Since this is BiggerPockets, of course real estate comes up, too. Don’t miss this inspiring episode with one of the founders of the Financial Independence movement!
Scott: What’s going on, everybody? This is the BiggerPockets—oh, wait a second. I screwed that up. This is not the BiggerPockets podcast, is it?
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Mindy: No, it isn’t.
Scott: Oh, this is a new podcast. This is a podcast—I think it’s about personal finance. Oh, let me go ahead and restart this whole thing.
Mindy: This is our show, Scott.
Scott: Welcome to BiggerPockets Money, Show Number 1.
It’s time for a new American dream, one that doesn’t involve working in a cubicle for 40 years, barely scraping by. Whether you’re looking to get your financial house in order, invest the money you already have, or discover new paths for wealth’s creation, you’re in the right place. This show is for anyone who has money or wants more, this is the BiggerPockets Money podcast.
Scott: I’m Scott Trench, here with my co-host, Mindy Jensen. How are you doing, Mindy?
Mindy: I’m doing really great, Scott. I’m so excited to launch this new podcast. It’s about money, like you said. It’s for people who have money or people who want to have more of it. Why don’t we introduce ourselves for the listeners who don’t know who we are?
Scott: Awesome. Well, I’m Scott Trench. I’m a VP here at BP. VP at BiggerPockets, and I’m the author of Set for Life. I have achieved a modest level of independence at the age of 26 and I’m looking forward to sharing what I’ve learned on that journey and also continuing to learn from our awesome guests so I can continue to increase my wealth and passive cash flow.
Mindy: My name is Mindy Jensen and I’m the Community Manager at BiggerPockets. I have already reached financial independence and now I work because I want to, not because I have to. But I am also looking forward to learning more from our awesome guests so I can continue to grow my wealth.
Scott: That’s awesome. And who is our guest for this very first ever episode?
Mindy: We have a really, really awesome first guest. His name is Pete and he goes by the moniker Mr. Money Mustache. Maybe you’ve heard of him?
Scott: I think I might have heard of him once or twice. Or he might have changed my whole life, maybe the very first time I even discovered the concept of financial independence. This guy is the real deal. He is maybe, I don’t know if this is the term he likes to use, but I like to think of him as the godfather of the whole movement of financial independence. He’s the first guy that really started making sense for me and getting things clicking and I’m just so grateful to have him as the first guest on the show.
Mindy: You know, it’s funny that you say he’s the godfather—he actually, reading his blog changed the course of my life. And that sounds kind of cheesy but it’s actually 100% true. We were going—we, meaning my husband and I—were going down the same old path that most people go down. We did have a high level of savings but we weren’t on this financial independence journey. And then one day, my husband had a really awful day at work and he’s banging out on his computer, “How do I quit my job early? I can’t take this!”
And this website comes up, Mr. Money Mustache. Here’s how I quit my job at age 32 and Carl’s like—Carl said, “This is a bunch of crap. This guy is a big fat liar”. And then he starts reading through and not only does Pete say he does this stuff, he actually shows you with mathematical proof, which you can’t lie with math. He shows you how he did it and it’s just an amazing blog. Not only has it changed my life, but it’s changed a lot of other people’s lives, too, like yours.
Scott: I am so excited and I’m sure you are, too, to be able to help continue spreading his ideas and his concepts through this podcast. I’m just so excited to talk to him and learn from him again here in person.
Mindy: You can say we. I’m so excited, too. He’s such a nice guy. He’s so inspirational, just listening to him. I think it’s really interesting. It’s not about the money with him. It’s about the quality of life and he is living the life he wants to live. He does what he wants, when he wants, because he’s not tied down to a job anymore.
Scott: Absolutely, and that’s what it’s all about. It’s not about the money. It’s about what that money can do for you, the lifestyle it can create, the freedom that you can have and the people’s lives you can improve with those resources.
Mindy: Yes. Okay, so nobody’s here listening to us. They want to hear Pete. Let’s bring him in.
Scott: Welcome, Pete. Thanks so much for taking the time out of your day to talk to us. We’re looking very much forward to hearing an introduction to financial freedom from perhaps one of the great masters in this space, and one of the guiders of a lot of people’s journey in this.
Mindy: The blogger that launched a thousand blogs.
Pete: Oh, is that my new slogan? Excellent. Yes.
Mindy: I just gave it to you.
Mindy: Maybe a thousand is a low number.
Pete: Huh. Sure, I’ll take it. Well, yeah thanks for the invitation and for coming all the way to Longmont. I know that Scott came up from Denver. Mindy’s a neighbor of mine, so she’s not quite as impressive for her dedication.
Mindy: Wow, thanks, Pete.
Scott: So I remember reading your blog for the first time. I was probably two or three months into my career at a Fortune 500 company and I looked around and I was like, this is it. I’ll be here for the next 40 years. And if I’m really good, I’ll be in that corner office, where my Vice President is, and I’ll be there in 20 or 30 years, if things go really well. That’s not the life I want, and I began looking for alternatives and I came across a number of different blogs but then I found yours, and yours was really the one that gave me a real hope and action plan and mindset to get me going on that journey.
And I think that’s one of the reasons why I’m so excited to have you on the show here for the very first episode here. Can you kind of share your philosophy on life and financial freedom and kind of how you had your journey or got started on that?
Pete: It’s a fairly broad question. It might take a few hours. To keep it pretty simple, first of all, I think that’s cool that you stumbled across a blog early in the career and you’d already got this fear, this scary thought like oh, shit, is this going to be a 40-year thing of me sitting in this office? Because that’s pretty forward thinking. I didn’t even think that far ahead when I was that young, career worker, I just thought, “Awesome! I have a magnetic card that lets me into this fancy building! Oh, there’s air conditioning in here, too. I’m so lucky!”
So I came from a background of like, not very fancy lifestyle, and really junky jobs so I appreciate things each step of the way. Every time I got a raise—but at a point, there came to be a certain point, because of this low income—not low income, but low spending upbringing that my parents taught me through that I couldn’t really think of anything else to buy that wouldn’t seem completely preposterous. So then I just didn’t spend that surplus money and that’s how that built up. And I thought, well, if it’s building up, what else can you do with money? And I realized buying freedom was a perfectly possible thing to do when you do the math.
