25 Money Rules You Need To Know (And When To Break Them)

00:00:00.000 | Getting money and investing right can be overwhelming,

00:00:03.120 | I know, but the upside of financial freedom is so huge.

00:00:07.720 | So today I'm gonna break down 25 investing

00:00:10.800 | and personal finance rules of thumb

00:00:13.000 | that will make managing your money simpler

00:00:15.120 | and more effective.

00:00:16.560 | From the rule of 72 for doubling your investments

00:00:19.280 | to the 4% rule for early retirement.

00:00:22.040 | These principles will help you make smarter

00:00:24.360 | financial decisions and grow your wealth

00:00:26.920 | with a lot less stress.

00:00:29.160 | Plus, me and best-selling author Brian Feraldi

00:00:32.000 | are also gonna cover when it's important

00:00:34.320 | to break some of these rules.

00:00:36.240 | I'm Chris Hutchins, this is "All The Hacks"

00:00:38.320 | and a big favor before we jump in

00:00:40.040 | is to give us a quick thumbs up

00:00:41.520 | to help others find this channel.

00:00:43.480 | And if you're new here and you wanna keep upgrading

00:00:45.620 | your life, money and travel, consider subscribing.

00:00:48.740 | Brian, why do you think that personal finance

00:00:52.280 | and investing are just so hard for so many people?

00:00:55.480 | - It is a very complex topic

00:00:57.560 | and it is filled with mountains of data,

00:01:00.240 | but more important, mountains of emotions.

00:01:02.920 | And I think that everybody has their own

00:01:05.000 | unique experience with money.

00:01:07.840 | We grow up in different types of environments,

00:01:09.720 | we grow with different types of parents

00:01:12.240 | and different types of role models to look to.

00:01:14.320 | And as a big part of that, historically,

00:01:17.040 | money, personal finance and investing,

00:01:18.820 | they haven't been subjects that have ever

00:01:21.360 | been taught in school.

00:01:22.880 | A lot of schools have basically said,

00:01:24.520 | "You're gonna learn this from your parents

00:01:26.040 | "and you're gonna learn this from outside of the classroom."

00:01:29.560 | So because of that and because it's such an important topic

00:01:32.320 | that is emotionally charged,

00:01:33.800 | I think it is a very easy topic

00:01:36.200 | to have a lot of different opinions on.

00:01:38.320 | - That's why I'm really excited about this conversation

00:01:41.020 | because it can be complicated

00:01:43.800 | and I would love everyone listening

00:01:45.220 | to go become an expert and be able to uncomplicate it.

00:01:48.040 | But there are a bunch of rules of thumb out there,

00:01:50.400 | some of which are good, some of which are bad.

00:01:52.360 | And I thought it'd be good to just run through them

00:01:54.660 | to kind of make some of this easier.

00:01:57.040 | And we can give our feedback on them.

00:01:58.840 | Not all of them are ones that we're gonna tell you

00:02:00.800 | you should be using, but you put together a great list.

00:02:03.960 | I went and sourced some from myself,

00:02:05.920 | ChatGPT, the internet to kind of make

00:02:08.280 | as much of a comprehensive list as I could

00:02:11.480 | of the rules of thumb of investing in personal finance.

00:02:14.240 | So what do you say we go through them and see where it goes?

00:02:17.300 | - Absolutely.

00:02:18.140 | And to your point, I absolutely love rules of thumb.

00:02:20.760 | I love rules in general.

00:02:22.360 | And I think that if you're a beginner on a subject,

00:02:24.520 | it's essential to know the rules.

00:02:26.700 | As you get more educated about that subject,

00:02:29.120 | it's more important to know when to break the rules.

00:02:31.600 | - Yes, and I think no matter where you are in that journey,

00:02:34.340 | this conversation will be interesting

00:02:35.640 | 'cause we're gonna talk about both the basics

00:02:37.680 | and when to break it and how we do them ourselves.

00:02:40.240 | So the rule I wanna start with is probably the one

00:02:43.000 | that of this entire list I kind of have heard

00:02:45.980 | for the longest, and that's the rule of 72.

00:02:48.760 | - So this rule is a calculation that lets you figure out

00:02:52.160 | how long it will take approximately for your money to double

00:02:56.560 | when invested at a specific interest rate.

00:02:59.420 | So the rule of 72, you simply take the number 72,

00:03:02.540 | divide it by the interest rate

00:03:04.000 | at which you are expected to grow your money.

00:03:06.360 | That will give you the time period in years

00:03:08.980 | at which your money will double.

00:03:10.800 | So as a quick example, let's say you invest your money

00:03:13.200 | at a 10% interest rate.

00:03:15.160 | If you take 72, divide it by a 10% interest rate,

00:03:18.580 | that gives you 7.2, meaning that in 7.2 years,

00:03:23.200 | you can expect your portfolio to double

00:03:26.220 | at that interest rate.

00:03:27.440 | - If you were to invest at 5%, which kind of right now,

00:03:30.240 | treasury rates are at, you know, about 14 years to double.

00:03:33.400 | And when I looked at this rule, I was like, interesting,

00:03:35.600 | there's also a rule of 70.

00:03:37.760 | - Yeah, the rule of 70 also is similar to the rule of 72.

00:03:42.120 | And this actually applies more to the purchasing power

00:03:45.600 | of your investment.

00:03:47.100 | So everybody knows that every year,

00:03:49.360 | the inflation rate erodes the purchasing power

00:03:52.080 | of your dollar, which is a big reason

00:03:53.840 | why you should be investing in the first place.

00:03:55.840 | And the rule of 70, very similar to the rule of 72,

00:03:59.040 | and it effectively tells you how long in years

00:04:02.280 | it will be before the purchasing power

00:04:04.080 | of your portfolio is halved.

00:04:06.760 | - If we have inflation at 3%, then in 23 years,

00:04:11.760 | you're gonna end up with kind of half

00:04:13.620 | the purchasing power you had.

00:04:14.880 | - For anyone mathematically inclined here,

00:04:17.420 | the point at which your purchasing power has eroded in half

00:04:20.760 | is the point at which inflation

00:04:23.140 | has effectively doubled your base.

00:04:25.940 | So it's the same thing.

00:04:27.760 | And it turns out the reason why I think the rule of 70

00:04:31.180 | is different is purely that it's a different thing, right?

00:04:35.140 | They're talking about inflation eroding purchasing power,

00:04:36.860 | so it needed a different number.

00:04:38.900 | But the reason the rule of 72,

00:04:40.940 | which I think is older than the rule of 70,

00:04:43.300 | wasn't originally the rule of 70,

00:04:45.520 | was actually, best I can tell,

00:04:47.160 | because 72 is more divisible simply by more numbers.

00:04:52.160 | Two, three, four, six, eight, nine, 12.

00:04:57.020 | It's just an easier number to work with.

00:04:59.280 | But it turns out that the rule of 70

00:05:01.520 | is a little bit more accurate.

00:05:03.720 | And so for, you could take 70 or 72,

00:05:07.480 | the numbers are gonna be about the same,

00:05:08.760 | but they both kind of effectively do the same thing.

00:05:12.060 | How do you use this rule?

00:05:13.340 | I mean, I understand what it tells you,

00:05:15.580 | but how could someone apply this to their life?

00:05:18.380 | - The way that I think it's most useful

00:05:20.420 | is you take your current age

00:05:22.220 | and you subtract that from the year 65,

00:05:25.500 | which 65 is the quote unquote standard retirement age

00:05:29.060 | that a lot of people aim towards.

00:05:30.720 | So I'm 40.

00:05:33.100 | If we took 65 and subtract that, that would get me,

00:05:36.060 | that means that in 25 years, I have to,

00:05:38.820 | I am going to retire.

00:05:40.540 | And I wanna know, well, how many times

00:05:42.620 | will my current portfolio effectively double in value

00:05:47.140 | over that time period?

00:05:49.240 | So if I'm aiming for a 10% return in my portfolio

00:05:53.220 | using the rule of 72, that tells me that every seven years,

00:05:56.660 | I can expect the value of my portfolio to double.

00:06:00.580 | So I can expect during that 25 year time period,

00:06:03.740 | if I'm roughly correct,

00:06:04.740 | about three doublings of my portfolio.

00:06:07.940 | So seven years from now, it'll be a 2X.

00:06:10.380 | 14 years from now, it'll be a 4X.

00:06:12.820 | And 21 years from now, it'll be an 8X,

00:06:16.220 | the value of my portfolio.

00:06:17.460 | I think that's a very good, easy mental calculation

00:06:21.220 | that I can do to figure out,

00:06:22.340 | well, how big will my portfolio be in so many years?

00:06:25.240 | - Yeah, that makes sense.

00:06:26.300 | And I guess if you were to just take

00:06:28.820 | the interest rate minus inflation,

00:06:30.940 | you'd figure out what your,

00:06:33.100 | and then use it against the rule of 72.

00:06:34.940 | So let's say 10% minus 3% inflation,

00:06:38.900 | then it would take you 10 years

00:06:40.700 | to double your purchasing power.

00:06:43.100 | - Which I would argue is even more important

00:06:45.020 | than doubling the value.

00:06:46.240 | It's not necessarily the absolute dollars that matter.

00:06:49.100 | It is what you can use those dollars

00:06:50.700 | or what you can purchase with those dollars.

00:06:52.760 | So I think that's a great way to do it.

00:06:54.700 | And don't forget to account for inflation.

00:06:57.580 | That is something that you absolutely have to think about,

00:06:59.300 | especially when it comes to your money.

00:07:00.620 | - So let's jump into some rules

00:07:02.100 | that apply to a investment portfolio

00:07:03.540 | and start with the 110 rule.

00:07:05.580 | - The idea here is you take your age

00:07:07.860 | and you subtract it from the number 110.

