things.

I want to build things. So I'll just caveat that like it sounds as it's glamorous. Yes, you can make a lot of money. But at the end of the day, if what you love is actually building the thing and not supporting those doing it, it might not be the most fulfilling career, even if you make a lot of money.

I think that's really admirable that you left the cushy VC job to actually try to build something and then actually successfully sell it. I mean, that's amazing to me. And what I find amazing is that there are VCs who have no building experience. They don't know how to operate a company or start a company.

And that's kind of amazing to me because as an entrepreneur, you're hopefully leaning on their expertise and experience. But it also shows that you can do anything you want. The world is your oyster. So whether you have any experience or nothing and you just went to business school and learn case studies, you can be a VC too.

Awesome. It's funny because I think one of the reasons that I left being a VC was that I kind of had this feeling of imposter syndrome because I hadn't actually built and grown and scaled a company like you mentioned. However, I now look back and realize that those two skill sets are incredibly different.

And the skill set of a VC is actually much more in line with the skill set of a professional investor than with an entrepreneur or a manager or a CEO. And so I think at one point in my career, I thought I couldn't be a VC because I've never built a company.

Now that I've built a company, I'm like, "I couldn't be a VC because I don't want to be a professional investor." Andy Ratcliffe, who started Wealthfront, who I sold my last company to, told me when someone asked him, "Should I be a VC?" He says, "Well, do you like to invest in stocks on your own?

Do you like to pick stocks in your brokerage account? And if you don't, you maybe ask yourself, do you really like investing?" And I always thought that was strange because I'd always thought of VC as like the second career of an entrepreneur. And as I looked deeper and deeper at some of the most successful venture capitalists of all time, many of them were not entrepreneurs.

Many of them are much more adept at picking companies, evaluating businesses than they necessarily were at starting them. But boy, did I think that was my flaw. That's why I thought I couldn't be a VC in the first place. I've evolved that position over time. But yeah, before we get back to the episode, I just want to thank you for listening to and supporting the show.

Your support of our advertisers is what keeps this show going. To learn more about all our partners and get links to all their deals, you can go to allthehacks.com/deals where the URLs, codes and discounts are all right there. So please consider supporting those who support us. You mentioned putting up something online, starting to write.

Some people in the world will find it. And if they do, you know, you can have a business. You can also start side hustles. One of the things that I've really appreciated on your site that I would love to talk a little bit about is some of the kind of personal and financial and maybe tax benefits of running a business.

Because something I've learned with this podcast is that when you're employed, you know your salary, and then you usually know what gets deposited in your bank account. And at the end of the year, you might owe some taxes or not, but it's a pretty straightforward equation. But when you run a business, it's actually really confusing because there are a lot of things that might be deductible that maybe weren't when you worked at a company.

Maybe you don't make that much money, but a lot of the things you spend your money on are less expensive. You've written on your site about how vacations can be free if you talk about the vacation, how your car can be depreciated as a business expense. You talk a little bit about some of the exciting things, maybe not those two that running a business can afford you.

I had a decision 10 years ago to run a lifestyle business or try to blow it up and take funding and run a big business and try to make mega millions. And at the poker table, I decided with my friends who are all trying to make the mega millions that I would run a lifestyle business because I just got out of banking and I wanted a better lifestyle.

So, to go back and try to kill myself to run a business, to make a lot of money was just totally the antithesis of what I wanted to do. And so, the idea is with a lifestyle business or just with a business in general, you want to think about those expenses that are personal expenses that also overlap with your business, right?

So, those things include internet costs. You need internet to run your business, your iPhone or whatever, your mobile phone to run your business, the monthly subscription on that. You have to have a board meeting every single year for your business. I think that's the rule. You don't have to have it in your mom's basement with free water.

You can go to Hawaii or wherever you want with your consultants, your editor, whatever it is. You can pay for their fare and have your board meeting there. It's somewhere more pleasurable. And so, the idea is identify those crossover points where you need them for your personal life anyway and your business.

And that is where you can probably write off a lot of your expenses. But of course, I'm not a CPA, so ask your CPA. But the worst thing that can happen is not like you're going to get thrown in jail. There's like 70,000 pages on the tax documents in America.