So I did that, not even knowing it was a thing. This was back in the early 2000s. And then after retiring from software work, I realized that not many people were doing it so I started a blog explaining why this is a logical path and it’s not as difficult as people think. And that’s been going on now, I’ve been writing about it for an additional seven years. And now I’ve reached the ultimate height of the career of being on the BiggerPockets’ second podcast.
Scott: So, I had the good fortune of learning from you immediately to start my career and not having to kind of figure out this whole process and come up with my own plan, necessarily, to get the first savings set up. When did you kind of get the idea of financial independence? When did it shift from, oh, I’m just going to continue to live a frugal, sane lifestyle without spending too much money to, I’m going to achieve financial freedom and make my moves in that direction? How did that kind of come about?
Mindy: I had a similar path, although I was a couple of years older than Scott, but my husband came home, or he was working from home. He came downstairs one day and he says, I can’t do this anymore. I have this high-stress job and I can’t do this for the next 30 years and he looked up online, how to retire early, and this blog pops up, Mr. Money Mustache. And at first, he was like, this guy is full of crap. He’s selling something. This is total fake news. Whatever.
But then he continued reading, which was nice. Simple math doesn’t lie. You showed the math. Look, here’s what you can do. We were inspired to do this early retirement through Mr. Money Mustache and this guy who showed you math. But you are Mr. Money Mustache. How did you come up with this idea? I realize you didn’t invent it but you kind of did.
Pete: Are you talking about financial independence?
Mindy: The financial independence and early retirement. Before we read this blog in 2012, early retirement was 62. It wasn’t 32.
Pete: I remember there was a Canadian company that had like Freedom 55 as its thing and I was like, 55? That’s unheard of. That’s so young. But you’re right. It’s not really a new idea. There’s actually like, if you look way back to The Richest Man in Babylon, that parable book, even that talks about financial independence and more recently, the 1993 book, Your Money or Your Life, which is about to come out with a new 2018 version right now. That was kind of credited as bringing a lot of these ideas back into my modern society.
It’s always been a totally feasible thing. It’s just that we had it programmed out of us by the marketing machine and the fake hardship machine. Everybody wants to tell us that life is hard and we need all these products and our self-esteem depends on it. But the basic math has been on the individual side ever since we became a rich society, which is like, the amount you get paid is way more than the amount you need to have a happy life. As long as you’re not totally wasting it all on bullsh*t like cars and stuff like that.
Scott: So when you talk about, one of the big things of your philosophy is your concept of hardship and how work and doing it yourself and being in control of every aspect of your life is a key to being happy. Can you talk about—have you always embraced that? Was that something you developed or grew throughout the years or is that—can you speak to that philosophy a little bit?
Pete: Yeah, that’s something I stumbled across gradually because as a little kid, I was pretty fearful and I didn’t like hard situations so I wanted things to be easy. But as I got older, I just kind of gradually realized that I was happier when I achieved things and when I did more difficult things. And then I started having role models like the typical masculine role models of like action heroes and Arnold Schwarzenegger movies and stuff and I was kind of inspired by this idea of like the badass competent person, man in my case.
I was really interested and so I just started emulating these people and I realized, man, this is way more fun than being wimpy and cowering at home. And then it just kept leading to more and more, like the more you do it, if it keeps working for you, why don’t you keep doing it? So that lead to more things like wanting to know how to do stuff, like how to build a house or how to maintain your bike or how to enjoy crappy weather and realize it’s not crappy after all.
And just through luck, those things just happened to cost a lot less money so you end up with a huge surplus of money and you can retire early. So it all goes together, like the stuff that makes you feel good. It makes you feel good about yourself. Help to cure your anxiety and worry less and have a lot more money. It’s all a great package. So that’s what the blog that I write is about.
Scott: And I find the same to be true in my life. Every time I adopt the new—every time I’m like, oh, this is the easy way. I can go buy some Chinese food for dinner tonight, I feel sick afterwards. It’s completely different than going through the process of making something for myself or biking to work. Even when it’s cold outside, it’s such a more refreshing way to start the day and this concept happens to cost less. It’s just a better way to go about your day-to-day life. It’s more practical. It makes you stronger and tougher and happens to cost less as well. And I think that you kind of become a superhero in your own rite, along the lines of these guys with kind of the actions you’ve taken here.
So suppose that I’m a median income earner with very little saved up and I’m just kind of starting out on the path to financial independence. I want to become tough. I want to adopt these figs step by step and build my financial fortress and really take control. What are some of the first things that I should be doing along the path to that journey?
Pete: I think a really good thing is overlooked, especially in news stories about personal finances. Understand what you’re doing with your money right now because if you’re more than 18 years old and you don’t have any money to your name, something is happening. Where did your money go? You’ve blown it on something. So, you need to start tracking that down to at least the $10 level, preferably the $1 level. And that’s really easy to do these days. Just add up your credit card statements, don’t spend cash, or if you do spend cash do it meticulously so nothing goes vaporizing into the air.
So you need to have a category list by the end of the first week of like, I spent this much on beer, this much on restaurants, this much on car stuff. And after you have about two months of that information, you’re going to have a great picture of where your money’s going and then you can start consulting people who are better at it than you, who spend less money than you and see where are you spending too much. Most of those categories can get almost to zero when you get good at managing money and finding ways.
Like, for example, it’s possible to live for free if you for example have a duplex and rent out half of it, and then you live in the other half and you do a lot of your own renovations. That’s one example of where your housing category can be zero. In fact, I think Scott does that, right? With your personal life right now?
Scott: Yeah, I’m a big fan and I’ve done that for the last couple of years and it’s really been a huge boost to eliminate rent and housing expense entirely so that’s been a big one for me, for sure.
Pete: Yeah, right. And actually, Scott has a book that I read a while ago that kind of shows that he’s doing all of this stuff correctly. He eliminated most of his car expenses by finding a way to live closer to work and biking there and eliminating any restaurant expenses that you don’t want by going out and buying food at a grocery store.
