Hello, everybody, it's Sam from Financial Samurai. And in this episode, I want to talk about the biggest financial mistakes you can ever make and also sign up for my newsletter. It's a free weekly newsletter at FinancialSamurai.com/news. So on to the topic of biggest financial mistakes. The first rule of financial independence is to not lose money.

If you lose lots of money, you are ultimately losing valuable time. And when we only have so much to live, losing time is the biggest financial mistake you can make because it's the most valuable asset. I hope you agree this makes absolute sense, which is why we listen to financial podcasts, we read books, we try to listen and get educated about our finances.

And we have a risk appropriate asset allocation framework. We cannot risk losing so much money that we end up going backwards. In true Fight Club fashion, I could say the second rule of financial independence is to never forget the first rule. However, the second rule, the real second rule is to never expect your income to always go up.

That would be your second biggest financial mistake you could ever make. Life is not a straight line. Bad things happen all the time. If it's not a pandemic that crushes your income, it might be a bear market that takes your net worth down 20%. And if it's not a bear market that leaves you jobless, it might be a health issue that prevents you from working.

People over 40 don't need to be told that life is both wonderful and difficult. For all of you still relatively early on your financial journey, please take heed. Listen to your elders. I'm 45. So if you're younger than me, and you want to go where I've been, well, it might be a good idea to listen to what I have to say, because I share with you both the good and the bad.

I don't want you to be full of regrets, because you didn't know the risks. Back in 2007, at the time I made the most amount of money in my career. I had gotten recently promoted to vice president and thought I was on top of the world. In my spreadsheet to calculate my future net worth growth, I estimated I would conservatively make 10% more annually for the next five years.

I mean, why not? It was a bull market. 2007 was crazy times, just like 2000. When you're flush with cash and have a promising career, and you believe in the importance of spending your money to enjoy your life, why not reward yourself? That's what I did. I bought a two bedroom, two bath condo in Lake Tao for $715,000.

This is in 2007. That was right before the financial crisis. I thought it was a good deal, because condos of similar size sold previously at $810,000 a year before, but then of course, everything went to hell. The S&P 500 crashed by 38.5%. The housing market collapsed. My income got slashed by 50%.

And within a couple of years, my condo's value plummeted from $715,000 to under $500,000. It might have gone under $400,000 at the worst of the cycle, but I didn't pay that close attention because it was too depressing. Investors were conducting short sales left and right, dragging all of us fools who kept on paying our mortgages down with them.

And I say fool in a loving way, because I do believe it is the honorable thing to fulfill the promises of your contract. And the silver lining is today that condo is paid off. I finally paid it off in 2022, and I'm bringing my kids up there. But man, every time I went up to the condo, I was reminded about my financial mistake for 15 years.

And I'm still going to be reminded. Thankfully, the condo as a percentage of my net worth is much, much smaller than it was in 2007. If only I had avoided the financial mistake of income extrapolation, I would be at least $300,000 richer, maybe $500,000 richer based on the money I could have reinvested in the stock market and in real estate.

Please keep your income expectations conservative. If you do not, you may end up buying things beyond what you're capable of affording. The main reason why I'm recording this podcast on financial independence rules is because of the New York Times strike. For over 24 years, I wasn't really paying attention to how other folks make money.

The first world of income expectations is based on a meritocracy. The better you do at your job, the more you tend to get paid. If you stink it up, then your pay will rightly be less. If you feel you aren't getting paid what you're worth, you'll leave. You'll rationally send out resumes to try to find a better job that will pay you more.

Now, the second world of income expectations is based on always getting paid more, no matter what. The economy may be in a recession. We might be in a bear market. Your company's stock might be in the toilet. A nuclear bomb may have detonated. Yet you still think you deserve to get paid more, guaranteed, every year.

Well, this second view of getting paid violates the second rule of financial independence. Having this entitlement mindset of always getting paid more is dangerous. Based on my realization of how journalists get paid at the New York Times and other places, I understand why they're striking. We all want to get paid more.