We make mistakes all the time. The worst case is you're going to get a letter and say you actually did this wrong. You got to pay this because you didn't pay it. And maybe you have to pay like a 5% penalty fee per year, for example. So, that's something that people need to understand.

It's not like the movies where you're just thrown in jail and your life is over. People are trying to figure out things on their own. And the IRS, they're actually good people because they're trying to clarify and simplify and explain their convoluted tax laws. It's crazy. But that's my thoughts in general.

I wouldn't go and just like expense everything and hope that it'll work. But I do think there are a lot of things, if there's a gray area and you're not sure, the worst case isn't as bad as you might think. A couple of tactical questions now that I'm over here running a company on my own.

What was your choice for your business when it comes to retirement plans? How do you do that on a personal level with your business? So, we have the SEP IRA plan, and basically you can contribute. I think it's up to 25% of operating profits. Operating profits, not revenue, not net profits.

Operating profits to the SEP IRA plan for yourself and your employees. So, it's just my wife and me. And what I also did for when I had more time before my son was born was I did some freelancing, consulting, whatever, ride share stuff, just any stuff that I can make money.

So, I created a solo 401(k) as well. And so, I was able to contribute to my solo 401(k) and get the SEP IRA plan going. And what some people don't realize as employees is the maximum 401(k) contribution is not just $20,500 per employee in 2022. It's actually way more.

I forgot the exact number, but it's something like $60,000 plus. We can look it up. But the employer can contribute even more than the maximum the employee contribute through profit sharing. And so, that's something you got to think about before you quit your job or join a startup or whatever.

What is that 401(k) match? Because it's often not just 3% or $5,000 or whatever. It could be tens of thousands of dollars if your employer is really on good financial footing and is really providing a lot of benefits to their employees. I think something to just keep in mind is that if you were able to, on a freelance or self-employed basis, make maybe 10% less than your work salary because of some of these benefits, maybe better retirement contributions, maybe more efficient business deductions, you might actually be able to get by on less income than you would.

Not to mention, if you move to a lower cost of living area, you could definitely get by on less income. One area that I want your take on is on health insurance, because that's one expense that you're going to have to pay on your own. For people worried about what that means, leaving their job and starting a company and having to cover their own health insurance.

How have you approached that? So there are a couple of ways to approach it, but what we did was we sucked it up and we decided to pay 100% of our health care insurance. We got a platinum plan for the family of three. Once my wife left her job in 2015 as well, she engineered her layoff as well at $34,500.

And we paid full freight, which was $1,800, $1,800 to $1,900 a month at the time. And now with a family with two kids, we pay about $2,300 a month for a gold plan. And so we are not getting any subsidies. And I think it's fine. We don't need any subsidies.

But strategically, if you want to get subsidies from the government, you would have to earn less than 400% of the federal poverty limit per household size. So, for example, the federal poverty limit for one person is something around $2,700 to $13,000. So if you can make as close to that as possible, then you will get as much health insurance subsidy as possible.

So this is why you hear a lot of multimillionaires. Let's say, you know, you have two or three million dollars and you have a household of four and your investments, let's say three million generates $60,000, $70,000 in income. You can get health care subsidies as a multimillionaire, technically. And that's actually what a lot of people do.

Now, whether that is going with the spirit of the intention of the subsidies is another matter. But what we did, we pay full freight, but it's a business expense, right? So if we have a 20% marginal income tax rate, it's $2,300 a month, technically minus 20%. And that's our expense.

I don't think I even knew that that was a business expense. So that's an interesting thing. Can you talk a little bit about managing finances with a couple, bringing them into the business? But I know you have a few unique opinions on managing finances with your partner. Yeah, I think if you love your partner, you should strive to make them financially independent of you.

Right. Because financial dependence, I think, is one of the worst things because we're all adults here. Your partner, you had a life before you met each other. And I feel that a lot of fights with your partner can be due to money. That's top three reason. And so having financial independence with your partner and having your own bank accounts, separate accounts, actually is like a release valve for stress that if money becomes an issue, you can just go, I'm going to go spend my own money.