00:07:11.180 | The answer there will tell you

00:07:12.940 | what percentage of your portfolio

00:07:15.660 | you should keep in stocks or equities.

00:07:19.180 | The remainder should be in bonds or cash.

00:07:21.340 | So as an example, if you are 40 years old,

00:07:24.300 | 110 minus 40 equals 70.

00:07:27.660 | So at age 40, you should have roughly 70%

00:07:31.220 | of your portfolio devoted to the stock market.

00:07:33.740 | - And do you follow that rule?

00:07:36.720 | - I personally do not.

00:07:38.620 | I do think this is a good rule of thumb

00:07:41.100 | and a lot of financial planners follow this rule.

00:07:44.660 | A lot of target date retirement funds follow this rule.

00:07:47.740 | So there's a lot of people that are following

00:07:49.640 | this kind of thinking and formula,

00:07:51.100 | whether they know it or not.

00:07:53.460 | For me personally, I am extremely comfortable

00:07:55.880 | with having basically 100% of my capital

00:07:58.900 | in the stock market for a long period of time

00:08:01.820 | because it's the asset class that I know best.

00:08:04.180 | And I've kind of taken this and adapted it to form my own.

00:08:08.140 | So I actually more consider it

00:08:10.820 | how many years of investment,

00:08:13.300 | how many years of spending do I want in bond, in cash,

00:08:17.420 | as opposed to it being just a raw percentage

00:08:19.920 | of my portfolio.

00:08:21.100 | So for me, when I am all the way up until 10 years

00:08:24.680 | from before I "retire," which is something, by the way,

00:08:28.100 | I plan on pretty much never doing,

00:08:30.020 | but if I was 10 years away from needing

00:08:32.220 | to draw down my portfolio, more than 10 years away,

00:08:35.540 | I effectively don't want anything in bonds.

00:08:38.620 | I want my capital in the stock market.

00:08:41.380 | As I get closer to needing to draw down my portfolio

00:08:45.660 | and use it for my living expenses,

00:08:47.300 | then I would actually devote more money

00:08:49.700 | to the bond market and to cash,

00:08:52.080 | but I would do it in years of living expenses.

00:08:54.900 | So the rule that I've made for myself is,

00:08:57.520 | when I'm within 10 years of drawing down my portfolio,

00:09:00.300 | I want effectively one year worth of living expenses

00:09:02.620 | in bonds, one year worth of living expenses in cash,

00:09:06.120 | and gradually ramp both of those numbers up

00:09:08.700 | as I get closer to the drawdown period.

00:09:11.340 | The reason for doing that is because

00:09:13.820 | the stock market is very volatile.

00:09:16.420 | It's unpredictable what it's gonna do in the short term,

00:09:18.540 | and you want to be able to use bonds and cash

00:09:21.660 | to pay for living expenses if you go for,

00:09:24.020 | if you're living through a prolonged bear market.

00:09:26.300 | - That makes a lot of sense.

00:09:27.140 | I also don't necessarily follow this rule,

00:09:29.540 | but I think it's really valuable for people to realize

00:09:32.460 | one thing that you just said,

00:09:33.540 | which is a lot of target date funds are doing this.

00:09:35.900 | So if you look at this and say,

00:09:37.060 | I don't want to be allocated that highly to bonds right now,

00:09:40.700 | well, if your portfolio in your 401(k)

00:09:43.580 | is in a target date fund,

00:09:44.660 | you are being allocated in that way.

00:09:46.780 | And the other is just to think about,

00:09:48.900 | over time, my portfolio should change, right?

00:09:52.300 | That is an important thing to consider

00:09:54.380 | for the reasons you just said,

00:09:55.860 | which I think dovetails well to the five-year rule,

00:09:58.740 | where we talk about when you shouldn't invest

00:10:01.580 | in the market and why.

00:10:02.860 | - Yeah, this is one that I'm a firm believer in.

00:10:04.820 | The idea here of the five-year rule

00:10:06.180 | is that you should only put money into the stock market

00:10:09.460 | that you won't need to spend,

00:10:11.040 | that you know you won't need to spend

00:10:14.740 | for at least five years.

00:10:16.780 | The reason dovetails with what exactly I said previously.

00:10:19.300 | The stock market is unpredictable,

00:10:22.260 | especially in the short term.

00:10:24.180 | I define the short term as anything less than three years.

00:10:27.560 | However, if you can keep your money in the S&P 500

00:10:31.500 | for a period of five years,

00:10:34.020 | the odds of you earning a positive real return,

00:10:37.660 | real meaning after the effects of inflation,

00:10:40.660 | are actually very high.

00:10:42.380 | The number is about 80%.

00:10:44.500 | So you have an 80% chance,

00:10:46.100 | if you can keep your money in the stock market

00:10:48.260 | for five years or longer,

00:10:49.660 | of earning a positive real return.

00:10:52.260 | That to me is an acceptable level of risk to take on,

00:10:55.780 | although everybody is different.

00:10:57.380 | But if you're gonna go for a shorter time period in that,

00:11:00.560 | the math is just not nearly as favorable.

00:11:02.660 | - Which is why in your previous example,

00:11:05.200 | you wanna keep money in a safer source,

00:11:08.380 | like fixed income and bonds and treasuries,

00:11:11.740 | to cover a handful of years for that exact reason.

00:11:14.820 | If holding out five years will get you back

00:11:17.260 | to a positive return 80% of the time,

00:11:21.160 | and you know you're gonna need to draw down that portfolio

00:11:23.640 | over the next five years,

00:11:25.200 | well, if you have money in other places

00:11:27.220 | that you can use to draw down,

00:11:28.820 | then you can make it through whatever downturn there is.

00:11:32.340 | Unfortunately, to get to 100%,

00:11:35.260 | I think it takes about 20 years.

00:11:37.060 | So the five-year rule is not without some risk.

00:11:41.060 | - You have to be willing to accept some level of risk

00:11:43.180 | in the time period that you need to,

00:11:44.300 | if you're gonna invest in the stock market in general.

00:11:46.980 | And to your point, yeah,

00:11:48.700 | you don't wanna have to wait 20 years

00:11:50.480 | to take advantage of the power of the stock market

00:11:52.860 | to get to that 100% time

00:11:54.340 | when it is nearly guaranteed to beat inflation

00:11:57.580 | and deliver a positive real return for you.

00:11:59.380 | So five years seems like a happy medium to me.

00:12:01.780 | - And a good rule of thumb that you have

00:12:03.620 | for kind of just thinking about the different growth rates

00:12:06.820 | is the 10-5-3 rule.

00:12:08.500 | - Yeah, if you look back historically

00:12:10.020 | at what the different asset classes

00:12:12.020 | or the major asset classes you can invest in,

00:12:14.180 | the 10-5-3 rule has hung true historically.

00:12:18.180 | So this rule states that you can expect

00:12:20.240 | to earn about 10% annually from stocks,

00:12:23.540 | about 5% annually from bonds,

00:12:25.820 | and about 3% annually from cash.

00:12:29.120 | It is worth noting that those are pre-tax returns,

00:12:32.300 | or rather pre, those are nominal returns,

00:12:34.700 | so they do not account for the effects of inflation.

00:12:37.520 | So inflation historically in the United States

00:12:39.760 | has been about 3%,

00:12:41.420 | so you can subtract those from the 10-5-3

00:12:44.020 | and get your actual rate of return

00:12:46.140 | or your spending power rate of return.

00:12:48.220 | But those numbers, those 10-5-3 are decent proxies

00:12:52.800 | when you're considering modeling your portfolio.

00:12:54.840 | - Which means, by the way,

00:12:56.000 | that if you wanna fight 3% inflation

00:12:59.400 | and you're getting 10% from stocks,

00:13:01.000 | you can still get seven,

00:13:02.280 | you can get 5% from bonds,

00:13:03.600 | so you can still get two,

00:13:05.320 | and from cash, you might get nothing.

00:13:07.280 | And I realize I say this in a current climate

00:13:10.240 | where you can earn over 5% on your cash

00:13:13.680 | depending on where you go,

00:13:15.120 | but that is not always the case.

00:13:16.820 | And so there's a good chart I'll link to

00:13:18.640 | in the show notes that you sent me

00:13:19.800 | or we'll put up in the video

00:13:21.120 | with showing these numbers in real rates,

00:13:25.800 | and you can see those numbers.

00:13:26.840 | And the US dollar annualized return is actually negative.

00:13:30.200 | - Absolutely, and to your point,

00:13:31.760 | these are historic numbers

00:13:32.960 | and they're good for modeling purposes

00:13:36.680 | and thinking through what kind of returns you can expect.

00:13:39.040 | But if you go through weird periods

00:13:40.680 | where interest rates are abnormally low,

00:13:42.400 | like they were in the 2010s,

00:13:43.880 | or periods of high inflation like we've experienced

00:13:46.520 | in the early part of the 2020s,

00:13:48.520 | obviously these rules don't hold the water.

00:13:51.200 | - Another rule that we used

00:13:52.920 | back when I was running a financial planning firm,

00:13:55.240 | we called it the 6% rule.

00:13:57.000 | When you think about how to invest your money,

00:13:59.400 | yes, don't invest it in the market

00:14:01.240 | if you need it in the next three to five years,

00:14:03.000 | but also if you have debt

00:14:04.960 | that's at an interest rate of 6% or higher,

00:14:08.200 | that's probably a better investment, right?

00:14:09.920 | We talked about the stock market

00:14:11.640 | might earn after inflation,

00:14:13.960 | let's call it 7%-ish over the course of time,

00:14:18.560 | but over five years,

00:14:20.360 | you've got an 80% chance of getting a positive return.

00:14:23.760 | When you pay off 6% debt or 10% debt or 20% debt,

00:14:27.320 | that is a guaranteed return

00:14:29.560 | because you're going to be accumulating that interest

00:14:31.440 | if you don't pay it off.