Inflation is high. Hopefully, our salaries can keep up with or beat inflation rates because that way we can get ahead. But this type of expectation for always getting more is very dangerous. Here are a couple of examples of entitlement and how it can hurt your wealth and happiness. Let's say in high school or let's say college, you study on average one hour for your final exam while all your peers study for three, four, seven hours.

And so as a result, you get a B but your peers get an A because there's a bell curve. And then you get pissed off because employers reject you for not having a 3.75 GPA or above. I remember back at Goldman Sachs, the minimum GPA cutoff was 3.7. Now you're rejected and you start questioning why life isn't fair.

And then you end up lonely and spiteful and you hate on anybody who has more than you. That's terrible, right? And then let's say three years out of college, you expect to go to the corner office. You haven't put in your dues. The average CEO has worked for 25 years to be able to become CEO.

And so you get passed over for a promotion and you start bad mouthing your colleagues. And then you start undermining your boss. You start thinking to yourself, "Do you know who I am? I come from this prominent family. I went to this fancy school. You should feel gratitude that I'm even working for you." That type of mentality is like a virus.

Nobody likes that. And as a result, your career trajectory derails. And speaking of viruses, I wrote a post before that talks about how to get revenge from an employer who let you go or passed you over. And one way is to actually implant a recommended virus to that employer.

So in other words, let's say you hate your employer because they lied to you and wronged you. Well, you recommend some employee who has a terrible attitude, full of entitlement, spreads gossip, undermines bosses, and you say, "Hey, this is a great employee. Go ahead, hire them. They'll do great." And what happens is the virus eats the company from within and blows it up.

We know 2022 is a terrible year. We've had a recession and a bear market. With the way the Fed is raising rates, hopefully not to 5% terminal, we're likely going to have another recession in 2023. Therefore, maybe a million jobs will be lost over the next one or two years.

Wall Street strategists expect no gains for 2023 in the S&P 500. The housing market is not looking too good because mortgage rates are so high. Further, the New York Times stock price is at a three-year low. So perhaps expecting a guaranteed 5.25% annual raise over the next four or five years while the industry is struggling and while inflation is heading down is illogical and perhaps dangerous.

Plenty of people in the media are losing their jobs. Instead of striking, maybe it would be more rational to revert to 2019 level pay given the New York Times stock price is back to 2019 levels. Now I know people are going to be angry, especially journalists who are listening to this, and I'm sorry.

I don't mean to be cruel. I'm just trying to help everyone think about the mindset of not always expecting to get paid more and more, even in bad times. Here's the thing. It's important to feel fear, to have your back against the wall when you look down, there's no safety net.

Because when there is no safety net, you need to survive. You will do everything possible in your power to make more money, side hustle, save more, invest more, budget more, and so forth. The sooner you can better align your expectations with the current realities of the world, the sooner you can make optimal financial decisions.

Just because you are a certain race or work at a certain prestigious organization or went to some elite university doesn't mean you automatically deserve to make more. You deserve to make more when you do great work and when the economic conditions are right. There's a great saying, "Nothing is given, everything is earned." This is a very powerful mindset to have.

The best situation for wealth building is to have that guaranteed pay race every single year for years and years and years, while also adopting the mindset of nothing is given and everything is earned, pretending you have no guarantees, no safety net. This way, you have this one-two punch where you have security, but you're hustling because you're pretending you don't have the security.

As a result, I think you'll end up building way more wealth. After making one of the biggest financial mistakes at age 30, I had to suffer for the next 15 years with the consequences of overpaying. Here's what I did do. I learned to never expect my income to always go up again.

I developed a strong money mindset that nobody was going to save me. As soon as I stopped expecting to always get paid and promoted, I began doing everything I could to generate alternative income streams. Real estate became my salvation. I sucked up the pain of managing property because I knew it was my main way to get free from working forever.