And all of this, he always proceed with win-win. Like, well, you don’t want to be homeless in order to get zero dollar housing. You want to do some kind of smart hack where you have awesome housing at zero dollars and you don’t want to not have a job in order to not have to drive to work. You want to find a way to get your home and your work close enough together that you don’t have to drive to work so that you’re getting in shape when you go to work.
So mustaching is what I call my philosophy. It’s always about the win-win. Never compromise and do stuff that sucks just to get more money. You always want to try to find a way to win at both sides of it.
Mindy: Okay, where were you in 1997 when I could have really, really used this information, thank you very much. I had a job in the Chicago area. I lived on the far west side suburbs, and my job was in the north suburbs. And it would take me 55, 65, 75 minutes every single day one way to get to work and back. And I wasn’t make huge dollars and oh, I can’t afford to live up here. Really, I couldn’t afford to not live up there. I spent so much money on gas and you know, car wear and tear, and it didn’t occur to me that spending a little bit more on my housing would have been a lot better because I wasn’t looking at the big picture. So thanks for not being around in 1997.
Pete: You’re welcome. It’s funny because in that year, I was having that same battle. Because in 1997, I was in Ottawa, Canada, like a new graduate in engineering and to save money in housing, I teamed up with a bunch of friends to share cool, big rental houses instead of everybody getting small, junky apartments.
But the other guys that I was sharing with, they all wanted to be close to downtown where all the bars were and stuff so they could stumble home, but that was a ridiculous commute across a trafficky city to get to the hi-tech area where we all have jobs at the same company. So I was always telling them like, well guys, I’m not even shopping downtown. We need to get us a house near work because we go to work every day but we don’t go to the bars every day and if we do, we’re not going to have that job anymore. So we should live close to work and that was a big battle between me and these guys and we ended up compromising and living in the middle, so at least I could bike to work. But their default was to live like, 20 miles from work and then just have the sh*t be like a snowbound commute.
Scott: I’ll chime in here. My experience was almost exactly the same. My work was down south of Denver and I lived close by work and my buddies all lived downtown and the tradeoff was, okay, I’ll stay at your place on the weekends but I’ll bring a case or two of beer. And that was my tax that I had to pay. And I netted hundreds of thousands of dollars over and above what I would have had to do to spend to live in the downtown area near the bars.
And I think that that’s a very easy way to get around the situation. It’s just yeah, your day-to-day life is what you have to take care of first and your fun, you can sit around that even if you have to pay a little bit more for that recreation. Just the fact that your overall position is so optimized. It has such a huge impact in your ability to accumulate wealth and live a happier lifestyle on the most important days.
Pete: And that’s the other thing is, I find young people are—I sound like an old man now but they’re always too focused on nightlife and stuff even when they’re graduated from school and there’s more important stuff to be done. Like if you’re going to bother having a job at all, you should put your energy into being good at it. And that means you can’t go out drinking on weekdays. You have to like go to bed early, eat salads, lift weights, go to the office early, work hard, make friends with everybody, be an awesome worker and then like occasionally go partying on the weekends.
Work has to be your primary focus in your twenties if you want to make a ton of money at it. And that’s actually just as happy because if you are doing a half*ss job at work and then going to bars, you’re going to feel terrible about your work performance and you’ll feel terrible at work. So you think you’re happier because you’re like, yay, I’m drunk, I’m picking up people. But your overall life is not satisfying because your soul is not—you’re not actually being a productive person.
Mindy: Again, where were you in 1997 when I could have really used this information? Thanks, Pete.
Scott: I love this because the whole point is that it’s improving all the areas of your life. It’s not like, oh, I moved closer to work and I sacrificed having fun downtown with my buddies on the weeknights. It was, oh, I moved closer to work and I had way more time in my day because I wasn’t stuck in a 40-50 minute commute each way, to and from the office, and I was able to save money and I had more free time to pursue my interests.
If you’re like me and you’re able to kind of invest yourself into some work that you love, you eventually may find work that you love. That’s one of the advantages of financial freedom, for me at least, is being able to work at a job that I love with my best energies and in close proximity and synergy with my lifestyle. And that is what I think you’ve built for yourself as well in the end. Is that fair?
Pete: Yeah, like I still really like working. I’m sitting in one of my places at work right now in downtown Longmont. I would not give this up. I mean, I would not give up working for anything even though I don’t need to work for money because like, work is the real core satisfaction. Humans are made to work and achieve things but it has to be the right thing. You can’t be doing endless tasks for your boss that you don’t like, creating a product that you don’t like. That’s why people think they don’t like work. If you find the work that’s right for you, you’ll want to do it and you’ll need to do it in order to be happy.
Mindy: I have had some soul-sucking bosses and I had a job that I enjoyed the work for, to really hate the person that—hate is a strong word but I think it’s really perfect in this situation. And so when I had my first child, I became a stay-at-home mom. It was always my intention to be a stay-at-home mom. I didn’t want to have a child and then go right back to work. And we planned that. I was fortunate to be able to do that but then after the youngest one got to school, I was like well what am I going to do with my time now? And I found this job that I don’t have to work.
My husband is “retired”—you can’t see that in air quotes because it’s audio—but he’s retired in that he doesn’t work a 9 to 5 job anymore. But he still works every day. He’s teaching himself a new programming language so he can write a new website that’s going to be really awesome, I hope. But even if it’s not, he’s doing something that he really enjoys and I am doing something I really enjoy. I can’t believe I get to work at BiggerPockets and I couldn’t have done this if I had to work for money. Well, I don’t know, I guess I make a decent wage. Let’s talk about that after.
Scott: It sounds like at the end of the day, because of your position of financial independence, because you’ve done all these things correctly and taken control of your life and you take the right way, not the easy way with what you do, that you were able to spend your days exactly as you wish doing hard work and creating beautiful things. Like this room we’re sitting in right now was a dilapidated building just a few months ago and you’ve turned it into a really awesome facility and are constantly improving it where there’s many people who are happily working who are also—are they financially independent here or are they working towards it for the most part?
Pete: I don’t know. It depends on, I mean that’s not one of the rules for joining my co-working space. I don’t need a financial tech—but yeah, I happen to know it’s kind of a mixture of people who are already retired in my parlance and people who have regular jobs, they enjoy working remotely and other people who have their own companies and they like working from home, sometimes coming down here. So yeah, it’s a mixture of a social club and coffee shop and working place.