00:14:32.460 | And so anything over 6% for me,

00:14:35.220 | and for some people this number might be lower,

00:14:38.080 | is something that I would prioritize before investing.

00:14:41.140 | - Yeah, I think that's a great rule of thumb.

00:14:42.960 | I mean, to your point,

00:14:43.800 | if you can expect 5% in the longterm from bonds,

00:14:47.880 | and that's what he's done roughly historically,

00:14:51.680 | but if you have a guaranteed way

00:14:53.680 | to earn a 6% return by paying off debt,

00:14:55.920 | absolutely do that first.

00:14:57.840 | - Yes, now the only argument that I'd say

00:14:59.760 | where that doesn't play into this case

00:15:02.360 | is depending on your cashflow needs,

00:15:05.400 | if you have 7% debt and you pay it all off,

00:15:09.040 | it might not be easy to get 7% debt again.

00:15:12.440 | And so I wouldn't pay off all debt over 6%

00:15:16.520 | at the expense of leaving your cashflow at zero, right?

00:15:19.960 | This is how much I would pay off

00:15:21.440 | over investing in the market.

00:15:23.320 | But the one nice thing about investing,

00:15:25.380 | whether it's bonds or stocks,

00:15:26.600 | is that that money is liquid.

00:15:28.040 | So I think a really important rule to talk about next

00:15:31.660 | is the 3-6 rule,

00:15:33.040 | because before you do any kind of investing

00:15:35.000 | or even paying off debt,

00:15:36.540 | you need to make sure you have some money to operate from.

00:15:39.200 | - Yeah, this is a rule that I've heard,

00:15:40.560 | geez, since I started studying personal finance

00:15:42.360 | over 20 years ago.

00:15:43.360 | The idea that I always heard was you should have in cash

00:15:46.840 | at least three to six months worth of living expenses

00:15:50.580 | in cash at all time.

00:15:52.000 | And this is effectively your emergency fund.

00:15:55.320 | I think this is a decent starting point,

00:15:57.720 | but I personally believe that there are actually ways

00:15:59.560 | that you can improve upon this formula,

00:16:01.760 | because not everybody is in the same situation as other.

00:16:05.740 | For example, if you don't have any dependents,

00:16:08.360 | and if you are in an industry

00:16:09.800 | where it is extremely easy for you to get a different job,

00:16:13.000 | or if you have multiple sources of income,

00:16:15.240 | I don't think that you need to save

00:16:17.040 | much more than three months worth of living expenses.

00:16:19.920 | Even that might be too much

00:16:22.240 | since you have so much ability to generate cash

00:16:25.160 | in the future, and you don't have big needs on your cash.

00:16:28.160 | On the flip side, if you have multiple people

00:16:31.440 | that are dependent on your income,

00:16:33.160 | and if you work in an industry

00:16:34.900 | that would be very hard to get a new job in,

00:16:38.180 | and if you are a single income household,

00:16:41.560 | that is a very risky position to be in,

00:16:44.000 | and I think it's prudent to have

00:16:45.200 | a much bigger emergency fund than just six months.

00:16:48.560 | - And I'm gonna break down your formula,

00:16:49.920 | which is three months to start.

00:16:52.240 | If you have dependents, add three more months,

00:16:55.080 | and then depending on the industry,

00:16:56.920 | and we'll link to this and we'll put it on the screen,

00:16:59.600 | you might add zero to three months

00:17:01.720 | depending on your industry,

00:17:03.120 | and then zero to three months

00:17:04.360 | depending on how many sources of income you have.

00:17:06.640 | So adding more sources of income,

00:17:09.220 | working in a growing non-cyclical industry,

00:17:12.660 | both things you could do to reduce your emergency fund needs.

00:17:16.060 | I left off dependents

00:17:17.140 | because I don't wanna be out there encouraging people,

00:17:19.020 | "Oh, the financially prudent thing to do

00:17:20.780 | "is not have children."

00:17:21.900 | Probably is based on how much children cost, but--

00:17:24.420 | - Yeah, I can confirm that would be,

00:17:25.900 | I would have much more money today if I did not have kids.

00:17:28.300 | - Yes, but I would be much less fulfilled,

00:17:30.780 | and I don't regret the decision at all.

00:17:32.260 | So I'm glad I have them.

00:17:33.840 | It just means I need to be

00:17:35.880 | a little bit more prudent financially.

00:17:37.740 | And for me, I just went through your formula,

00:17:39.800 | and I was like, "Okay, start with three."

00:17:41.640 | Have dependents?

00:17:42.480 | Yes, add three.

00:17:43.600 | Industry?

00:17:44.640 | Well, I think this may apply better to a full-time job

00:17:48.160 | because I wouldn't necessarily say

00:17:50.400 | podcasting is dying or cyclical,

00:17:53.720 | but I would certainly say that being self-employed

00:17:57.400 | in an industry like this that relies on sponsors

00:18:00.660 | and partners and that kind of stuff would dial me up.

00:18:04.040 | And then me and my wife just have this one company

00:18:06.720 | right now, and that company might have a couple

00:18:08.960 | different sorts of income, but it is for our household one.

00:18:12.060 | So for me, I'm already at 12 months on your calculator,

00:18:16.280 | and I think that even feels a little aggressive

00:18:21.000 | given I might wanna be more conservative

00:18:23.600 | and dial that up beyond 12 months,

00:18:25.600 | just given the fact that we're both doing this full-time

00:18:28.920 | with kids and there's so much variability.

00:18:31.280 | - I think that makes a whole lot of sense.

00:18:32.880 | And yes, to your point, when you are content creators

00:18:35.360 | like both of us are, our incomes, my income at least,

00:18:38.640 | is extremely volatile from month to month.

00:18:41.280 | It might be predictable or relatively predictable

00:18:43.320 | over the course of a year, but I can see huge changes

00:18:48.000 | in my income on a given month.

00:18:49.400 | I'm guessing it's very similar for you.

00:18:51.080 | - Yes, it's very dependent, and things can change quickly.

00:18:55.840 | So I think we try to have a lot more emergency fun.

00:18:59.840 | Then years ago when we both worked stable jobs

00:19:03.560 | and had salaries, I was working at Google.

00:19:05.840 | Like Google, I'd put in the add zero months.

00:19:08.200 | We had no kids to add zero months.

00:19:09.960 | Both of us were working, and we had a tenant in our house.

00:19:14.820 | I was like, bam, three months.

00:19:16.260 | You could argue that's too much.

00:19:17.720 | And now here I am on the other side

00:19:19.640 | thinking a year might not even be enough.

00:19:22.700 | So I really like this rule, but I like more

00:19:26.540 | that you've put kind of a formula together

00:19:29.560 | instead of just saying three to six,

00:19:31.520 | which is a better rule of thumb than nothing.

00:19:35.560 | But I don't know, what do you call a formula of thumb?

00:19:38.420 | I think I'm a big fan of the formulas of thumb.

00:19:40.240 | - A framework of thumb.

00:19:41.360 | - And what about when you think about that portfolio?

00:19:45.080 | So I'm assuming you set your emergency fund aside

00:19:46.960 | and you paid off your debt, how to allocate things.

00:19:49.480 | Talk about the 5% rule.

00:19:51.060 | The 5% rule effectively says that no more than 5%

00:19:55.080 | of your portfolio should be invested into a single stock.

00:20:00.080 | And I would view that truly at the portfolio level,

00:20:03.320 | and I think portfolio, I really think it's more

00:20:06.000 | of like your net worth.

00:20:07.100 | No more than 5% of your net worth should be invested

00:20:10.520 | in a single stock.

00:20:11.960 | So I think that's a decent starting point.

00:20:14.040 | It does build in some risk mitigation strategies,

00:20:18.160 | but this one is one that I would probably push back against

00:20:21.700 | because I know people that have far more than 5%

00:20:25.380 | of their portfolio invested in a single stock

00:20:28.060 | and they feel very comfortable doing so.

00:20:29.900 | So this one to me is a little bit squishy

00:20:31.980 | and it's more about your personality

00:20:33.520 | than is necessarily a rule.

00:20:35.180 | - For me, this rule is more like 1%, right, for me.

00:20:38.540 | Though I would say, if you're invested entirely in the S&P,

00:20:42.380 | I wonder right now what percent of your net worth

00:20:45.100 | is in Microsoft, Apple, and NVIDIA.

00:20:47.360 | Like it's gotta be a significant percentage,

00:20:50.100 | even though you might not think that you're concentrated.

00:20:53.220 | - Yeah, those three companies,

00:20:54.460 | Apple, Microsoft, and NVIDIA,

00:20:56.340 | currently, I just saw this statistic there,

00:20:58.580 | they make up 21% of the value of the entire index.

00:21:02.260 | And if you're in the NASDAQ, it's even higher.

00:21:05.500 | So yeah, you are breaking this rule

00:21:07.700 | if you are literally investing in the S&P 500.

00:21:10.500 | - Yeah, virtually I'm also doing other international

00:21:13.780 | and emerging markets.

00:21:15.560 | So I don't think I'm personally breaking this rule,

00:21:18.740 | but I understand where it could be broken.

00:21:22.580 | How do you generally think about this

00:21:24.100 | as someone who probably advocates for stock investing

00:21:29.100 | more than the average person?

00:21:31.380 | A lot of people talking about personal finance

00:21:33.740 | advocate for just index funds,

00:21:35.420 | and we did a whole episode on this.

00:21:37.140 | So I'll just defer.

00:21:38.220 | People can go back and listen to that episode

00:21:40.900 | to think about your framework for buying stocks.

00:21:43.360 | But how do you think about concentration

00:21:45.100 | and diversification in that way?

00:21:47.100 | - Yep, so I personally, my personal rule of thumb

00:21:50.080 | that I use for my portfolio is 15%.

