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 since 2003 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 pay you will lend to you at a lower rate and the thing is back in the global financial crisis days the median or the average home ownership tenure was about four and a half five years now the average home ownership tenureship 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 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 term we're going to talk about the seven core principles of 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 sam grats 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 uh 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 or what life's for you know it's 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 not having not tried at all i want to go back to you started down this road of being 34 and leaving your day job you know you've actually 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 that an alternate path would be the right move for your career and and then i also want to get to how others can use some of those tactics to engineer their own layoffs it happened well i started financial samurai july 2009 that was literally the bottom of the global financial crisis i'd lost 35 percent 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 uh write on financial samurai and so financial samurai gave me that purpose to 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 wi-fi i was like oh let's uh let's have a beer and there's an eight euro mythos beer i was like wow that's expensive but uh give me one how how often am i going to go back to santorini at the top of the crater and in my inbox uh 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's eleven hundred dollars i said oh eleven hundred dollars 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's still pretty novel at the time right 2011 iphone wi-fi and then within 30 minutes he paypal 1100 bucks and i was thinking that's good money 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 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 percent of my after-tax income every year until age 40 but i didn't last till age 40 i lasted till 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 uh 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 you know 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 quote 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 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 uh recession but you know are the tactics you use something that anyone could use or 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 over time 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 right 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 percent less it's kind of like getting a 60 percent raise if you do that for six months a lot of people be like hey i'll take that i mean that's pretty good belt don't have to work for two days a week shut it off and do my own thing i mean so it's really great and a lot of people have just surprised and shocked by how how they were able to negotiate something that they thought was not possible and in this day and age you know 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 um 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 you know 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 have actually been there for at least a couple 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 uh you know weeks pay for every year worked is that a general benchmark that kind of still applies or what do you think kind of is a broad applic 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 uh training notification and a severance so warn act pay is reserved for larger companies usually i think it's um in the hundreds or thousands of people and they do a mass layoff they're uh mandated by law to provide it's it's one to three months of severance pay or not severance pay actually 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 uh they think it's severance but it's actually mandatory warneck pay severance goes above and beyond that and so now you're you're on your own and you start financials or you're still let me think where i take this um 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 you know we're not going to spend a whole episode on how to engineer layoff though i'm sure we could um 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 uh 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 principle it seems like this is the core principle that you live by and have for a while um you know does it deserve to be elevated to be the core there are a lot of different things and so if you can adopt this core principle in everything you do whether it's doing your podcast writing uh 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 um 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 you know so that's 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 uh 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 gonna 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 you know 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 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 kind of change the way they approach it in a positive way as an investor you have to be humble 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 the money or could lose the 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 i want to move on to another topic that i know is a a big component of your passive income which is real estate so i you don't seem to have the traditional financial independence real estate approach which is buy rental properties all over the country hire managers and manage them but it still makes up a good percentage of your income i'm curious how you arrived at this approach what it actually is and if you think it's probably a more applicable to people i didn't i didn't know there was a traditional fire way to do real estate as someone who helped kickstart the modern day firing movement in 2009 i didn't i didn't realize that well i mean this is just my perspective seeing the internet of people talking about financial independence it seems like everyone's goal is to just accrue more and more and more rental properties uh buy and then graduate to buy you know apartment complexes 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 reets 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 equity 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 tried it was allocated towards real estates to diversify my net worth 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 ten 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've 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's a ton of turnover 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 up you know buy a home that works for you and then when you outgrow that home just don't sell it by assuming you have the money for another down payment and turn it into a rental property and it's not assuming it's making uh being proactive and trying to save for a down payment for another home and the idea behind this is one you 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 probably painted 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 by about 0.25 to 0.5 percent 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 you know 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 three percent 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 they will 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 okay if you're renting it out you know 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 five percent 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 uh in finance since 2003 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 