Scott: So one of the things that come into play after you’ve adopted this mindset. You’re accumulating wealth, you’re bettering yourself, you’re living a healthy lifestyle. You understand the merits of financial freedom is investing. Can you give us some of your overall thoughts on how you might have approached investing as you were moving towards the first phase of financial freedom and maybe how you picture it now several years in?
Pete: I did stock investing myself so I just used to read stock investing as a kid, as a young adult. And I learned about index funds being the best form of stock investing so that’s what I did. I did a little bit of real estate as well in the sense of buying a junky house for the first place that I lived and renovating that over five years and then turning it into a rental and then buying another junky house. So it was a mixture of things. With this being BiggerPockets, real estate is often on people’s minds and I think that’s a great way. If you have the skills and energy to do real estate for your investing instead of stock investing, you can make, I think, more money on average for your invested capital because you’re multiplying it by your own skill level.
Mindy: You certainly have more control over the investment. You choose the tenant if you’re doing a rental. You choose the fixing, the finishes if you’re fixing it up. I like real estate more but the stock market has also been in the last few years, it’s just [inaudible][24:17].
Pete: Yeah, which makes real estate better in comparison now because the stocks are more expensive now relative to, for example, real estate in cheap areas of the country, which is where you'd be looking as a landlord. And yeah, it really depends on your personal taste. If you want to be truly retired and not have to think about money and you hate managing people, then real estate is not such a good idea.
Mindy: Yes, it’s difficult to get a truly, truly real estate passive investment whereas the stock market, you really have no control over it. You don’t have any active management. You just put your money in the stock market or in the index fund or whatever and you just kinda—
Pete: Yeah and it just creates money. You own an index fund and you get checks. That’s all that you need to know. It’s just electronic deposits, not even checks. So it’s even easier than checks.
Scott: And why would you invest in real estate if you thought you weren’t going to be able to stay in at least a little bit higher return in the stock market because of all that effort? That is definitely something to consider for people that are thinking about real estate versus a more passive thing like stocks. In terms of a particular real estate investment, would you mind telling us a little bit of details about this particular property, maybe what you paid for it and what you put into it and what it generates now?
Pete: Yeah, sure. This one, we didn’t even think of as a real estate investment because it was more of a community project which also, that’s just a fancy way of saying fun hanging out with people. So we got this building. It happened to go up on Craigslist with no pictures just because it was like a really strange condition that it was up for sale under and my wife saw that just the day it got posted so we phoned immediately. So the guy was asking $230,000 for this downtown property. It’s across the street from a $23 million dollar property that was recently built. Of course, they’re on a bigger piece of land but this is a pretty good chunk here.
Mindy: I think this particular location is in the path of progress. And I don’t mean like this is a dump right now but it’s slightly north of downtown Longmont, like two streets north of downtown Longmont, the heart of downtown Longmont.
Pete: That heart moved, kind of, when they put the $23 million dollar mecca across the street so suddenly, we’re across the street from the most expensive building downtown. Sure, there’s some nicer historic buildings if you walk south two blocks or three blocks but yeah, you’re right. If you go north more from here, then it rapidly degrades to pawn shops and car dealerships and stuff. So we’re kind of marking the northern frontier now but that’s just kind of going to keep going up even more.
Mindy: I can’t believe this is only $230,000.
Pete: Yeah. It was a terrible building though. Everything was junk. None of the windows and doors worked. There’s like three dumpsters of debris filling up the whole property in the backyard. So definitely, you have to knock some dollars off on that but even so, I’d say the normal market value might have been maybe $350,000 in its condition. And then we did a quick and kind of cool fix-up of everything with multiple people. I bought the building with three friends, my wife and two other friends. So we had a larger staff than I’m usually working with which helps speed it up. And I hired some friends, too. So now it’s a lot nicer than what it was before.
And now, to get to your point about the business side of it, this side that we're sitting on right now is a retail shop and two studios for the artists who make the stuff to sell in the retail shop. My wife and her friend. And then my side is co-working space and it is membership based so right now, for example, we have over 16 members. I set the price super low because I'm trying to run it on a non-greedy basis. So it brings in $3,000 a month right now and my side of the building, I spent a total of $150,000 on it if you take my half of the purchase plus the money I've spent on fixing it up. So it's like a 20% annual return on investment so far. Although the work I have to come down here and talk to people in order to manage it.
Scott: That’s fantastic. It seems to me that, Pete, you really enjoyed doing the work to fix these buildings up and make them beautiful. So was there a little bit of a reward intrinsically in the work itself for you?
Pete: Oh, yeah. All intrinsic reward. I bought this place because I like fixing things up, not because I wanted to make $3,000 a month which isn’t really very exciting to me. The part I’m excited about is transforming the building, coming up with ideas and meeting people who live nearby. And it’s worked out really well. Everybody here who’s joined the co-working space is all these amazing, cool, local people that I never would have met that came out of the woodwork that found out there’s a place where we all get to hang around together and do work together.
Mindy: When we first moved to Longmont four years ago, we were looking for something similar to that because Carl was working from home and Daphne was still at home and she’s a very loud child. And there were times that he was like, I can’t get any work done because she’s just so loud. And when it’s snowing outside, you can’t really go someplace. I guess you could go to the library but we looked at a lot of co-working spaces and they were just, there aren’t any co-working spaces.
Pete: There were none in Longmont at the time.
Mindy: We were just looking for apartments to rent, work apartments, offices and I think $300 a month was the cheapest we could find.
Pete: Yeah, to get like a cubicle somewhere and share offices.
Mindy: Yeah, it was not worth it.
Pete: It could be. I mean, that’s only $10 bucks a day, but still to your point, this is way cooler and it’s $50 and there’s a gym in the back.
Mindy: This is a really cool space and I’m looking around thinking, how would I describe this? It’s very funky.
Pete: Yeah, rustic, exposed brick, lots of random materials from different generations of the house, some crumbling plaster here and there and then some fancy fixtures here and there as well.
Mindy: I still can’t believe you paid $230,000 for this place. For those of you not in the know, Longmont is experiencing quite the surge in real estate prices and you can’t buy anything in Longmont for $230,000.