00:21:53.460 | I would not be comfortable having more than 15%

00:21:56.060 | of my net worth into an individual stock,

00:21:59.100 | but I will throw out the caveat there

00:22:00.960 | that the way that I personally invest

00:22:02.620 | is I am a long-term buy and hold investor.

00:22:05.420 | So for a company to become 15% of my portfolio,

00:22:09.620 | it would have had to earn its way in there.

00:22:12.020 | I would never put 15% in from the get-go.

00:22:14.960 | I would probably stick to under 5% of my capital.

00:22:18.300 | And then if it just so happened to triple from there

00:22:20.740 | and become 15%,

00:22:22.180 | I would be personally comfortable with doing that.

00:22:24.580 | So my personal, I call this my sweet sleep well

00:22:27.740 | at night number is 15%, but it's different for everybody.

00:22:31.540 | - I think the way you think about stock investing

00:22:34.420 | is very different than a lot of people, right?

00:22:36.300 | We did an episode on this investing checklist you use.

00:22:39.420 | The companies that would make their way past 5% for you

00:22:42.420 | are not fly-by-night penny stock kind of thing, right?

00:22:46.340 | These are much more solid stock investments than that.

00:22:51.340 | Correct?

00:22:52.600 | - Yeah, absolutely.

00:22:53.800 | I mean, I am personally a huge believer

00:22:55.760 | that there are companies out there

00:22:57.280 | that single companies are less risky than the entire market,

00:23:02.000 | but I might be alone in that opinion.

00:23:04.320 | - So part of the process I used,

00:23:05.680 | I mentioned was I just went to chat GPT.

00:23:07.400 | I was like, hey, what rules of thumb are we missing?

00:23:09.640 | Here's the ones we have.

00:23:11.160 | And a couple of them were actually ones,

00:23:13.080 | one of them in particular was one that I actually use.

00:23:16.520 | I just didn't think of it like this,

00:23:17.940 | which was the 10% rule,

00:23:19.760 | which is just keep less than 10% of your portfolio

00:23:23.240 | in kind of risky or alternative assets.

00:23:25.800 | And this is something I've talked about

00:23:27.720 | with many guests in the past.

00:23:29.120 | It's something I particularly do,

00:23:31.120 | whether for you that's, you know,

00:23:33.200 | more non-framework driven stock investing,

00:23:37.520 | just this company's cool,

00:23:38.600 | let's not do any research and invest in it,

00:23:40.500 | or angel investments, or, you know,

00:23:43.440 | investing in other projects or wineries or whatever it is,

00:23:48.400 | keeping it under 10% is a rule I've long held.

00:23:51.440 | - I would even throw cryptocurrencies in there

00:23:53.360 | or alternative assets like that.

00:23:54.840 | So yeah, keeping less than 10% of your net worth

00:23:57.120 | in those types of investments, that makes sense to me.

00:23:59.760 | - The other one is one that I can't speak much to,

00:24:02.480 | but chat GPT said it and I was like,

00:24:04.360 | oh, it's kind of interesting.

00:24:05.520 | So I'll just share it,

00:24:06.480 | which is the one third rule for real estate,

00:24:09.300 | which is limiting your real estate investments

00:24:11.160 | to one third of your net worth,

00:24:13.240 | which is primarily for maintaining

00:24:15.440 | liquidity and diversification.

00:24:17.880 | I kind of like this rule just because I think,

00:24:20.080 | you know, real estate is one of those types of investments

00:24:22.280 | that, you know, absent doing it through REITs,

00:24:25.500 | liquidity is tough and you're often tying yourself up

00:24:28.900 | into a single property or a single unit

00:24:31.360 | and having more than a third of your net worth in that

00:24:34.760 | even seems a little risky to me

00:24:36.480 | if it's one building or one property.

00:24:38.400 | But I like having a rule that reminds you

00:24:41.320 | not to over diversify and maybe limit the percentage

00:24:45.440 | of your portfolio in something that isn't liquid.

00:24:48.320 | - Yeah, and to point out there,

00:24:49.720 | the key word in that rule there is though,

00:24:51.440 | is real estate investment.

00:24:53.000 | I'm assuming that rule does not include your primary home.

00:24:55.580 | - I would assume that's probably fair

00:24:57.520 | 'cause I know a lot of people who have a meaningful chunk

00:24:59.840 | of their net worth in their primary residence.

00:25:02.000 | But, you know, when I think about net worth,

00:25:06.200 | I also think about like the net value of the home.

00:25:09.060 | So if you buy a $400,000 home

00:25:11.600 | and you mortgage $300,000 of it,

00:25:13.880 | you only really have $100,000 of skin in the game.

00:25:17.520 | Now, for many people that might be their entire net worth,

00:25:20.320 | but I just wanna remind people that if you're like,

00:25:22.880 | "Ooh, I have a $500,000 net worth and a $400,000 home,"

00:25:27.280 | that doesn't mean that your home is 80% of your net worth,

00:25:31.160 | but I would think of it as your home minus your mortgage

00:25:34.180 | if you have one, that is a percentage of your net worth.

00:25:37.200 | So I think about it a little bit differently,

00:25:40.020 | but now we're kind of going a little bit more in the weeds.

00:25:42.680 | - Well, I think that's right in the name.

00:25:44.160 | Net worth, not worth, net worth.

00:25:47.560 | - Yes, net home, net worth.

00:25:50.040 | What about the 1% rule?

00:25:52.600 | - So this rule relates to investment fees.

00:25:55.260 | And this one I would say applies mostly historically

00:25:58.240 | and it needs to be modified,

00:26:00.240 | given what's happening with broker costs

00:26:02.320 | and general expenses investments more recently.

00:26:04.440 | But the idea here is that the investment fees

00:26:06.800 | that you should pay on all of your investments

00:26:09.440 | all put together should not exceed 1%

00:26:12.560 | of your portfolio annually.

00:26:14.200 | If you look back in time,

00:26:15.440 | it was fairly common for mutual funds

00:26:17.440 | to have a 1% management fee.

00:26:20.720 | So if you had $100,000 in a mutual fund,

00:26:23.960 | they would take $1,000 per year in management fees.

00:26:27.000 | And I think that both of us think that this rule

00:26:29.220 | is actually a little bit high,

00:26:30.520 | given where prices have gone recently.

00:26:32.840 | - Yeah, I don't know about you,

00:26:34.160 | but I personally, there are a lot of financial advisors

00:26:37.200 | and planners who charge a 1% fee,

00:26:39.880 | and that's not inclusive

00:26:41.480 | of the underlying expense ratios of the funds,

00:26:43.960 | which are often not that expensive

00:26:46.120 | and sometimes very, very expensive.

00:26:48.680 | I think paying a 1% fee is wild for your portfolio.

00:26:53.680 | It's not something I advocate ever for.

00:26:55.240 | I don't know about how you feel

00:26:56.320 | about hiring an advisor at 1%.

00:26:59.520 | I'm okay with hiring an advisor.

00:27:01.240 | I would just make sure that I understood

00:27:03.160 | how that advisor is getting paid.

00:27:04.920 | I've talked to so many people that have an advisor

00:27:06.760 | and you press them, well, how do they get paid?

00:27:08.640 | And I get a blank stare like,

00:27:10.000 | wow, we've never talked about that before.

00:27:11.840 | So it's really important that if you do have an advisor,

00:27:14.000 | you fully understand how you get paid.

00:27:16.040 | And one thing that's worth noting about this 1% rule,

00:27:18.520 | I would argue that a lot of people

00:27:19.920 | are actually breaking it inadvertently.

00:27:22.240 | The one way that they can do so

00:27:23.760 | is if they look at the fees that they're paying

00:27:26.160 | on their 401(k).

00:27:27.680 | So many people, when it comes to contributing

00:27:29.280 | to their 401(k), their options for what they can invest in

00:27:32.240 | are very limited.

00:27:33.280 | And those are set by the companies that they work for.

00:27:35.440 | And because of that, some of the fees on 401(k)s

00:27:38.920 | can break that 1% number.

00:27:41.600 | I've actually even seen cases where 401(k)s

00:27:44.240 | have funds in them that have loads.

00:27:46.160 | And loads is like an upfront sales charge

00:27:48.440 | for just putting money into a fund.

00:27:52.080 | Given where we are today and where costs are,

00:27:54.040 | there's absolutely no reason to pay that level

00:27:57.080 | of annual investment fee, even through a 401(k).

00:28:01.840 | So check what you're paying on your 401(k).

00:28:04.240 | You might be surprised at what you learn.

00:28:05.840 | - There used to be a website, and if I find it,

00:28:07.640 | I will put it in the show notes,

00:28:08.800 | where you could go look up your 401(k) fees.

00:28:10.760 | Some people upload their plan docs

00:28:12.720 | and they get kind of summarized, and it's wild.

00:28:16.600 | It can be really, really expensive.

00:28:18.800 | To the point that there are some 401(k)s out there

00:28:21.720 | that unless you're getting a match from your employer,

00:28:24.440 | they're just not worth contributing to.

00:28:26.760 | That's one.

00:28:27.720 | Another one is a lot of legacy 401(k)s,

00:28:30.960 | you might be sitting on four or five 401(k)s

00:28:33.880 | from all your past employers.

00:28:35.640 | If your current employer has great low fee options,

00:28:39.260 | you can roll all those past 401(k)s into your current 401(k),

00:28:43.280 | or you can roll them into an IRA.

00:28:45.680 | And so I think if you're in a high fee 401(k),

00:28:49.840 | you can't move it while you're employed at that company.

00:28:52.700 | And so an option is to just not invest in it.

00:28:55.460 | And we're gonna talk about that in a second.

00:28:57.200 | But if it's an old 401(k), you can get out of it.

00:29:00.160 | If it's an old 401(k) with low fees,

00:29:02.760 | my Google 401(k) had such incredibly low fees

00:29:06.400 | that I just left it in there for 10 years after

00:29:08.960 | until I finally set up a solo 401(k) recently,

00:29:13.440 | and then I just rolled it into that.