Instead of only modeling, let's say, realistic or blue sky scenarios in my retirement planning model, I introduced dark sky scenarios by talking about bear markets, what would happen if I got let go, just realistically bad things that tend to happen to everyone. By doing so, I forced myself to always be aware of downside risks.

With such awareness, I maintained an elevated saving rate and ensured I had risk-appropriate asset allocation. Stopping 80% of my net worth in cryptocurrency, NFTs, or SPACs was never going to happen because I was aware of dark sky scenarios. Very important. And when you know your pay is highly volatile and it goes up and down with the economy and your performance, you tend to not splurge on things you probably shouldn't buy.

For example, I kept my $8,000 Land Rover Discovery 2 for 10 years until it was worth about $2,000. And then I traded it in for a Honda Fit that cost about $20,000 and I drove that for three years. That was actually a luxury splurge at the time, a brand new car, but I leased it for my business.

It was like $245 a month, not that big of a deal. But I used the $80,000 I wanted to spend on a new car in 2005 and invested it in the S&P 500. And as a result, that $80,000 is worth over $200,000 now. And because I realized bear markets happen every seven to 10 years, I decided to keep financial samurai going without fail.

Three posts a week for 10 years is not easy, but it was a promise I made in 2009 because I expected good things to happen if I stayed consistent. I knew that if all my investments failed, at least I would have a financial samurai spitting out some pennies. So in conclusion, I say expect nothing and get richer as a result.

I remember talking to my dad maybe 10 years ago and I asked him why he didn't save more, more money. I mean, he was doing fine, but it was just one of those personal finance conversations. And he said, "Well, I had a pension. I had a government pension, so there was no real need to aggressively save as much as you're talking about, dear son." Because for me, in the FIRE community, we talk about saving at least 20% of our after tax income after contributing the maximum to our tax advantage accounts.

And then I started talking about trying to shoot for a 50% after tax rate, right? Every year you save 50%, you buy one year of freedom. It's easy math. But I think to most people, that seems a little nuts. And what I realized was that my dad's actions were completely rational.

The US government wasn't going to go under. If my dad paid off all his debts, which he did by the time he retired and lived a frugal life, the pension would be more than enough to pay for his lifestyle, his desired lifestyle. However, if you do not work for the government, if you work for a private sector company, you work in the private sector, be aware that executives have a duty to shareholders, public shareholders to try to outperform the market or to get that stock up.

But just as employees have a right to fight for more compensation, executives have a fiduciary responsibility to their shareholders. So just be careful. If you argue too loudly in a tough economic environment, when there's layoffs and a terrible stock price that you deserve to get paid more and more every year for years and years and years, you might be putting yourself at risk.

And absolutely, there is strength in numbers with the union. But as we see industry ride in the media and in other sectors, people are getting let go because industries go through these down cycles and then they go through these up cycles. It's just the way the economy is. It's capitalism and we have to figure out how to deal with that.

And I say the best way to deal with that is by not relying on anybody to have low expectations, to have no expectations except for the expectations of yourself to work hard and to figure out how to become anti fragile and build your net worth and passive income streams.

Thanks so much everyone for listening. Again, my free weekly newsletter subscribed by over 55,000 people is that financial samurai dot com forward slash news. If you subscribe this way, you won't miss a thing. I'll talk about the stock market, real estate, current events, latest posts, and so much more in a future episode.

I'm going to talk about the importance of doing a cost benefit analysis before making any financial career or big decision. I got a fired up comment in my latest post on the second biggest financial mistake you can ever make. And I want to address that because it's important. Click over to the post and read the comment yourself if you're curious.

And finally, if you want to give the gift of education this holiday season, go to financial samurai dot com forward slash btn t to pick up a copy of my Wall Street Journal bestseller by this not that how to spend your way to wealth and freedom. Thanks so much everyone.