pay you will lend to you at a lower rate and the thing is back in the global financial crisis days the median or the average homeownership tenure was about four and a half five years now the average homeownership tenureship 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 one percent 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 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 ended up selling that or 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 rate 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 that is but basically what's been happening for 40 years so let's say so i took out a 7-1 arm in 2020 right so people are like oh 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 arm was at 2.125 percent the best 30-year fixed rate i could get was about you know 2.875 percent maybe or maybe three percent 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 two percent so my arm rate could go from 2.125 to 4.125 to me it's not a big deal because probably about 20 percent 25 percent of the principal has already been paid down and then the following year it can only go up by a maximum of one percent and there's a lifetime cap to an arm which mine is seven percent which sounds scary but for the first seven years of the arm it was saving you know 0.75 to one percent 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 yeah 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 you know 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 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 uh 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 some 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 rents well yeah i mean everybody needs to understand uh 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 know 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 it's kind of like the debate between you know doing a Roth conversion or not and that is and in the past i was like ah don't do the Roth conversion because you're basically giving up you're paying the government the inefficient government first all the taxes and you give up all your basic strategies to lower your taxes in the future such as moving to a low cost or low income or no income tax state and so forth but as i've gotten older i see the wisdom in the Roth we can talk about them later but you know that's something people need to think about we are dynamic we can do things to all we always have an opportunity to do things to improve our financial situation so i know 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 i think a vacation property is a suboptimal use of funds because you're not going to use it enough uh to be able to make it a good financial decision versus you know renting a vrbo or airbnb or whatever to you want to diversify where you vacation if 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 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 weren't 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 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 um but now it's it's fine it's just it is what it is it's part of the game of you make mon you win some you lose some yeah we recently looked at vacation properties in napa and because there just aren't a lot of airbnbs and i ended up we ended up buying a picasso i don't know if you've you've looked at this company it's like a fractional fractional real estate so basically you buy one eighth of a home so imagine it's it's as if eight people came together and bought a home together except you don't they have the marketplace so you don't have to find the other seven um right well i hope you enjoyed uh you'll probably enjoy it more than i enjoyed my lake tahoe property because it's tahoe's uh sonoma napa's hour hour and a half away well it's closer right so hopefully it's an hour and a half away family is nearby and we only 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 let's turn away from physical real estate and and kind of talk about you know online real estate my web presence my website uh maybe a business i run because i know you've said that people are are quick to have their social media profiles but maybe they don't have this hub in the middle to tie it all together that can help them build something online 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 would submit and you know 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.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 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's something like five six billion people online now and it just 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 and own the place they do it so they can build an audience or build a business around it well i think you need to 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 the thing that you care about the most what i've seen it's interesting the the vc community which is it's 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 you know two percent 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 created 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 yeah as a former vc i think if you love that job it's great uh i found that you know 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 uh job right you you're invested like all the things you said i was like i don't want to watch all these people build things i want to build them 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 if what you love is actually you know 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 uh the world is your oyster so whether you have any experience or nothing and you just went to business school and you know 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 i kind of had this feeling of imposter syndrome because i hadn't actually built and grown and scaled a company uh 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 and 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 and um my former manager uh or andy racliffe who started wealthfront who i sold my last company to told me he said 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 always thought of vc as like the second you know career of an entrepreneur and as you look as i looked deeper and deeper at some of the most successful venture capitalists of all time many of them were not entrepreneurs uh 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 my flaw that's why i thought i couldn't be a vc in the first place so um i've evolved that position over over time but you know you mentioned putting up something online starting to write people 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 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 you 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 work when you worked at a company so you actually 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 uh you know 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 also the idea i had a decision 10 years ago to run a lifestyle business or try to blow it up and take funding and you know 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 write a you know run a business to make a lot of money it 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 you need or whatever your mobile phone to run your business the monthly subscription on on that you have to have a board meeting every single year for your business i think that's the the rule you don't have to have it in your mom's basement you know with free water you can go to hawaii or wherever you want with your consultants uh your editor whatever it is you know you can pay for their fair and have your board meeting there at something you know 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 know you're going to get a letter and say you know