00:29:14.920 | But it took 10 years because Google had negotiated

00:29:18.400 | such great deal at Vanguard that the fees were super low.

00:29:21.560 | - There you go.

00:29:22.400 | There's an example of you knew

00:29:23.520 | what the expense ratio you were paying

00:29:25.520 | with your old 401(k) and you just chose to kept it

00:29:27.680 | because you knew it was low.

00:29:29.000 | But if you're paying a very high fee,

00:29:31.200 | it is completely worth it to take the time,

00:29:33.400 | roll it in to an IRA,

00:29:36.160 | or roll it into something that you control

00:29:37.540 | where you can control the fees.

00:29:39.000 | - Yeah, another place where this can be tricky

00:29:41.160 | is with 529s.

00:29:42.400 | If you're saving for college for your kids,

00:29:44.560 | there are a lot of states

00:29:45.720 | that have much better pricing than others.

00:29:48.180 | And so I should do an episode on this.

00:29:50.280 | So this is not well-researched,

00:29:52.040 | but I think Nevada and Utah have pretty low fees

00:29:54.780 | and they're pretty popular funds,

00:29:56.340 | but you don't actually have to invest

00:29:58.000 | in the fund from your state.

00:30:00.300 | And so certain states have a little bit of tax advantage.

00:30:02.840 | And if you live in one of those states,

00:30:04.640 | probably the tax advantage might be worth

00:30:07.000 | investing in your states for 529.

00:30:09.600 | But if you don't have any special advantage,

00:30:11.640 | you can pick the 529 in another state

00:30:14.480 | that has better expense ratios and fund costs

00:30:17.920 | and fund selection and all that.

00:30:19.440 | And so for us, I think our 529s are through Wealthfront

00:30:23.540 | and the cost of those funds,

00:30:26.360 | I think the underlying fund is either in Nevada or Utah,

00:30:29.120 | not in California, despite that we live here.

00:30:31.680 | And that comes back to an important point you made

00:30:34.760 | that I'll just reiterate.

00:30:36.640 | I harped on the 1% fee as a AUM fee for advisors.

00:30:40.640 | And I'm not a fan of that fee

00:30:42.080 | because I just think 1% is way too much.

00:30:44.920 | But like you said, I'm actually even less a fan

00:30:48.140 | of the 0% financial advisor fee

00:30:50.760 | because it usually ends up being two, three, 4% fee

00:30:54.640 | on mutual funds and high expense ratios

00:30:57.480 | and loads and all that kind of stuff.

00:30:59.160 | So, I don't like really expensive advisors

00:31:01.640 | and I don't like free advisors.

00:31:03.360 | And somewhere in the middle, there are solutions

00:31:05.720 | where maybe you're just paying a fixed annual fee

00:31:08.120 | for financial planning and you're not paying

00:31:10.160 | a big AUM fee for your assets,

00:31:12.160 | or you're relying on software.

00:31:13.640 | I've talked about Wealthfront a lot.

00:31:15.520 | The value software provides me doing all the rebalancing,

00:31:19.340 | all the tax loss harvesting,

00:31:20.940 | and making me not have to think about it.

00:31:22.860 | I'm happy to pay 0.25% for that, but I would never pay 1%.

00:31:27.700 | - When it comes to advisors, I'm a big fan of advisors

00:31:30.460 | that charge an hourly rate.

00:31:31.980 | If they charge 200 or $300 per hour,

00:31:35.140 | not only will that make you much more efficient

00:31:37.180 | with the time that you spend from,

00:31:38.560 | but you are actually seeing the bill

00:31:40.620 | that they are giving you by the end.

00:31:42.100 | And just being able to see that bill will make you focus

00:31:44.220 | on what costs are we paying for this.

00:31:46.180 | - And I'm a big fan of working with CFPs

00:31:48.540 | because if you're a certified financial planner,

00:31:51.180 | you usually always follow the fiduciary standard,

00:31:54.420 | which means that you are acting

00:31:56.220 | in your client's best interest.

00:31:57.380 | So if you're talking to advisors, that's a great question.

00:31:59.460 | Are you a fiduciary?

00:32:00.420 | And if not, I'm not sure I wanna work with you.

00:32:03.320 | Okay, so that is the 1% rule.

00:32:06.700 | Let's talk about, I just talked about rebalancing.

00:32:09.180 | And so one other rule I found

00:32:10.980 | that I thought was worth covering is the 5/25 rule.

00:32:14.340 | And I don't think this is a very common rule

00:32:17.380 | 'cause it was one of those, talk to ChadGBT.

00:32:20.340 | Hey, do you have any more?

00:32:21.300 | Hey, do you have any more?

00:32:22.300 | Hey, do you have any more?

00:32:23.140 | And finally it came up.

00:32:24.460 | But I thought it was interesting

00:32:26.120 | because someone must come across this.

00:32:27.860 | And the idea is if your portfolio deviates

00:32:30.820 | by more than either 5% in absolute terms

00:32:34.480 | or 25% in relative terms from your target allocation,

00:32:40.600 | you wanna rebalance.

00:32:41.660 | And I think I get it, right?

00:32:44.420 | If you're trying to be in 60/40 and you're at 65,

00:32:48.260 | you might wanna rebalance.

00:32:50.060 | I've found, and in the analysis we did

00:32:52.660 | when I ran our financial planning firm,

00:32:55.080 | that if you just rebalance every six, 12 months,

00:32:58.460 | you're gonna be fine.

00:32:59.980 | And maybe also any major market corrections, right?

00:33:03.900 | If the market drops 20, 30%, right?

00:33:06.820 | That might be a trigger that you'll be misallocated.

00:33:10.180 | But other than that,

00:33:11.440 | I don't know if this is one where I would follow.

00:33:14.800 | - Yeah, when it comes to rebalancing,

00:33:16.520 | I'm actually a bigger fan of doing it on a timed basis.

00:33:19.120 | I've heard, like you've said, every six months or 12 months.

00:33:22.320 | I've actually heard that every two years

00:33:24.420 | or even three years is perfectly fine.

00:33:26.400 | The more important point is to occasionally check in

00:33:29.280 | on your asset allocation and make changes

00:33:31.520 | when you think you should.

00:33:32.680 | - Not just when you should

00:33:33.560 | 'cause it's out of track from where you want it,

00:33:35.860 | but because your situation has changed.

00:33:37.760 | Your risk levels changed.

00:33:38.820 | Just like you mentioned,

00:33:40.640 | your emergency fund changes over time.

00:33:43.620 | Your risk tolerance is something that I think

00:33:45.400 | people should be checking in regularly on also, right?

00:33:48.260 | If you have no kids, you have no dependents,

00:33:51.040 | lots of income, stable job,

00:33:52.580 | you could be a little bit more risky

00:33:53.760 | than if you're not in that circumstance.

00:33:56.040 | - Absolutely, and this is especially true

00:33:57.340 | when you're going from your 20s to your 30s to your 40s.

00:33:59.740 | It's often very common for people to get married,

00:34:01.440 | to buy a house, to have kids, and dependents,

00:34:03.460 | to get further parents to become older.

00:34:04.860 | So yes, check in on these rules of thumb often.

00:34:07.640 | - And one other thing that's interesting,

00:34:09.120 | when you're checking in over time, right?

00:34:11.000 | You said 30s, 40s, 50s.

00:34:12.400 | I've always wanted a rule of thumb

00:34:15.340 | that helped you figure out, how am I doing?

00:34:18.140 | And I didn't know one existed

00:34:19.760 | until I saw you share the net worth rule,

00:34:23.180 | and, or I guess the age times income over 10 rule.

00:34:26.940 | Can you talk about this one?

00:34:28.280 | - Yeah, this one was popularized by the wonderful book,

00:34:31.100 | "The Millionaire Next Door,"

00:34:32.400 | which came out in 1995 or 1996.

00:34:36.380 | The idea here is to figure out

00:34:38.820 | what your net worth should be,

00:34:41.900 | given your current age and income.

00:34:44.740 | So the way that this rule works is you take your age,

00:34:49.740 | and you multiply it by your pre-tax income,

00:34:53.280 | and then you divide that total by 10.

00:34:56.320 | This is a rough proxy for what your net worth should be.

00:34:59.820 | It was an example, let's say you were 50 years old,

00:35:02.660 | and you make $100,000 per year.

00:35:05.760 | Multiply those two numbers together, you get 5 million.

00:35:09.460 | You divide that by 10, and you get 500,000.

00:35:13.700 | So your net worth should be $500,000.

00:35:18.140 | And then from there, you can actually compare it

00:35:20.780 | to what your net worth is to figure out

00:35:22.540 | if you are doing better than the average person,

00:35:25.260 | given your age and income,

00:35:26.620 | or worse than the average person, given your age and income.

00:35:30.320 | One caveat to this rule is it really falls apart

00:35:33.040 | for people that are under the age of 25,

00:35:35.500 | who haven't had a chance to actually enter the workforce

00:35:38.180 | and start saving for money.

00:35:39.680 | So I would say this rule is most useful past the age of 30.

00:35:43.260 | - And I liked how there's a further part of it,

00:35:46.220 | which is if your net worth is double what it should be,

00:35:50.500 | you're a, what is it, prodigious accumulator of wealth.

00:35:53.220 | There are kind of terms in this triangle.

00:35:55.060 | And if it's less than half,

00:35:56.260 | you're an under accumulator of wealth.

00:35:57.660 | And you could track it out and say,

00:35:59.460 | have I moved from one of these categories to another?

00:36:02.620 | - Yep, absolutely.

00:36:03.460 | But I like the idea that there is a target out there

00:36:05.460 | that is relatively easy for you to calculate,

00:36:08.300 | to figure out what my net worth should be.