Pete: No, like in this neighborhood, downtown is the most expensive neighborhood. So the housing starts around the low $400Ks and that's kind of for like a granny shack that will need a lot of work.
Mindy: It would need more work than this house.
Pete: Yeah, and it would be a lot smaller, too. Like, this building is 2400 square feet indoors on an 8,000 square foot lot. It’s got a lot of potential and we’ve only activated some of its potential now. I’m hoping it turns into a crazy, utopian, hippie compound, eventually. A high-walled thing with who knows what’s going on in the back.
Scott: But this is the point. This is why it’s so important to work towards achieving your goals, towards your financial freedom because then you can do these kinds of things. This is a passion project. The fact that you love it so much enables you to get a really good deal to do the work really cheaply, draw a really great business, and to do it exactly the way that you want in a new and creative way.
That's going to be very difficult to replicate for the guy who's just trying to make a quick buck and who's not really approaching this from a position of foundationally, got everything else in order first. And it's also not easy. The fact that this is hard work that's making a meaningful difference in the people's lives that are your customers and in a way that you enjoy is really the whole key to this puzzle, I think. But I would argue that this was a very risky venture for someone who was using leverage and was doing this solely for an investment return.
Mindy: Or someone who was doing it as a job. Like if you had this and this was your sole job, you would have to make money at it. Whereas when you come from a position of wealth, if it doesn’t work, then I’ll just figure something else out. That makes it more fun. There’s no stress like oh, I’ve got to get this done. I’m under a deadline, I have to get the whole thing finished by tomorrow because that’s when it opens.
Pete: Yeah, I agree. The only way to work is to get to a point where you don’t need to work and then work gets much better, as I’d like to say, when you don’t need to money. And then also, it makes you question yourself because someone says, I want to do this other project, and you have to ask, would I do it for free because there’s no point in doing work for money if you don’t need money. So if you get to that stage quickly in your life and then all of a sudden you’re doing work that’s so fun that you’d be willing to do it for free. And then you’re still going to make money from it.
So like it’s this double amazing fun win, and then with the surplus money, you’re like, wow, I can be extra generous because I don’t even need it in the first place which reinforces your value of business because people say, wow, I notice he’s not trying to screw me at all. So I’m going to give him even more business. It’s an amazing, virtuous cycle. It starts with limiting your own personal wimpiness and greed.
Scott: I think you have a blog post on this topic. It’s called “First Retire, Then Get Rich”. Is that kind of what you’re speaking to in that post a little bit?
Pete: Yeah, it’s kind of an interesting strategy where if you can make your needs efficient and get a lot of skills, it doesn’t take a lot of money to keep yourself going, then you can quit the job that you don’t like, which I call retiring. And then you can do work that you do like because in my world, you’re never allowed to stop working. You always have to stay energetic, do awesome things at least every week, if not every day.
And then that does tend to pay money if you’re creating valuable services or feelings or whatever else you’re creating. That generates money. So that’s why I said, you’re going to get rich at that point. Because first, you retire, you just have enough to live off passively for the rest of your life. Most people wouldn’t consider that a rich amount of money. But then if you continue accumulating for more decades, you end up with some really sizeable sums.
Scott: I think the word “retirement” is always funny because it conjures up these images of just kind of lounging around, maybe some beaches and that kind of thing. But I’ve found that I’ve met remarkably few people that achieved financial freedom that didn’t go on to just kind of relax on it. It’s always this, now I’m actually going to hustle way more and do it exactly the way I want because I’m passionate about that project. It’s really, financial freedom, it seems like kind of the beginning of this whole next phase, I guess.
Pete: Yeah. It is if you do it right. If you keep the edge of greed, then you'll always just want more stuff. It's like the bottomless pit of personal jets and yachts and even with $100 million dollars, you're still not even getting started. Then you never get that feeling of freedom because you're like, I'm still working for the jet or I'm still working for the yacht. You can never get everything you want in life. That's not the same as feeling like, I'm way more than I'll ever need so I'm not chasing after that money.
Mindy: So I would like to point out that you seem to be kind of a happy person. You’re just not worried about—you don’t have stress. You’re not worried about, how am I going to do this? How am I going to pay for that? I have also met a lot of people that are—I don’t like the word “retired” because it does conjure up this lazy or old—
Pete: You’re going to have start liking that because that’s my friend. And I’m trying to redefine “retire” because I don’t want anybody, young or old, to think of it as stopping working. I want everybody to remain engaged because you’ve probably read the statistics—people die shortly after retiring because they racked their creative ability by working too long in a soulless job. So anyways, hopefully I can teach you like the word “retire” later, because “financially independent” is way too many syllables.
Mindy: That is true. It is way too many syllables. Let’s make up a new phrase for financially independent.
Pete: How about “retired”? I already did. It’s “retired”.
Scott: That’s awesome.
Mindy: But you meet people who have a job that they hate and they’re unhappy. You spend an enormous amount at your awaken hours at a job you hate. All these people that I know, I encounter a lot of people who are like, what am I going to do when I am retired? What am I going to do when I don’t have a job anymore? What am I going to do—I have to give up so much to get that. You don’t have to give up so much to get that. What did you give up, having brand name designer jeans? You’re not a brand name designer jean type of guy. So you’re not giving up things that matter to you.
Pete: Yeah, and that stuff shouldn’t really matter to anybody. It’s just a matter of training.
Scott: It sounds like you gave up some unhealthy food and you gave up sedentary commute in a vehicle.
Pete: That’s true. I had to give up a hundred pounds of obese body fat in order to ride my bike. It’s not that I had that, but I had the opportunity to be a larger man by being sedentary all the time.
Scott: One of things I want to point out about the lifestyle you lead is that you’re also involved in politics in the local community. Is that correct?
Pete: Well, not exactly politics, but yeah, trying to get the city to run itself a bit more efficiently. We’ve been going to town council meetings and sending letters and things like that. I’m not a politician but I have suggestions for how to run the place I live in, mostly centered around not too many [inaudible][37:40] or parking lots. It’s making it more people friendly and making it more pedestrian and bike-friendly and stuff.
Scott: How do you feel about people not having very good mufflers on their cars?