this you actually did this wrong you got to pay this because you didn't pay it and maybe you have to pay like a five percent 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 you know the irs they're actually hopefully good people they're good people because they're trying to clarify and simplify and explain their convoluted tax laws it's crazy but that's that's my thoughts in general yeah and i would say you you don't have i wouldn't go and just like expense everything and and hope that it'll work i but i do think there are a lot of things if if there's a gray area and you're not sure the worst case isn't as bad as you might think um yeah what about a couple tactical questions now that i'm over here running a company uh on my own what do you do what 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 uh the sep 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 rideshare stuff just any stuff that i could make money so i created a solo 401k as well and so i was able to contribute to my solo 401k and get the sep ira plan going and what people don't realize or some people don't realize as employees is the maximum 401k 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 401k match because it's often not just three percent or five thousand dollars 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 yeah 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 know 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 there are a couple 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 for the family of three once my wife left her job in 2015 as well she engineered her layoff as well at 34 and a half and we paid full freight which was 1800 18 to 1900 a month at the time and now with a family with two kids we pay about 2300 a month for a gold plan and so we are not getting any subsidies and i think it's fine we 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 percent of the federal poverty limit per household size so for example the federal poverty limit for one person is something around two thousand seven hundred dollars to thirteen thousand dollars 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 multi-millionaires let's say you know you have two or three million dollars that generate and you have household of four and your investments let's say three million generates sixty seventy thousand dollars of income you can get health care subsidies as a multi-millionaire 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 twenty three hundred dollars a month technically minus twenty percent and that's our expense so i don't think i even knew that that was a business expense uh so that's a interesting thing and you your wife works at the company too can you talk a little bit about managing finances with a couple bringing them into the business i think there's a couple places to take that but i know you 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 you had a life before you met each other and i feel that a lot of fights uh 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 oh i'm gonna go spend my own money it's okay 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 gonna divorce yada yada yada okay that's great to do what you want but this is my philosophy uh in terms of bringing her on the fold um 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 34 and a half and leave she's three years younger than me i said you too can negotiate a severance when you're 34 35 and come join me if everything you know works out great and so everything did work out fine and so i helped her negotiate a severance and we ended up you know incorporating financial samurai and we have our little business and the idea is look we're we are a team i do the front end i do the writing and she does the editing and she does um the filing of the taxes and that's how it goes and we pay ourselves a salary um 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 you know 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 tell what's going on in our lives 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 you know not a state with the highest income taxes um you know maybe in the country what do you say to people that think you're crazy for staying here when you could live anywhere why 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've lived 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 on all three levels 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 uh 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 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 uh yes it's expensive but you know there's consulting here there's a meetup here i mean it's just so fun and it's beautiful it's not like 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 fun things you can do it's a little bit too expensive actually um in my mind as someone who also lives in the bay area i i share a similar sentiment not that you know my wife and i both work for a company that we could be remote right now a podcast i could do from anywhere but i tend to think that money's purpose is is like we said at the beginning at all and we love living here the opportunities here are great and you know for us it's not yes we could save more money somewhere else but if money's goal is to allow you to do things you love then that's 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 gotta 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 uh 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 five hundred thousand or six hundred thousand 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 i just got back from playing tennis earlier before this podcast and it's just you are where your friends and family are i love it here uh so i don't see moving anytime soon but speaking of travel and moving and going to other places i know before kids and the pandemic you did a lot of traveling and a lot of the conversations we have 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 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 it's 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 europe probably 20 to 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 that one of those things where after you see like five gothic churches they all start looking the same so i i enjoyed mallorca spain mallorca was amazing the spanish culture you eat tapas at 10 pm you enjoy life the water the beaches so and then amsterdam amsterdam is kind of like the san francisco of europe where people are pretty chill you know weed is available everywhere and there's really diverse culture and i love amsterdam as well i haven't been to mallorca amsterdam's amazing i want to come back to malaysia because i think it's a country having been there i 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 i'm malaysia i've never really thought about going there what would you tell them to think about as a trip not 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 uh but what would you tell someone to think about as a they plan a trip well malaysia you know it's it's a peninsula surrounded by water on three sides and the beauty is uh the food is amazing right uh the mamak stalls the roti canai um the milk fish the chicken fish all that stuff the ganguk belacan gotta check that out you can go to kuala lumpur for sure you know see the palace see the batu caves go on these excursions but go to the pulau which are the islands um on the east and west and or go to penang and see the turquoise water and go scuba diving uh 70 feet down and still see the water and have nobody around you my favorite uh trip was to this resort called the tara's resort it's an island and there's an island on the east side and we just had it was kind of like you know the movie the beach i