00:36:10.020 | And hopefully, given what you find,

00:36:11.500 | you can actually be really excited about your situation

00:36:13.900 | or potentially have some changes on the horizon.

00:36:16.360 | - Yeah, and when it comes to saving for the future,

00:36:19.380 | let's talk about the 15% rule.

00:36:21.620 | - Yeah, the idea here is that you should set aside

00:36:23.780 | at least 15% of your salary for retirement.

00:36:28.060 | If you'll actually look back historically,

00:36:29.980 | most personal finance books

00:36:32.060 | that were written prior to the year 2000

00:36:34.380 | really harped on the 10% rule,

00:36:36.140 | saying that you should save 10%

00:36:37.700 | of your income for retirement.

00:36:39.420 | This has been updated in recent years to 15%

00:36:42.660 | for a variety of reasons.

00:36:44.020 | One of the bigger ones is the fact that pensions

00:36:48.460 | and defined benefit plans

00:36:50.060 | have really gone the way of the wayside.

00:36:52.940 | And some data that actually came in from Fidelity

00:36:56.140 | showed that the average retiree

00:36:58.820 | needs to, in retirement, generate about 55 to 80%

00:37:03.900 | of their pre-retirement income

00:37:05.580 | in order for them to maintain their lifestyle.

00:37:08.060 | So based on that bandwidth of actual spending,

00:37:11.140 | you need to save about 15% of your salary to get there.

00:37:14.240 | - And they base that, I think,

00:37:15.660 | on saving from mid-20s to mid-60s, right?

00:37:19.340 | - Yes, 25 to 67 was the savings period.

00:37:22.740 | - So if you're starting this at 40 and you've never saved,

00:37:25.740 | number probably needs to be higher.

00:37:27.780 | If you're starting right around that time,

00:37:30.280 | it's a good benchmark.

00:37:31.180 | Now, obviously, this is saving for retirement.

00:37:34.740 | There's also a rule, which is the 50/30/20 rule,

00:37:37.840 | that kind of might seem at the outset in conflict,

00:37:41.380 | but as you dig in, is not, right?

00:37:44.120 | - Yeah, so the idea of the 50/30/20 rule

00:37:46.140 | is to allocate 50% of your income to your needs,

00:37:50.340 | so housing, food, transportation,

00:37:53.660 | 30% to your wants, entertainment, vacation, luxuries,

00:37:58.620 | and the remaining 20% should go to savings and investment.

00:38:02.140 | Now, of that 20%, we already said that roughly 15%

00:38:05.540 | should be set aside for your retirement.

00:38:07.700 | In that 15%, though, that could include an employer match.

00:38:12.300 | So if your employer has a generous match,

00:38:14.980 | not all that 15% has to come from you.

00:38:17.700 | And the difference between that 20% savings

00:38:19.940 | and that 15% for retirement,

00:38:21.740 | that is what you're gonna use for things like a down payment

00:38:24.580 | on a house or paying off debt.

00:38:27.520 | - Obviously, the 50/30/20 rule

00:38:29.560 | is your after-tax income, right?

00:38:31.540 | If you make $100,000, you can't spend 50/30 and 20 of it

00:38:35.620 | because some percentage will go to taxes.

00:38:38.340 | Is the 15% rule 15% of your salary

00:38:41.500 | or 50% of your after-tax income?

00:38:43.740 | - Salary.

00:38:44.580 | - That's an important difference.

00:38:45.460 | So 15% of your pre-tax salary to retirement,

00:38:48.100 | 20% of your income to savings,

00:38:50.300 | your after-tax income to savings.

00:38:52.260 | And the 15% rule is kind of loosely

00:38:54.480 | also based off the 80% rule, right?

00:38:57.120 | - Yeah, the idea of the 80% rule

00:38:58.820 | is that you are gonna wanna replace about 80%

00:39:01.940 | of your pre-retirement income during retirement.

00:39:05.660 | Studies generally show that retirees spend less

00:39:09.460 | on everything than when they are working

00:39:11.540 | with the only caveat being healthcare.

00:39:14.820 | There's a lot of reasons for that.

00:39:15.820 | Often in retirement, your house is paid off,

00:39:18.660 | your kids are out of the home,

00:39:20.100 | so you're only paying for two people to eat and live

00:39:23.220 | as opposed to three or four people.

00:39:25.900 | So, and generally speaking, the older you get,

00:39:28.360 | the more likely you are to just stay home

00:39:30.920 | and not really go out.

00:39:32.280 | So aiming to replace about 80% of your pre-retirement income

00:39:36.260 | is a good goal to shoot for.

00:39:37.840 | - I actually did an episode with Bill Perkins

00:39:39.560 | who wrote a book called "Die With Zero"

00:39:41.040 | that I'm sure you're familiar with.

00:39:42.840 | It was episode 91, and we talked a lot about this.

00:39:46.040 | And he says one of the biggest problems

00:39:48.080 | is that people assume they're gonna spend

00:39:50.040 | more money in retirement 'cause they think,

00:39:51.760 | "Wow, when I have all this free time,

00:39:53.600 | "I'm gonna be traveling around the world.

00:39:55.180 | "I'm gonna be doing all this."

00:39:56.240 | And it turns out they don't, right?

00:39:57.360 | The data shows that it's actually less money

00:39:59.640 | you spend in retirement,

00:40:00.680 | which leads to people really over-saving.

00:40:03.100 | And so I think if you're doing any of your projections

00:40:05.800 | and you're trying to figure out

00:40:06.640 | how much money you need for retirement,

00:40:08.480 | yes, I understand the desire to be super conservative

00:40:12.640 | and dial that number up

00:40:14.580 | so that you don't end up with nothing.

00:40:16.840 | But the flip side is you could be way over dialing that

00:40:20.880 | and missing out on spending money

00:40:23.160 | during years of your life

00:40:24.360 | where you can actually do the things you wanna do.

00:40:26.160 | And so I would say, go back and listen to that episode

00:40:29.240 | if you are interested because it really changed my outlook

00:40:32.780 | on spending more than just about anything I've ever done.

00:40:36.100 | - I am right there with you.

00:40:37.140 | That might be my favorite episode of all the hacks ever.

00:40:40.140 | And Bill Perkins has done more to change my spending mindset

00:40:43.980 | than almost anybody else.

00:40:45.460 | I think you and I are both cut from the same cloth

00:40:47.300 | where fire is extremely attractive to us,

00:40:49.740 | like retire early, gain financial independence.

00:40:52.180 | And he was the first one to push back

00:40:53.900 | in a very logical way

00:40:55.280 | and really change my thoughts about spending.

00:40:56.960 | - Yes, it's episode 91, allthehacks.com/91.

00:41:01.100 | Don't listen to it with your children.

00:41:02.420 | Bill has a passion for colorful language.

00:41:06.060 | You also mentioned employer match.

00:41:08.780 | Let's talk about that rule.

00:41:10.220 | - Yeah, when it comes to 401(k),

00:41:12.660 | I've actually become convinced that the 401(k)s

00:41:15.700 | are not a slam dunk that they are sold to most people at.

00:41:21.100 | Some 401(k)s can have really high fees.

00:41:24.220 | Some can have very limited choices.

00:41:26.940 | And with the 401(k),

00:41:28.500 | you are essentially locking your money up

00:41:30.580 | until you are 59 and a half.

00:41:32.060 | So there are liquidity issues with a 401(k).

00:41:34.660 | However, there is one thing with a 401(k)

00:41:36.860 | that I am an absolute believer in,

00:41:38.340 | and that is if you have an employer match,

00:41:41.060 | always, always put enough money in

00:41:44.140 | to take advantage of the full match.

00:41:45.980 | That is literally free money,

00:41:48.020 | and it would be a complete waste to say no to it.

00:41:50.460 | - Yes, I totally agree.

00:41:52.260 | I've only had an employer match once in my career,

00:41:54.900 | and the number of people, even at Google,

00:41:57.180 | sophisticated, smart people

00:41:58.820 | that weren't taking advantage of it was just wild.

00:42:01.860 | And Google finally, I learned historically,

00:42:05.260 | just said we're defaulting everyone to opt-in.

00:42:07.460 | And no matter how many programs you can do,

00:42:10.780 | how many info sessions,

00:42:12.260 | the fastest way to get people to retire

00:42:14.140 | or contribute to their retirement account

00:42:15.980 | was to just automatically default them to do it.

00:42:19.260 | - Nick Maggiuli also did a bunch of posts on this

00:42:22.180 | that we can link to in the show notes,

00:42:24.020 | kind of breaking down the tax value

00:42:27.180 | of putting money in your 401(k).

00:42:28.940 | Do you remember about how much value that he found?

00:42:31.860 | - Yeah, that was an eye-opening thing.

00:42:33.500 | Nick Maggiuli is a great follow on the internet,

00:42:37.420 | but he actually did a study that showed

00:42:38.780 | what is the value, the annualized return value

00:42:41.620 | of the tax advantage that you get from the 401(k),

00:42:44.780 | and he actually calculated that it's about 0.8% annualized.

00:42:49.780 | So putting your money into a tax advantage 401(k)

00:42:53.180 | saves you about, adds 0.8% to your return every given year.

00:42:58.180 | Now, that's not nothing,

00:43:00.900 | especially when you compound it

00:43:02.080 | over a longer period of time,

00:43:03.340 | but I was under the assumption

00:43:04.940 | that the tax benefits were much higher than that,

00:43:07.620 | which is just one more reason

00:43:09.540 | why you should really think about

00:43:10.740 | should you max out your 401(k),

00:43:12.420 | whereas previously I thought it was an automatic thing

00:43:14.420 | everyone must do.

00:43:15.620 | - I actually just did the math.

00:43:16.740 | I took 72 and divided it by eight

00:43:19.820 | because we've got the rule.