It's OK. So that's one of my philosophies. Make your partner financially independent if you really love them. Now, a lot of people are against that. They say, oh, we're a one team. Everything is great. We're never going to divorce. Yada, yada, yada. OK, that's great to do what you want.

But this is my philosophy in terms of bringing her on the fold. Once I helped her engineer her layoff and get a severance in 2015 because we had a pact. If I was able to negotiate a severance at thirty four and a half and leave, she's three years younger than me.

I said, you too can negotiate a severance when you're thirty four, thirty five and come join me if everything works out great. And so everything did work out fine. And so I helped her negotiate a severance. And we ended up incorporating Financial Samurai and we have our little business.

And the idea is, look, we are a team. I do the front end. I do the writing. And she does the editing and she does the filing of the taxes. And that's how it goes. And we pay ourselves a salary and it's an equal salary. And we just treat it as a fun lifestyle business.

It really is like we can't believe that there's actually income coming in from what we would do for free. It's just fun. And if you look at articles on Financial Samurai, it's storytelling. It's talking about difficult situations. It's not SEO optimized affiliate post after affiliate post like a lot of sites can do.

And we could do that, too. But it's just so soul sucking that we just want to write stories and tell what's going on in our lives. That's awesome. And one thing that I think is very rare is that in this space, so many people who are in the financial independence route who've quit their job and can work from anywhere end up moving to low cost of living places.

Yet you're still in where I am, the Bay Area state with the highest income taxes, maybe in the country. What do you say to people that think you're crazy for staying here when you could live anywhere? What do I say? Well, I grew up overseas for 13 years, six different countries.

I've been to 60 countries. I've lived on the East Coast. I've been to the Midwest many, many times for business. And I live in San Francisco for 20 years now, more than 21 years. And I say I love the San Francisco Bay Area. It's beautiful. There's a lot of culture.

The food is amazing. It's perennially ranked top two in the country. I can fly to Hawaii if I want to. There's tremendous amount of job opportunities, consulting opportunities. And I get to look at the ocean every single day out of my house. And I feel great. And so, yeah, there's a price to pay for that.

And that is the median home price in San Francisco is 1.8 million. And the reason why the median home price is 1.8 million is because you have 24 year old engineers who are making 200 to 300 thousand dollars a couple of years out of college. Everything is rational. The media forgets that the opportunity of each city is what drives the cost, not the other way around.

And so for much of my life, especially after I left in 2012, I just thought, wow, there's so much opportunity. Yes, it's expensive. There's consulting here. There's a meet up here. It's just so fun and it's beautiful. Look, I know the media likes to focus on the one street in the worst neighborhood in San Francisco and blow it up.

I mean, it's really good media. You know, they're really smart about that. But if you actually come to San Francisco, it's an amazing city. And I've been everywhere. And so I could have done Hawaii. Honolulu is my second favorite city. But it's very expensive in Hawaii and adjusted for the income opportunity or the fundings you can do.

It's a little bit too expensive, actually, in my mind. As someone who also lives in the Bay Area, I share a similar sentiment. My wife and I both work for a company that we could be remote right now. Podcasts I could do from anywhere. But I tend to think that money's purpose is, like we said at the beginning, a tool.

And we love living here. The opportunities here are great. And for us, yes, we could save more money somewhere else. But if money's goal is to allow you to do things you love, then we're using it right now to spend more to stay here. I mean, I understand the hatred against San Francisco, because if you can't comfortably afford to live in a place, you might hate it.

Right. It's just logical. You got to like shack up with a roommate when you're 40 years old. You can't eat what you want or go what you want. It's natural. And I understand that. And what I've also noticed is that we tend to accumulate the amount of wealth. That will enable 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 in, let's say, Austin, I would probably just work as hard as I could to make enough money to cover my expenses in Austin, where the median home price is, let's say, $500,000 or $600,000 and be comfortable with that.

But I like a challenge and it's really fun. I have my friends here. I have my network here. I play tennis. And it's just you are what your friends and family are. I love it here. So I don't see moving anytime soon. But speaking of travel and moving and going other places, I know before kids and the pandemic, you did a lot of traveling and a lot of the conversations we have are about travel.