think it was the beach with leonardo dicaprio it was kind of like that you would take a dinghy out you'd go scuba diving you'd come to this cove there'd be some little sharks around turquoise water and it was just unbelievable believable so it's the tara's resort i would check that out awesome yeah i 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 uh but it was it was awesome the only thing 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'd 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 unconferences that i'd gotten to know and i just went like koala lumpur bar camp emailed the list serve and was like can anyone here meet me in koala lumpur and i can pay pal you money and you can bring me cash but my new plan is never go to a country uh without at least like maybe a hundred dollars of cash we literally probably had like seven dollars which could get you a lot farther in malaysia than i imagined but not too far but not too far wow okay well uh yeah so yeah bring cash and again the the terrace beach and spa was on redang island redang island so awesome i also want to talk a little about parenting we've 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 uh 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 i don't know 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 sure uh by this not that half of it is about making optimal decisions with some of the most important things that most of us will face so ask away the the first thing that i just thought was really surprising was a post you wrote about how the financial benefits of kids and i know that one of the conversations that you've probably had with plenty of people when they're talking about kids is ah kids are so expensive and you actually wrote a little bit about the fact that maybe they're not as as expensive as you think because of the way they change your life the issue is uh yes there's studies that say kids are going to cost 250 grand through 18 years old and then obviously college is crazy expensive and the problem is parents we parents want the best for our children uh we love them more than anything else in the world so we're willing to be priced inelastic and spend as much money on education or toys or reading materials or whatever right however you know they don't have to be as expensive as you you know read about and think about if you can allocate more time to them so that's one of the things that i've discovered and talking to a lot of parents is the parents who are working all day all night and don't spend a lot of time with their kids have this proclivity to try to spend more money on their kids to try to make up for that lost time but if you can find yourself spending more time with them more than the average parent who spends time with their child which is about 120 minutes a day if you have a college education you will find that you don't need to spend as much time as you think as much money as you think because you are having so much fun playing and doing things that require no money at all and the same is true with vacations i know you mentioned that before you had kids you know is always the vacation concept was a big lavish international trip and recently with kids i know you haven't been traveling internationally as much and so i know that's one cost that came down are there other things that you now spend less on because you have kids yeah i mean definitely we're not traveling on by plane anymore because it's such a painful experience with young children under five you know they won't be able to sleep well they you know they might cry what if the plane is delayed by three hours and you got a one-year-old or two-year-old that would be like a disaster it's kind of like losing the lottery um so we've done a lot of staycations uh tahoe sonoma napa and as a result we've been to explore the great northern california region so that saved us a lot of money now what else have we what else have we saved money on with regards to children i mean we don't go out to eat a lot uh you know we're we're you're filling we have an au pair so we're filling five mouths now or i guess four because the the youngest isn't eating but we're filling four mouths and and so it's just easier to cook we have dinner early so for us we've saved a lot of money not going out to dinner all the time which pre-kids was a much more common occurrence yeah so yeah less going out um learning how to cook more and cooking more those are definitely things and just appreciating and utilizing uh nature around us you know we would go for hikes we'd teach them about rocks and trees and deciduous trees and evergreen trees and just appreciating all the free things around that maybe we didn't appreciate before because we know about it already we we you know as adults we learn about everything and now we got to spend money to try to entertain ourselves but for children everything is new everything is a learning experience and i think it's been pretty wonderful in that regard i mean you also mentioned the the rising cost of education i'm curious how you've thought about approaching 529 savings for college how much to put in there and 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 grad if they guaranteed a minimum paying job then it wouldn't be a racket but i think you know charging seven eight percent ten percent every single year forever while everything online is for free you can learn everything right youtube blog posts uh you know 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 there 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 uh in terms of 529 plan unfortunately you know 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 529 plan i think it's a no-brainer to contribute to it we have super funded our child's children's 41529 plans the year they were born and so we can't fund it for another five years and if we over fund 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 don't you know you got a hundred thousand left over just change the name change it back to yourself change it to your nephew niece aunt wants to do graduate school whatever 529 plan is one of the best ways to transfer wealth in a responsible way instead of just giving money to transfer wealth 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 uh that was given as a scholarship so um you know if you don't have anyone other siblings other you know people you want to give the money to you can actually take it out in that circumstance um how have you thought about you know living in san francisco i know this is a topic in the book that i was excited to read public versus private school and spending money for education um when there is public education as well i went to public school uh through high school well no 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 um a ratio it's that you can go to private school if it fits your kids needs if the net tuition of one child um if your gross income is equal to at least seven times the net tuition of one child so in other words if the tuition 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 to 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 it 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 four percent rate of return which is pretty reasonable and pretty achievable it's like 1.1 million dollars 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 dollars 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 dollars 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 yeah 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 uh 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/btnt for buy this not that as well awesome thank you so much for being here yeah no 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