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Engineering Passive Income Streams to Fund the Life You Want with Financial Samurai

Engineering Passive Income Streams to Fund the Life You Want with Financial Samurai

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The BiggerPockets Money Podcast

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This week’s episode features Sam Dogen from Financial Samurai. After one month working for a top investment firm, Sam knew 70-hour workweeks were not the life he wanted.

So Sam took action immediately. Instead of fancy cars and dinners out, Sam shared a studio apartment with a friend and socked away HUGE sums of money—50% of mediocre starting salary. He invested in real estate (shocker), stocks, and bonds—and continued his massive savings rate.

Taking advantage of the economic downturn, Sam engineered his layoff and an enormous payout.

Sam now lives the life he wants, having set up multiple passive income streams during his working years. He spends time with his family every day and embodies the concept of financially free. He no longer trades his time for money; his money just simply reproduces itself and does all the heavy lifting.

This episode is a great look at how a little upfront discomfort can lead the your best life.

Click here to listen on iTunes.

Listen to the Podcast Here

Read the Transcript Here

Scott: Welcome to BiggerPockets Money Podcast, Show Number 46, where we interview Sam from Financial Samurai.

“I mean, just think about all the people ten years from now, they wake up and they wonder, where’s all my money? Where did it all go? And I think it’s because they didn’t forecast or measure and realize hey, ten years later, you might love your job for three years but man, if you do the same thing ten years in a row or maybe 15 to 20 years, you’re probably not going to like it as much”.

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: How’s it going, everybody? I’m Scott Trench and I’m here with my co-host, Miss Mindy Jensen. How are you doing today, Mindy?

Mindy: Scott, I am doing fantastic as always. I am so excited for today’s show. I’ve known Sam for about six years now through the blogging conference that everybody who listens is sick of hearing, FinCon. And his story just always makes me smile, from being super frugal while working in a fairly prestigious job to engineering his own layoff with a huge payout.

His story is just really fun to listen to and I want to remind everybody that we’re listening to a guy who is post-financial independence. He no longer has a formal job. He made smart money decisions his whole life and he is just sharing his experiences. So I think it’s fascinating and I know you’re a big fan of Financial Samurai, Scott.

Scott: Yeah, I’ve read Financial Samurai for years. I think he’s got some great, well data-driven posts and some personal perspective as well. Sam is the epitomy of a guy who has just done it right. High school, college, great job out of college, smart investing decisions, taking chances, getting lucky, having a couple that backfired but overall, seeing the rewards of smart decision-making over and over again over the course of a long career. And now at 41, he’s retired. He does exactly what he wants and what he thinks is best for him and his family and what a payoff. What an awesome story.

Mindy: Yeah, and this episode runs really long. So it is worth every minute. I really, really enjoyed listening to Sam. But before we bring him in, let’s hear a note from today’s sponsor.

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Mindy: Okay, huge thanks to the sponsor of today’s show. Let’s bring in Sam.

Okay, so Sam from Financial Samurai, welcome to the BiggerPockets Money podcast.

Sam: Thank you, Mindy. Thank you, Scott.

Mindy: I’m so excited to have you. I have known you or known of you for at least six years. I know that your blog has been around longer than that. But for those of you listening who may not be familiar with Financial Samurai, can you walk us through where your journey with money begins, because I really love your story?

Sam: Well, to start, my parents were in the U.S. Foreign Service so I grew up overseas in countries like Malaysia, Philippines, Japan, Taiwan and Zambia. So when I was growing up, I was really aware of the dichotomy between the wealthy and the not wealthy, especially in Malaysia when I was in middle school. I would have friends who were very, very poor—a family of five living in a studio. And then we were living in diplomat housing provided by the government and it was much nicer.

So from a really young age, I just realized, wow, there’s so much poverty and wealth out there at the same time coexisting. And I decided when I was a kid that I didn’t want to be poor. I wanted to be comfortable. I wanted to be rich. And so, it was from middle school onward that I really tried to think more about money and my parents were always really, really frugal.

For example, we would go out to a restaurant and my dad would always scold me for trying to order a drink because he would say hey, that’s like the highest margined product at a restaurant, so just have some lemon water, son. And you know, save us some money and be smart about it. And that was one of my first memories as a kid about money.

After that, I came to the United States for high school and college and I went to the College of William and Mary in Williamsburg, Virginia. So it’s the South, not the Deep South. And there, I was the minority there. There was only like 5% Asian folks there whereas when I was living in Asia, we were a majority. And after studying economics and Mandarin, I decided to join Wall Street and join Goldman-Sachs in New York City in 1999.

Mindy: Wow.

Scott: So going from middle school is when you kind of started thinking about this. To get a job at Goldman-Sachs out of college requires a pretty big commitment throughout high school and college, right? You’ve got to be getting pretty good grades and that’s got to be something that you’re kind of gunning for throughout both of those things. Was that a goal of yours going into high school as a result of your kind of experiences growing up in middle school and earlier?