And I know a lot of our listeners are just now having built up a lot of big balance of points and getting past the pandemic, thinking about where to go. I'm curious if you have any suggestions from all the travels you've done of where people might want to take a trip to or check out something that maybe is not the obvious place.

Hahaha. Oh, man. My favorite place is Malaysia, because I also grew up there in my middle school teenage years. And that was like exciting. The food is the best. Top three in the world is very inexpensive. I love Angkor Wat, Cambodia. It's so hot. It's like 95 degrees and humid.

But the temples are unbelievable. I love Southeast Asia. Southeast Asia is a great, great region. Friendly people, people speak English. The food is amazing. And the cost of living is low. So, I love that. I went to probably 20 different countries in Europe. I love it as well. I love the lifestyle, the attitude of living not for work, but living for living's sake.

It's just one of those things where after you see like five Gothic churches, they all start looking the same. So, I enjoyed Mallorca, Spain. Mallorca was amazing. The Spanish culture, you eat tapas at 10 p.m. You enjoy life, the water, the beaches. And then Amsterdam. Amsterdam is kind of like the San Francisco of Europe, where people are pretty chill.

Wheat is available everywhere. And there's a really diverse culture. And I love Amsterdam as well. I haven't been to Mallorca. Amsterdam is amazing. I want to come back to Malaysia because I think it's a country, having been there, I don't often hear a lot of other people go there that don't have some family there or some business reason to be there.

So, if someone's thinking right now, listening to this saying, "Oh, Malaysia. I've never really thought about going there." What would you tell them to think about as a trip? You don't need to plan a whole week or two itinerary, but what are a few highlights of something they should do?

Other than my favorite is just eat all the roti canai you can find on the street. That would be like my path. But what would you tell someone to think about as they plan a trip? Well, Malaysia, it's a peninsula surrounded by water on three sides. And the beauty is food is amazing, right?

The mamak stalls, the roti, the milk fish, the chicken, fish, all that stuff. The kangkuk belacan, got to check that out. You can go to Kuala Lumpur for sure. See the palace, see the Batu Caves, go on these excursions. But go to the Pulau, which are the islands on the east and west, or go to Penang and see the turquoise water and go scuba diving 70 feet down and still see the water and have nobody around you.

My favorite trip was to this resort called the Tara's Resort. There's an island on the east side and we just had - it was the movie The Beach with Leonardo DiCaprio. It was kind of like that. You take a dinghy out, you go scuba diving, you come to this cove.

There'd be some little sharks around, turquoise water. And it was just unbelievable. So it's the Tara's Resort. I would check that out. Awesome. I don't feel like I gave Malaysia its justice on our trip. It was part of our eight month backpacking trip around the world. And but it was awesome.

I don't know if this is still the case, but the one thing I remember very specifically because it was a big problem was that the ATMs in Malaysia would not accept any of my two or three American bank cards. And so we showed up in Malaysia with probably seven dollars in cash and went to the ATM and it didn't work and we could not get cash.

So how did you get the cash? So I ended up going online and finding some local community in the tech community. So there was these events called Bar Camp, which are like conferences that I'd gotten to know, and I just went like Kuala Lumpur Bar Camp, emailed the list serve and was like, can anyone here meet me in Kuala Lumpur?

And I can pay you money and you can bring me cash. But my new plan is never go to a country without at least like maybe one hundred dollars of cash. We literally probably had like seven dollars, which can get you a lot farther in Malaysia than I imagine.

But not too far, but not too far. Wow. OK. Yeah. Bring cash. And again, the terrace beach and spa was on Redang Island, Redang Island. OK, cool. Awesome. So I also want to talk a little about parenting. We've kind of hit on it a little bit here and there, but we haven't gone deep.

I know not everyone in this conversation listening has children, but you've written so much about it. I'm at home with a two year old and a two month old, and it's been top of mind for the last two and a half years. And there are a bunch of decisions that have to be made that you highlight in the book.

I'd love to just run through a few things, get your perspective and see where it goes. You mentioned the rising cost of education. I'm curious how you've thought about approaching five twenty nine savings for college, how much to put in there and all of that. So I think the rising cost of tuition that is rising faster than the rate of inflation is kind of a racket.