Pete: I think those trucks need to be confiscated and recycled and that person needs to lose their license for life.
Mindy: I agree. While we were walking up here, a truck passed us with I don’t know, no muffler or holes in the muffler or something and that was the loudest truck. And he sucked, too. I am totally on board with getting rid of him.
Scott: And Pete just described him a little bit more politely than he might have at the time.
Pete: That’s true. But that’s just a thing that people don’t realize. We take cars for granted and we’re like, yeah, that’s just how you get around. But if you change your perspective and realize what’s really going on, you realize they wreck everything. Like, cars wreck everything. They wreck cities. They wreck your wallet, your finances. They wreck your family. They kill you. They make you fat. They cost ten times more to make paths and roads for than the alternative of putting stuff closer together and having bikes and walking and stuff. Cars just wreck everything. So that’s one of my side passions is just getting rid of this ridiculous car delusion that we’re running in this country because there’s just a waste.
Scott: Is there a moral component to this journey that you have as well?
Pete: I would say that I feel efficiency is a moral thing. When you’re wasting anything, then that’s a bit immoral because as a species, the only thing that we have going for us is these great, powerful brains and the only reason that we took over the planet is because we were efficient originally. We know how to stretch a resource and make new materials, do new things that we didn’t do before and make more food out of less land and everything. And that’s what made us rich but that’s what make us nowadays the top people in that system rich and then everybody else leads this crappy slave life because they’re inefficient with their resources.
So you can just have a lot more fun and be wealthier by being efficient. So that’s the extent of the morality. Other than, by creating pollution, you’re really stepping on a lot of people, especially poor people and people in other countries, you’re stepping on their lives a lot if you’re polluting. So that’s another moral issue for why you should be efficient.
Scott: Obviously, go check out MrMoneyMustache.com. That blog is fantastic. I like to hit the random button and kind of peruse all the articles on there. But do you have any articles on your own blog that you think we should start with?
Pete: Yeah, right. Well, I have a “start here” button and that gets you started and that links you to a bunch of other articles. But if you want to just get the more like, I think people benefit from repetition in their training. So if you want to read my blog, you can go to the complete list of all the articles and just start reading from the first one, and clicking next, next, next.
Even better, nowadays, there’s an Android app that some readers developed that’s super, super slick. If you have an Android phone, you download this free app and it grabs all the articles in a really nice format and then it keeps track of which ones you’ve read. You can read it on your phone in a nice format and everything. So that’s the easiest way. It’s like a book. It’s like a handheld book with 500 articles now that you can read through. Not all of them are going to be useful because some of them are just like, here’s a phone service that was interesting in 2012 but most of them are, I try to make useful permanently. And just skip anything that’s not relevant.
Scott: I think that’s a really good point about repetition, too. When I was starting out doing this, it was odd. None of colleagues were doing it. None of my friends were doing it. The thing that helped though was because I was reading your site constantly and saw other personal finance blogs, the people that I was associating with in my head are people that I was reading. The voices that were all in my head were saying, hey, here’s how to do this. Here’s the correct way to do it. And it didn’t feel so odd.
Like when I’m making a change to bike to work when it’s constantly being reinforced by reading, for example, on your platform. That could be a huge boost. You really have to kind of read at least for a few minutes or otherwise absorb information about this process for a few minutes a day so it doesn’t just seem unusual to you. It will begin to seem normal and the correct way to go about things, which I think we all believe it is.
Mindy: So you have a forum on your blog, right? Where people can talk and ask questions and chat?
Pete: That’s true. Yes. Separate section, forum.mrmoneymustache.com. It runs on a different server but it’s still part of the Mustachian online world and yeah, it’s pretty neat. I don’t even use it very much myself but I’m really happy that people do. It’s just a place where probably millions of people, probably 40,000 registered users, and then millions of people read what these registered users are conversing about and anybody can join, of course, for free.
And they just ask each other questions about more detailed stuff than what I might have covered on the blog. Like, I have this 401K plan and here’s the details. What would you do in this situation? Or they just joke around. Sometimes, there’s like a dating subpage. It’s like whatever, financially-independent seeking outdoorsy, smart people would like to talk about. That’s what happens on the forum.
Mindy: You know, I think it’s really important to have conversations with other people like this because it’s difficult to find people like this in real life. You’re the frugal freak. You’re the one that, oh, you’re the cheap person in your group of friends or connecting with other people to see, hey, I’m not the only person doing this. That’s been one of the best parts of our journey, is meeting other people and you meet them online. You talk to them for a while, you meet them in person and you’re like, wow, we have a lot in common.
And it’s not just all conversations about money. But it makes it a lot easier to have a conversation about something else when you’re not trying to get around this giant consumer conversation that people seem to have. Like, oh what kind of car do you drive? What does it matter?
Pete: Yeah, that’s true. And just the activities you plan, you know, like if you have standard American consumer friends and you’re like, let’s go to the park. And they’re like, okay, I’ll grab my giant SUV and we can drive two blocks to the park. And then we can bring six garbage bags full of disposable plastic plates and eat a bunch of McDonald’s and—yeah, just the activities are different when you have—
Mindy: So much different. But not any less fun because you’re still interacting with people you enjoy. You just aren’t going to a restaurant and dropping $50 on a meal that you’re not going to remember tomorrow.
Pete: Right, or you might do that, but it’s just not the only thing you do. You might also go for hikes with your friends or today, the three of us met at my house, I was raking leaves and then we walked downtown and recorded a podcast that everybody makes money off. That’s an example of fun ways for people to bonding that is not spending money.
Scott: The other part is when you join these groups or like the Mr. Money Mustache forums, is that how you refer to them? You can ask questions to those groups and get forum-based feedback that can help you make the best choices about something.
For example, I actually am a member of that community. I haven’t posted too many times, maybe like four or five times. I remember posting a question that said, hey, I bought a 2014 Toyota Corolla, brand new car, right as I was discovering Mr. Money Mustache. So this was my big financial mistake. I financed it and so I said, hey, after a year or so I kind of ignored it, and I end up going in and saying I’ve owned this car for a year or two and what should I do? Should I sell it and get a new car? Should I buy an older one? And I got crowd-sourced feedback.