Sam: So in middle school, my goal was to be a businessman because I would go to these random events and parties that my parents would take me to and we’d go to these really nice house parties with like a pool and some views and the hills and the city lights. And I always asked my dad, what do these guys do for a living? And he said, well they’re businessmen. One produced a beverage drink and another produced instant noodles and another was a chicken farmer.

So the chicken farmer, we checked out his factory before and was like, not really a sexy place but he drove a Jaguar and I was like, wow. Dad, this is so cool. Meanwhile, my parents are so frugal that they owned a paintless 1976 Nissan Datsun and I remember this to this day because I stole the car one midnight evening with my buddies and we took it out for a spin. It was like 1:00AM and the hubcap fell off.

And the hubcap fell off because it was monsoon season in Kuala Lumpur, Malaysia and when we returned, we stopped and we tried to look for the hubcap. It disappeared and went into a monsoon drain and when we returned and started the car back around 2:00AM, I was just waiting for a whipping because no hubcap. And then a week went by and my parents didn’t say anything. Because they, too, did not realize a hubcap was missing on our car. So there’s a real benefit to owning cheap, inexpensive things.

Scott: Yeah, that’s my philosophy. If you own nice things, you’ve got to surround it with other nice things. So if you don’t own anything nice, you’re perfect.

Sam: But to answer your question, I wanted to be a businessman and my parents were like okay, you’ve got to study hard in high school otherwise you’re going to screw your life up. And I remembered a ninth grader telling me on the bus one day, look, you have until the eighth grade to mess around. Once you start ninth grade, your grades start accumulating.

Well, enjoy the last year of eighth grade but let’s get cracking the books in ninth grade. And when I came to the States for high school, I mean I did okay. I was fine. It wasn’t a spectacular GPA or SAT. And I went to the College of William and Mary, which is a fine state school. Tuition was $2800 a year back then.

But I knew in college, wow, stock market looks really cool. International equities because we lived abroad for 13 years of my life, it looked really cool. And I felt like I basically won the lottery because I went to this career fair and one of the recruiters picked up my resume and then it was seven rounds and 55 interviews later that I was able to get the job.

Mindy: Wait. It took you 55 interviews to get the job at Goldman-Sachs?

Sam: 55 interviews. It was crazy. So I was invited to the Super Day, which is eight interviews all day. Six, seven hours. And I thought I think I did pretty well and they invited me back. And then I met the entire team on the derivatives desk and then the U.S. sales trading desk and then they said, come back, you need to meet more people and read this 1000-page book called Stock Options as a Viable Investment by Nate MacMillan.

I remember it was a 1000-page book and they asked me a question out of that book. And they said, you’re probably not the right guy, but hey, we like you. So let’s just try to find a spot for you. So I kept on interviewing around and finally, I met with the international equities folks, the Asian equities desk, I mean merging markets desk, and they finally said okay. Welcome aboard. So it was really cool.

Mindy: 55 interviews. That’s crazy. I’m sorry, I just can’t get over that. Scott, I’m sorry I interrupted you, Scott.

Scott: So your career started at Goldman-Sachs, which is kind of a stereotypical way to start a career that is going to be a successful financially, on the income front. Can you describe what that was like and what kind of your view with accumulating personal wealth and early retirement and how that kind of shaped out over your career there?

Sam: Sure. So I was interviewing in 1998 when Goldman was private. And I finally got the job in 1999 when they had just went public. So all the partners there were certainly worth tens of millions of dollars. Maybe hundreds of millions of dollars. I’m not sure. And I just remember meeting with my classmates—we call them classmates—and there were some really wealthy kids. I think one kid was the son of the Canadian Prime Minister at the time. Another kid was the son of one really senior Chinese government official. So in other words, I realized there was a lot of nepotism and wealth already established by these companies, at least back then, recruited.

But I wasn’t one of them. My parents worked in the government, middle-class. We lived in a townhouse and we had a 1976 Datsun, right? So I knew that I was really behind so I was like, okay, I’ve got to get my crap together because I feel like I had won the lottery. So I lived in a studio with another friend from high school for two weeks. And we just really buckled down whereas my classmates were—their parents were buying them condos or they were living in really nice places.

And after the first month of working, I realized that I could have last. Because we were getting in around 5:30AM and then we were leaving around 7:38PM, sometimes 10:00PM. Every single day. So that really puts a grind on your body and for me, I just couldn’t take it but I knew right there and there, I was really miserable and I knew that I couldn’t last 20 to 30 years in a typical career path like my parents did.

So I figured I might as well save as much as possible now in order to give me options in the future. And that was when I realized, it was important to forecast your misery. It’s like the best way to forecast your happiness. If you can forecast ahead how miserable you will be in 5, 10, 15 years, whether it’s with your relationship or with your job or with your business, then you can take steps, really concrete steps to free yourself of that misery.

Scott: What a great saying.

Mindy: That is a great way to put it because it’s real easy to forecast your happiness. Oh, I’m going to be happy for five years. Great, that’s awesome. How long do I get to be miserable for? I’ve never heard it phrased that way. That’s brilliant.