And it's kind of a racket because colleges don't guarantee any graduate a job, right? If they guaranteed a minimum paying job, then it wouldn't be a racket. But I think, you know, charging seven, 8%, 10% every single year forever. While everything online is for free, you can learn everything, right?

YouTube, blog posts, even like the college lectures they put online. So why are we spending so much money on tuition? And why are colleges, these great colleges still only accepting a same level number of people if they really want to educate and help humanity? Right. They have a different motive.

They want to keep their status, keep their eliteness, all that stuff and keep people out. That's my cynical view. But I think that's the realistic view as to why things have not changed in terms of tuition and acceptance rates in terms of five to nine plan. Unfortunately, we have to think about our children and play this game because education is the most important thing we can provide our children.

If you're educated, you can have the courage to take risks, do things to make you money and live a better life. So for five to nine plan, I think it's a no brainer to contribute to it. We have super funded our children's five to nine plans the year they were born.

And so we can't fund it for another five years. And if we overfund it, it's fine because you can just write a different person's name as the beneficiary, right? If your child ends up being a genius, gets a grant, scholarship and all that, and you got 100,000 leftover, just change the name, change it back to yourself.

Change it to your nephew, niece, aunt wants to do graduate school, whatever. Five to nine plan is one of the best ways to transfer wealth in a responsible way instead of just giving money to transfer well for the use of education. I'll actually say there's a great hack, which is if you get a scholarship, you're actually allowed to fee free, take the money out that was given as a scholarship.

So there you go. If you don't have anyone, other siblings, other people you want to give the money to, you can actually take it out in that circumstance. I know this is a topic in the book that I was excited to read. Public versus private school and spending money for education when there is public education as well.

How would you help someone approach that thought about deciding whether they send their kids to public or private school? So I went to public school, high school, college, graduate school, all public school. I went to international private schools when I was in the Foreign Service in Malaysia, Taiwan, Philippines and Zambia.

So I have a ratio. It's that you can go to a private school if it fits your kids needs. If your gross income is equal to at least seven times the net tuition of one child. So in other words, if the net tuition costs $20,000, you got to make at least $140,000 to be okay sending your child to private school.

Because remember, your goal is also put your oxygen mask on first and save and invest for your retirement as well. And it used to be the multiple is more like five times, but I've upped it to six to seven and might continue to go up because I feel that education is more and more free and accessible to everyone.

Therefore, the idea of spending more and more money on private school just doesn't make sense because after, let's say you send your kid from private school, from kindergarten through four years of college, it's about $780,000 without any returns here in San Francisco, just for normal private schools. And college, if you slap on a 4% rate of return, which is pretty reasonable and pretty achievable, it's like $1.1 million that you're going to spend.

So think about it from your child's perspective, who doesn't know better, but who will know better based on your tutelage. Would they rather go to public school and have a check for $1.1 million when they graduate from college or, you know, farmed out over, you know, a five-year period so they don't spend all their money and go crazy?

Or would they rather go to private school? Ask your children that, give them that dilemma, and then also ask yourself what you can do in terms of accelerating your retirement if you had $1 million more as well. So those are my thoughts. I think it's not the end all be all, whether you go to private school, public school.

I think what's most important is that you develop your social skills, communication skills and actual practical knowledge so that you can get a good job or start your own business. I love how in the book, you take questions like this and you help approach the average person on how to think about them from both sides.

So I definitely think anyone listening should check it out. It's linked in the show notes, so you can find it there or really wherever books are sold. Where else can people find everything you're working on? You can just go to FinancialSamurai.com. And if you want to leave a comment, you can leave a comment.

I'll see it and I'll respond to it if you have a question. You can buy Buy This, Not That anywhere books are sold. But you can check out the landing page at FinancialSamurai.com forward slash BTMT for Buy This, Not That as well. Awesome. Thank you so much for being here.

Yeah, no worries. Thanks for having me. I really hope you enjoyed this episode. Thank you so much for listening. If you haven't already left a rating and a review for the show in Apple Podcasts or Spotify, I would really appreciate it. And if you have any feedback on the show, questions for me or just want to say hi.

I'm Chris at AllTheHacks.com or @Hutchins on Twitter. That's it for this week. I'll see you next week.