And I think the community was evenly split on that one. There were some people that were like, sell it immediately. But other people were like no, you're at 2% loan, you can probably keep it. You've already suffered some depreciation. But like, having that feedback allowed me to make my choice of just keeping it and resolving not to make a future mistake like that again.
But that’s the kind of stuff that you talk to your friends and family and they’re going to be like, are you crazy? You have a Toyota Corolla. That’s an economy car. That’s not a bad choice. But then you go into this community and you kind of get that perspective that is more aligned with the way that we all think, I think.
Pete: Yeah, right. A lot of families will give you the opposite perspective. They’re like, you’re supposed to be a successful man. You can’t be seen in a Corolla. You need something more befitting of your status.
Mindy: It’s three years old, almost four years old. You need an SUV, Scott.
Scott: I feel like my car is the height of luxury. I’ve got a screen when I back up and it tells me if there’s something behind me. I’ve got Bluetooth sound system. It’s pretty fancy. So, I don’t see how anyone—
Mindy: Sight of luxury, it has four doors, it has that steering wheel, a seatbelt that works. Which I can’t say for all of my past vehicles.
Scott: You know what’s funny, I am almost like a little embarrassed about my new Corolla for being too nice. It doesn’t represent how I would make my choices now. It’s kind of the way that things go along.
Mindy: How you make choices now is not who you were when you bought the car. So I think that having the feedback from the forums be evenly split is also just as helpful as if everybody had said, you need to sell that car. That makes an easy decision. You can tell now that it wasn’t such a horrible decision if everybody is evenly split about should you keep it or should you sell.
Scott: I’ve got another question here. Do you think that your friends and the people you associate with begin to change as you go down this journey towards financial freedom and make the choices that you’ve made?
Pete: Yeah, there are two ways in which I hear they've changed for people. In one way, you find yourself attracted to new crowds, like maybe less consumer crowds are more in line with the kinds of stuff we talked about today, what to do in your free time. But also, friends strongly influence each other. So in my area, I feel without pushing it on them, a lot of my friends have become more interesting in financial independence and just living lives that aren't overly flashy. So I have several friends that are probably like multi-millionaires in net worth but you wouldn't ever tell it from anything they do. They have normal old cars. They do their own work. If the sewer pipe clogs, they'll rent the machine and clear it out. Rake their own leaves.
Mindy: That’s not a DIY tip that I will ever see—
Pete: You don’t have to. It’s for the readers. It’s for the listeners. Everything’s a DIY project you should try at least once, because otherwise you’re just being fearful. And then you make a decision afterwards and say, okay, now I know how much it costs and how it feels to do it myself. What’s my choice? And if you can afford to outsource stuff, you can absolutely do it. A lot of it has to do with what you can afford, too.
But anyways, friends change over time and they influence each other so if you are a positive, confident person and they see you have success with your way of living, then they’re going to start copying you and then you’ve got a happy little tribe that’s all helping each other.
Mindy: I will say that my sister has said to me just recently, I see how you and your husband are living and now I have changed the way that I buy things. I may still buy some things but I think about it first. Whereas before, she was like, I wipe my ass with a hundred dollar bill. I don’t care. I’m like, what? No, you can’t just not care. I guess you can but then you don’t get as much out of life if you spend money all the time. But anyways, she was like, yeah, I was at that Target the other day and I didn’t buy shoes because I thought, what would Mindy do? I’m so proud of you. That really made me feel good that I was able to influence her.
Pete: Yeah, it’s a good start. People should hear your voice virtually on their shoulders and then want to follow it.
Mindy: Yes. Would Mindy approve of this purchase? Ask yourself the next time you’re going to buy something
Scott: One more question, how do I convince my friends and family to—what’s a good approach to get them to kind of jump on the bandwagon? I think I came across as very annoying to many of my friends, maybe my brother, folks like that. Is there a good way to approach this that is maybe less intrusive, so that I can convince these people that I care about that this is a worthwhile goal that they should join me?
Pete: Yeah, it’s a common beginner mistake to try to preach to people. It’s a lot more confrontational to give somebody advice, especially if they didn’t ask for it. Strangely enough, you usually have to let it go with people in your life, especially ones where the emotional relationship might be a little bit tense, like siblings or in-laws or whatever. Instead, the best you can do is just live the way you want to live and be confident about it and try to show the prosperity and the success of your approach. And then it’s up to them if they want to copy you. And not everybody will. I have some people in my life that are completely swirling their own financial garments even after knowing how we live.
Scott: Can I steal that phrase?
Pete: Yeah. They’re still racking up debt on huge salaries and not biking places and just buying impulsive purchases even though they see debt and they know who I am and they know I have this blog and like, that’s fine. Never push it in these people’s faces and it’s not going to help. It’ll just hurt your relationship. Maybe they’re still happy with their lives and that’s totally fine. The important part is you and anybody who chooses to be inspired so the best you can do is making it look good so you don’t want to be—be conscious of your impression on other people and try to make it look good if you don’t want to look cheap or deprived or whatever.
Mindy: That’s a really good answer to that question. I’ve had that question a lot, too. Because once you discover it, you’re like, oh, I want to tell everybody about this awesome new thing. But everybody’s like, I don’t want to hear it.
Pete: Right. But they do want to be inspired. They do want what you have. If you have a good life, they want what you have. So if you want to inspire people, make sure you demonstrate that it gives them what they want. Everybody wants to be physically fit, for example—make sure you are if you want them to be like you. Everybody wants to have friends, make sure it’s obvious that you have friends. If everyone wants a house that looks nice inside and out, make sure your house looks nice inside and out if you want your friends to copy you. And they want to have a busy life, they want to be popular, they want to have a high social status. You have to demonstrate all of these things if you want anybody to want your life.
Scott: That’s a fantastic answer.
Mindy: That’s a really great answer.
Pete: Marketing. I came from a marketing family. My dad had an advertising agency.
Scott: Well, do you have anything else you want to add as it pertains—remember, the listeners are going to be folks that are working towards financial freedom, often from a standing start with little to no assets, maybe less than $100K. Any other final parting tips that we want to share with those folks? I think this has been incredibly inspiring in terms of what to do here.