00:43:21.020 | We've got our rule of 72 and I got nine,

00:43:24.340 | but it's actually 0.8.

00:43:25.940 | So 90 years to double your money is the value of the 401(k).

00:43:30.940 | I think this is also really state dependent, right?

00:43:34.700 | If you live in California,

00:43:36.160 | the highest tax bracket between all the different state,

00:43:40.020 | local, federal taxes can be over 50%.

00:43:44.360 | I imagine if someone is at the 52, 53%

00:43:48.100 | marginal tax bracket in California,

00:43:50.220 | the advantage of putting pre-tax money in a 401(k)

00:43:52.740 | might be a bit higher,

00:43:53.940 | but I'll link to the post

00:43:56.020 | so people can go see what assumptions went into it.

00:43:58.060 | - Yeah, absolutely.

00:43:58.880 | If you live in a high tax state

00:43:59.980 | and you have a high enough income

00:44:02.020 | that you are paying really the highest tax rates possible,

00:44:04.880 | it can make total sense to max out a 401(k)

00:44:08.100 | if for no other reason

00:44:09.020 | than you likely have plenty of money to do so.

00:44:11.500 | The point there though is to look into that

00:44:13.300 | because it's not the slam dunk

00:44:14.800 | that I initially thought it was.

00:44:16.140 | - Next, I wanna talk about a rule

00:44:17.100 | that we've talked about on the show a lot,

00:44:18.700 | I think anyone in the FIRE community is familiar with,

00:44:21.140 | and that's the 4% rule.

00:44:23.000 | - Yeah, this is the granddaddy of all rules of thumb.

00:44:26.520 | And this is the idea of the 4% rule

00:44:28.300 | is this is the amount of your portfolio

00:44:30.340 | that you can withdraw each year during retirement.

00:44:34.140 | So if you have a million dollar portfolio

00:44:36.960 | in the first year of retirement,

00:44:38.360 | you can safely withdraw $40,000 or 4% of that number

00:44:43.360 | and you can have a very high confidence rate

00:44:45.760 | that that money will last you throughout your retirement.

00:44:49.080 | - Yes, and I think one common misconception here

00:44:52.200 | is that the study this was based on, the Trinity study,

00:44:55.900 | did not test this for people retiring at 35 years old.

00:45:00.000 | I believe it was like a 30 year time horizon.

00:45:02.400 | So if you are thinking, wow, I've saved up enough money

00:45:06.140 | that I can live off 4% of my savings,

00:45:08.920 | I can stop working at 40

00:45:10.680 | and it'll cover me for the next 60 years.

00:45:13.320 | That is not what the study covered, right?

00:45:15.480 | - Absolutely, and there are a bazillion different caveats

00:45:18.920 | that going into solving the,

00:45:20.600 | what level can I really retire at?

00:45:22.860 | The length that you're gonna be living off

00:45:25.200 | your portfolio matters.

00:45:26.600 | There's something called sequence of return risk,

00:45:28.640 | meaning that the first few years after you retire,

00:45:31.200 | what the market does or your rate of return

00:45:33.340 | really impacts that.

00:45:34.840 | There's also, you have to factor in,

00:45:36.380 | what are interest rates during the period that you retire?

00:45:39.880 | For example, during the 2010s,

00:45:42.380 | the return on bonds was effectively zero

00:45:45.980 | or pretty darn close to zero,

00:45:47.660 | where that study really assumed that bonds

00:45:49.980 | had a more normalized interest rate of three to 5%.

00:45:54.100 | So the 4% rule, I think, is a fantastic study point,

00:45:57.420 | but when you're actually making a should I retire decision,

00:46:01.140 | there's a bunch of other factors you need to consider.

00:46:03.540 | - This is a really fun topic

00:46:06.360 | because I think a lot of people want a simple rule of thumb

00:46:09.600 | for how much money do I need to save

00:46:11.880 | to kind of have financial freedom.

00:46:13.600 | And I think financial freedom

00:46:14.680 | and be able to live off your savings forever

00:46:17.000 | are a slightly different number

00:46:18.120 | because you and I have found careers doing things

00:46:21.400 | that we enjoy doing

00:46:23.240 | that we have no interest in stopping doing,

00:46:25.840 | but they're very different from what we've done in the past.

00:46:27.960 | And I would consider myself in the financial freedom.

00:46:32.080 | It's like, I have financial freedom

00:46:33.420 | because I found a job I love

00:46:34.760 | that I could generate income from.

00:46:37.040 | Yes, it might be unstable,

00:46:38.160 | so I need a little bit more of an emergency fund,

00:46:40.320 | but I think that's something that people should consider.

00:46:43.680 | And the inverse of it

00:46:44.740 | has also been called the 25X rule, right?

00:46:46.720 | It's one over 0.04 turns into 25,

00:46:51.420 | the idea being you could look at it as,

00:46:53.200 | I need enough money to live off 4%

00:46:55.340 | or I need enough money to be 25 times my annual expenses.

00:46:59.520 | - Yep, exactly.

00:47:00.360 | So if you need to spend 100K per year,

00:47:02.600 | multiply by 25, that's $2.5 million

00:47:05.340 | that you need before you can "retire."

00:47:07.460 | - Now, that doesn't factor in

00:47:08.960 | that 80% spending in retirement.

00:47:11.200 | So maybe you could argue the 4% rule works a little better

00:47:14.760 | because you could say,

00:47:15.600 | okay, how much do I need

00:47:17.040 | where 4% equals my retirement spending,

00:47:19.580 | which might for $100,000 now be $80,000.

00:47:22.480 | But there's a guy who runs a blog

00:47:24.840 | called Early Retirement Now

00:47:26.480 | who has dove into safe withdrawal rates

00:47:29.840 | more than maybe anyone in the world.

00:47:32.220 | I don't know if you would agree.

00:47:34.640 | He has a 61-part series on his website

00:47:38.080 | about safe withdrawal rates.

00:47:40.000 | And I wanna have him on the show

00:47:42.080 | because I love the work he's done.

00:47:44.720 | Are you familiar with all that?

00:47:46.400 | - Yeah, absolutely.

00:47:47.240 | His name is Karsten, aka Big Earn,

00:47:49.480 | and he has gone in-depth on this.

00:47:52.120 | He was actually a big part of when I was writing my book.

00:47:54.640 | He did a whole bunch of the data analysis

00:47:56.600 | for some of the charts that I made.

00:47:57.560 | So I'm a big fan of his.

00:47:58.840 | - Yes, yeah, and by the way,

00:47:59.960 | when I say 61-part, I don't mean like 61 paragraphs.

00:48:03.920 | Each one of these parts is like a multi-thousand-word essay.

00:48:07.960 | So it's gonna take a lot of prep

00:48:10.280 | going into that interview with Karsten

00:48:11.800 | because we could go down hours and hours of conversation.

00:48:15.660 | But we'll dive a little bit deeper

00:48:17.200 | into what assumptions there are.

00:48:19.000 | Should it really be the 3.5% rule or the 2% rule

00:48:21.480 | or how do you think about that?

00:48:22.720 | But I will save that for another episode.

00:48:24.760 | Last, I just wanna rapid fire through a few other rules

00:48:27.640 | that you found, I found, the internet found, when I created.

00:48:31.960 | They aren't gonna take as much of a conversation,

00:48:34.480 | but let's just jump in, the 24/10 rule.

00:48:37.700 | - Yeah, this rule relates to when you are buying a car.

00:48:40.440 | So the idea here is you wanna make sure

00:48:42.780 | that you're making a down payment of at least 20%.

00:48:46.100 | You are financing it for no more than four years,

00:48:49.720 | and you wanna ensure that the monthly payment

00:48:51.440 | that you're taking on is no more than 10% of your income,

00:48:55.000 | hence the 24/10 rule.

00:48:57.240 | So my reaction here is I'm down with 20%,

00:49:00.760 | though maybe not necessary.

00:49:03.020 | I'm definitely down with the don't go over 10%

00:49:05.800 | of your income for the monthly payment, that makes sense.

00:49:08.040 | And then the four year, I kinda get the concept,

00:49:11.520 | but I've never adhered to it.

00:49:13.280 | I've always, fortunately, I guess, always bought a vehicle

00:49:16.680 | in a period of time where interest rates were low,

00:49:20.080 | and at a low interest rate,

00:49:22.400 | I'll take it for as long as possible.

00:49:24.040 | I'm someone who historically has not sold a car

00:49:27.560 | until it's been 10 plus years old,

00:49:29.480 | so maybe I'm a slightly different camp,

00:49:31.920 | but especially if you're gonna put 20% down,

00:49:35.040 | I'm not sure I know why the four years is as necessary,

00:49:38.560 | but I don't know what your experience here is.

00:49:41.600 | - I think this is generally speaking a good rule

00:49:44.040 | for the general population, but like any of these rules,

00:49:47.920 | you need to know how it applies to your specific situation.

00:49:51.840 | Personally, I've never had a car loan.

00:49:53.660 | I've only, my rule is I only pay a cash for cars

00:49:57.380 | when I buy them, which you could say,

00:49:58.720 | which you could argue, given the low interest rates

00:50:00.640 | that you've paid, is suboptimal in its own way.

00:50:03.280 | So I view this rule with more as what is your appetite

00:50:06.040 | and comfort level with debt personally than anything else?

00:50:09.320 | - Yes, and I think we had a conversation

00:50:11.160 | in our last episode about debt and mortgages

00:50:14.080 | that I'll encourage people to listen to

00:50:15.440 | because the decision to take on debt in some people's minds

00:50:19.360 | is a mathematical one, in others it's emotional,

00:50:21.600 | and in probably almost everyone it's a mix of the both.

00:50:24.340 | But you and I had a good conversation about that last time

00:50:27.540 | because we kind of take different approaches here.

00:50:29.980 | - Yep, absolutely.

00:50:30.860 | Personal finance is personal.

00:50:32.780 | - The debt to income ratio is another one.

00:50:35.060 | - Yeah, the idea here is that your total debt payments

00:50:37.300 | should not exceed 36% of your gross income.

00:50:42.020 | So when you're thinking about debts,

00:50:43.420 | think about all of the type of debts

00:50:45.100 | that you're paying interest on.

00:50:46.180 | That could be housing, that could be related to education,

00:50:49.580 | that could be related to a car that we just talked about.

00:50:52.320 | You wanna make sure that any payments that you're making

00:50:54.840 | that are related to debt instruments,

00:50:57.180 | they do not exceed 36% of your gross income.

00:50:59.960 | - The primary reason that this rule matters

00:51:02.720 | is that most lenders are looking at a rule

00:51:06.120 | somewhere around this when they're making lending decisions.

00:51:08.600 | So it's often the reason that you need to sell a home

00:51:11.980 | to buy another home because the sum

00:51:14.000 | of those mortgage payments together

00:51:15.440 | would put you over this limit.

00:51:17.320 | And so it's more of something that matters

00:51:20.980 | when you're about to take on larger pieces of debt,

00:51:23.940 | whether it's a mortgage or an auto loan

00:51:25.660 | or something like that.

00:51:27.100 | But in general, I don't monitor this regularly.

00:51:29.580 | I don't know if you do.

00:51:30.420 | I don't even know if I know what mine is.

00:51:31.960 | - I don't either.

00:51:32.800 | I can tell you that when I was very early in my career,

00:51:34.660 | I used to track my numbers like a hawk.

00:51:37.360 | As my net worth has grown, I've become more lax

00:51:40.300 | with my rules because I have more wiggle room

00:51:42.620 | just given how much of an emergency fund

00:51:44.980 | I personally keep.

00:51:46.340 | So I think it depends on where you are

00:51:48.160 | in the stages of your career.

00:51:50.500 | - Yeah, the final AI rule I liked

00:51:52.660 | was the three to 4% rule for salary.

00:51:56.320 | And the idea is given inflation,

00:51:58.940 | you should be increasing your salary three to 4% every year.

00:52:02.900 | I don't know if this is a rule of thumb, but I liked it.

00:52:05.460 | I've had a couple of conversations in the past

00:52:07.180 | about salary negotiations.

00:52:09.260 | And I just think in general,

00:52:11.340 | people under advocate for themselves financially at work.

00:52:15.020 | And I think that every year you should be sitting down

00:52:18.380 | with your manager or your boss and saying,

00:52:20.020 | "Hey, what is the next stage of my role?

00:52:23.980 | "And what do you need to see to get there?"

00:52:26.160 | And have them give you the blueprint

00:52:28.540 | so that you can come back every performance period

00:52:31.140 | and say, "You told me that if I were to do X, Y, and Z,

00:52:34.300 | "I would get to level here, and now I wanna do this."

00:52:37.320 | Now, those increases should hopefully be more

00:52:40.340 | than three to 4%.

00:52:41.460 | But at a bare minimum, a cost of living adjustment

00:52:44.180 | or inflation adjustment of three to 4%

00:52:46.420 | is something you should advocate for.

00:52:47.900 | - Yeah, that can be a quick Google search, too.

00:52:50.260 | What is the inflation rate over the last year

00:52:53.340 | in the geography that I live in?

00:52:55.540 | And you should use that as an absolute basis for,

00:52:57.860 | "This isn't even a raise.

00:52:59.000 | "This is you paying me effectively

00:53:00.700 | "the same amount of money you did last year."

00:53:03.300 | So it's not me getting richer.

00:53:05.500 | It's just me being able to buy the things

00:53:07.540 | that I need to be able to buy.

00:53:08.980 | - I love the idea if you work for a company

00:53:10.700 | that sells a product with a price to go to your manager

00:53:13.580 | and say, "Hey, our prices have increased 15%

00:53:17.860 | "in the last 12 months, so where's my salary increase?"

00:53:21.420 | You know, you can't argue that cost of living

00:53:23.140 | hasn't gone up and inflation hasn't existed

00:53:25.020 | 'cause we've raised our prices.

00:53:27.220 | I don't know how that would go.

00:53:28.260 | If anyone's done that, I'm curious.

00:53:30.020 | But that's a tactic I would probably try to use.

00:53:33.660 | Last two quick ones.

00:53:34.860 | One I found on the internet just searching around,

00:53:38.380 | and I named it the 850 rule because it didn't have a name.

00:53:42.460 | But the idea was when a major appliance in your house breaks

00:53:46.500 | buy a new one if the appliance is eight years old or more

00:53:51.020 | or the repair costs more than half the replacement cost,

00:53:53.820 | the 50%.

00:53:55.020 | And this is fridges, TVs, dishwashers.

00:53:57.860 | It says, you know, something breaks, get an estimate,

00:54:00.340 | find out what the replacement cost is,

00:54:01.840 | look at how old it is,

00:54:02.900 | and make a quick call on replacing it.

00:54:05.460 | This one is great because we've had circumstances

00:54:07.980 | where things have broken and we debated this

00:54:10.820 | and I just didn't really have a framework or a thought

00:54:13.420 | and I went down a long rabbit hole

00:54:15.100 | that rounding error is probably not that many dollars.

00:54:18.500 | And so I actually like now, now I have a thing.

00:54:21.220 | Dishwasher breaks, I got an answer.

00:54:24.020 | - I love it.

00:54:24.860 | I wonder if there's a similar rule for cars

00:54:26.300 | because cars is an interesting one

00:54:27.700 | given how repairs can often be in thousands of dollars.

00:54:30.460 | - Yeah, I will look around.

00:54:32.160 | If I find one, I'll share it in the future.

00:54:34.340 | The last one is a rule I just made up

00:54:36.000 | right before we started talking

00:54:38.200 | because I felt like none of these rules

00:54:40.360 | covered the cashback points world of credit cards,

00:54:43.520 | which is something that is near and dear to my heart.

00:54:46.780 | And I'm gonna call it the 432 rule.

00:54:49.400 | And the idea is you should be aiming

00:54:51.900 | for at least 4% cash back on the area you spend the most in,

00:54:56.120 | 3% on everything else,

00:54:58.400 | and you should never accept lower than 2%.

00:55:01.960 | So I think that even with a one or two card strategy,

00:55:05.880 | you can achieve this.

00:55:07.240 | And so I don't think it means you need to go

00:55:09.280 | build up a wallet of 20 or 30 credit cards,

00:55:11.800 | but no one should be earning less than 2%

00:55:13.800 | in cash or points equivalent

00:55:16.520 | because there are flat 2% cards.

00:55:18.940 | And if this Robin Hood card ever comes out,

00:55:21.720 | it'll be a flat 3% card.

00:55:23.840 | And so people should never accept lower than that.

00:55:27.680 | But it is not hard,

00:55:29.520 | whether it's going simple

00:55:31.560 | with Bank of America premium rewards

00:55:33.480 | or going complicated with 15 cards.

00:55:36.800 | I think the average has to be above 3%.

00:55:39.120 | And unless you're not spending a lot

00:55:41.520 | and it's not worth your time,

00:55:42.880 | it's pretty easy to increase this number.

00:55:45.160 | - Love that.

00:55:46.080 | The only rule there that I follow is the 1.5% rule.

00:55:48.720 | I thought I was doing good with a 1.5% cash back card,

00:55:52.040 | but following the Chris Hutchins rule,

00:55:53.600 | I'm clearly not up to top par.

00:55:55.680 | - Yeah, just to make sure people understand

00:55:57.440 | that I'm not talking about the rate of earning,

00:55:58.980 | but the rate of value.

00:56:00.160 | Well, I'm gonna assume that that's a Chase Freedom Unlimited

00:56:03.120 | and that you also maybe have a Chase Sapphire Preferred

00:56:06.340 | or a Chase Sapphire Reserve.

00:56:07.940 | And if that's the case,

00:56:09.680 | you can redeem those one and a half chase points

00:56:12.920 | at a minimum in the Chase Portal

00:56:14.640 | at one and a half cents with the reserve,

00:56:17.200 | which means you're getting about 2.25%.

00:56:19.400 | So if that's you,

00:56:21.360 | then I'm gonna say you cleared the lower threshold,

00:56:24.880 | but you could probably still do better.

00:56:27.240 | Glad I made it.

00:56:28.080 | All right, this has been fantastic.

00:56:30.960 | There were a couple of topics

00:56:31.800 | we actually bounced around talking about today

00:56:33.600 | before we settled on rules of thumb.

00:56:35.760 | So I'm gonna throw it out there to listeners

00:56:38.480 | for the next time.

00:56:39.700 | There are three things

00:56:40.540 | that I think would be fun conversations.

00:56:42.160 | And if people have opinions, let me know,

00:56:44.800 | whether we talk about stock-based compensation,

00:56:47.640 | whether we talk about reading financial statements

00:56:50.280 | or sourcing investment ideas.

00:56:52.320 | So those are three things I'll throw out there

00:56:53.820 | that we talked about having an episode on.

00:56:56.360 | And I'm curious what people think we should cover next.

00:56:58.600 | But until then,

00:57:00.440 | where can people stay on top of everything

00:57:01.920 | you're writing and doing?

00:57:03.760 | - I'm on all the social platforms,

00:57:05.440 | Twitter, LinkedIn, Instagram, YouTube.

00:57:07.960 | So if you type my name in, Brian Feraldi,

00:57:10.080 | you will find me.

00:57:10.920 | And my website is longtermmindset.co.

00:57:15.280 | - Awesome.

00:57:16.100 | Brian, thanks so much for being here.

00:57:17.680 | - Chris, awesome to be here.

00:57:18.760 | Thanks for having me back.

25 Money Rules You Need To Know (And When To Break Them)

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