Pete: I think you can start out small. Start every day with a list that you’ve written the night before. So right now, you’re probably looking at crap on your phone before you go to bed. Instead, shut your phone off and write a list of what you want out of your next day so that way, that’s what you’ll wake up to.
And when you wake up, your phone is not at the bedside table. This list is there instead. And then make sure that list includes one difficult thing and one outdoors thing and I think that’s a good enough habit that will get you to continue more habits and start improving your life. So something difficult, something outdoors, and then other than that, just keep reading and figuring out how to run things more efficiently.
Scott: Awesome. For me, I think being outdoors is definitely a big contributor to happiness that I didn’t really get enough of, I think, prior to at least—the amount of change for me was biking to work. Just having that little bit of time outside, I think, is a big boost to your average office worker as well. So I think that’s a really good point.
Pete: Everyone is so sedentary and they get outside so little. I’m just shocked. That has to be multiplied by ten for the average person before they even get started to be reasonable. So that’s why I always tell people to start with that. Start by parking your car a mile from work. If you’re stuck with a car commute right now, you’re going to fix that. That’s not acceptable. But for now, park a mile from work. If you can’t do that, park a mile from your house. Leave your car at the grocery store or wherever you’re allowed to park it and then walk briskly home after work so at least you’re getting that little 15 minutes of breathing in. That’s one example of how a suburban crappy life can be immediately boosted without having to buy anything.
Mindy: That’s a really great point. We have terrible parking at work and I’m always one of the first people in but I could park a mile away and walk to work. I’m only in the office a couple of days a week but—
Pete: Just scout it out. Find that there might be a neighborhood where there’s unlimited parking if you have a radius that big. Maybe there’s a park with a parking lot where you could park. Those are usually great places to leave your car. Yeah.
Mindy: That’s a great tip.
Scott: I think that’s a great tip and I’ll add to that. One of the things you can do also is you can put one of these cheap bike racks on the back of your car. If you’re in a sports sedan like mine and I found that very useful when I bike somewhere and then for whatever reason I have to leave it there and transport the car or whatever. That would encourage you to bike more when you can, even if you have to go pick it back up later. Just kind of getting started on that, I think, is a huge boost.
Mindy: Ooh, I could drive halfway to work and then bike the rest of the way. I do want to bike there one day.
Pete: Yeah, you can use the electric car or super electric bike and get there almost as fast as the race car.
Scott: I have one of those. If anyone wants to hear about the electric bike, I can talk about that. There’s actually an article on Mr. Money Mustache, I think, right?
Pete: Written by Carl on how to make a kickass electric bike that goes as fast as a car for almost a normal bike.
Scott: My big treat to myself this year. It’s pretty awesome. You feel like you’re flying on this thing.
Mindy: Always wear your helmet.
Scott: Should we wrap up and do our closing questions?
Mindy: Do you have those by any chance?
Scott: Um, we have—why don’t we skip the closing questions for now?
Pete: Yeah, you’ve asked a lot of questions already.
Scott: I’ve got one more question for you. What is your favorite joke to tell at parties?
Pete: Aw, geez. That is a ridiculous question. I don’t have a stash of regular jokes. I only operate on fresh jokes, printed on the context.
Scott: So you’re a big pun guy?
Pete: No, big puns are a really good source. I’m more of a preposterous exaggeration based humor person. But it has to be done spontaneously. You can’t just be like, hey, can you give us some of your best exaggerations? No, I’m not so funny.
Scott: Well, I believe we are in the soap shop so we might as well make a clean break. With that, we’ll move on. Thank you so much for taking the time to talk about this. It’s always great to hear your thoughts on every subject based on financial freedom so thank you.
Pete: Thanks, man. It’s great to hear.
Mindy: Thank you, Pete.
Scott: This was an awesome show. It was kind of surreal, almost, talking to one of my I guess heroes, someone who’s really changed my whole life, my whole way I think about life through his words on his blog. He changed the way that I approached my finances and all of my life and I’ve been reading his stuff for years. It was so great to meet him face to face and just chat with him for almost an hour about personal finance and his philosophy. And then of course, we were fortunate enough to hang out with him for most of the day, actually.
Mindy: Yeah, that was a really, really, really fun day. Pete, the personal finance hero.
Scott: Yeah, he’s a superhero.
Mindy: He’s a superhero. His super powers are teaching people how to break free of the chains of their job.
Scott: It was funny because, not that it was ever in doubt, but this guy really lives out everything that he says. He lives in his house that he constructed from scratch, which faces a beautiful park. We walked into town where he has this building that he’s been rehabbing and has installed a co-working space and a kind of like a soap shop, a crafts shop where he splits his building with his wife and a partner and they’ve got the shop there. They host events there. I mean, it’s just incredible. He works with his hands every day and does exactly what he wants.
Pete: Yes, and just to sit and talk with him, he is really just constrained financially. Okay, constrained is not the right word. He doesn’t blow money on stupid crap. That’s just not his desire. And it’s really interesting, with the success of his blog, he doesn’t have to just spend, I think he says $25,000 a year. But he still does. It’s just, I don’t want anything so I don’t spend any money on things that I don’t want.
Scott: The big pickup I got from him was it’s not necessarily the money. It’s optimization and happiness in general. How can you do something more efficiently? And I think that he gets a real pleasure out of doing things very efficiently as he should. That’s something that I got a lot of pleasure out of. He was talking about how he was able to get a lot of construction materials for this project for free.
Mindy: It’s almost like a game to him. Like, how little money can I spend? It’s kind of fun to spend some time with him and just watch him.
Scott: Yeah, it’s pretty amazing. Well, from us, a huge thanks to Pete, Mr. Money Mustache, for being our first guest on our first show. Very, very special and very, very awesome to get to hear from you and your philosophy. So thank you very much.
Mindy: And now, my selfish plea. We are a new show. This is Episode Number 1, and we currently have zero ratings and reviews on iTunes. So if you enjoyed the show, please, please go to iTunes and leave us a rating and a review and tell people about it and share the show so that we can continue to bring you really amazing guests.
Mindy: For Episode Number 1 of the BiggerPockets Money Show, this is Mindy Jensen. Over and out.