Sam: Yeah, I’m glad you like it. I mean, think about all the people ten years from now. They wake up and they wonder, hey, where’s all my money? Where did it all go? And I think it’s because they didn’t forecast their misery and realize hey, ten years later, you might love your job for the first three years but man, if you do the same thing ten years in a row or maybe 15, 20 years, you’re probably not going to like it as much. But if you didn’t forecast that, then you’re probably not going to save as much or bill as much passive income.

Scott: Quick question here, the hours of investment banking at Goldman-Sachs are legendary in the 80-100 hour work week. What you’re referencing there is along those lines, 5:30-10:30 and you’re saying literally every day of the week, including Saturdays and Sundays.

Sam: Not every day. So Saturdays, maybe we’d only work like six to seven hours. But I was in equities which is different from M&A and corporate finance. So I was dealing with the markets but I was dealing with the Asian market, so their markets would open up during our night times and Sunday afternoon, evening would be Monday morning in Asia. So you’d have to always be on. It could literally be a 24/7 job. But it was much more fun than corporate finance or M&A and working on pitchbooks and stuff.

Scott: Gotcha. And how long into it did you kind of come to that realization? Was that a month in or five months in or a year?

Sam: Oh, I mean the first month, it was brutal to get in by 5:30AM. We’d stay until 7:30 because one, we wanted to stay after our bosses left because it would be like bad if we left before them since we were costing and didn’t know anything.

But two, the cafeteria at 85 Broad Street, I remember clearly, it opened up—I think it was 7:30. And it was free food. So then we’d go and eat free food and we’d gorge ourselves like we were hibernating and we’d take some fruit and a little small box of cereal and put them in our bag and have some free breakfast in the morning.

Scott: Nice.

Mindy: Okay. So how long did you work at Goldman-Sachs?

Sam: I did it for two years and then I got a new job in San Francisco at a competitor. And it was interesting because this was 2001. The NASDAQ started rolling over in I think March 2000 and I was worried and a lot of people were worried about their job security, especially as second-year financial analysts. So a recruiter called my desk and they were talking to the VP and one of the VPs, she said I’m not interested but you should talk to my colleague who covers the West Coast. Because I was covering the West Coast clients who were investing in Asia.

And she said, yeah, talk to my colleague. So I talked to the recruiter and then I took a couple of sick days and I flew out to San Francisco, met with a different firm, and they recruited me which was great because Goldman ended up not renewing many, I would say, most of our third-year options and they ended up letting go or just not renewing I would say 80% of my class over the next couple of years. Nobody could survive. So some of the very special few would go from analyst to associate whereas most people just got cut and they had to go to business school or do something else.

Scott: What was your financial position kind of graduating college and how did that change in terms of your personal situation, net worth and all that kind of stuff coming out of the Goldman-Sachs two years?

Sam: So my financial situation was I remember I had $3000 after I graduated college, one because I decided to go to William and Mary really purposefully because it was only $2800 in tuition a year. My sister had gone to Smith College, which was $25,000 a year. And I knew what my parents were making, kind of. So I graduated with no debt. I had $3000 from savings and from summer jobs working minimum wage jobs. And I saw so much wealth around me and I figured wow, I’m so far behind, I decided to save, save, save. But I had a lucky break.

So if you were around in 2000, you may have invested in some random internet stocks, so I was on the trading floor. I had a lucky break. I invested $3000 in a company called VCSY, which was a penny stock and all it was, it had a dial pad on the homepage—this was 2000 so it was pretty normal—and it was like, you pressed different numbers to try to get to different pages and it was supposed to be a Chinese internet stock.

So this was the beginning of the Chinese internet boom and I was on the trading floor of Goldman-Sachs so I was like boom, so I bought the stock. I talked to my other buddies at the trading desk and they bought the stock. And then suddenly, it spread like wildfire and the stock went from $3 a share to $160 a share. So it was crazy. Something like that.

Mindy: In what timeframe?

Sam: It was within six months. Anyway, what I remember was that it was a $3000 investment that went to $160,000 in six months. And all I kept on thinking was man, I wish I had $5000 or something. Why did I only invest $3000? So obviously greed was speaking. And then it went to $160 and I was feeling amazing, and it started fading rapidly because everything was selling off. And then I sold it for like $150,000 or something like that.

So it was really good and then everything collapsed, right? Dot.com bust and everything. But I didn’t reinvest the money because I was transferring jobs to San Francisco so I wanted to keep cash. So that was kind of a lucky break. And then I realized, you know what? That was scary and that felt unreal so let me try to convert this “funny money” into real assets. So that’s when I really started looking into real estate and trying to get something that wouldn’t go poof overnight. So that’s when I bought my first place in 2003 in San Francisco.

Scott: So you have $150,000 that you generate in a really high speculative investment and that kind of allows you to make that first investment in San Francisco. What was kind of your accumulation rate while working those first two years?

Sam: So I don’t remember exactly but I know we didn’t get paid well, believe it or not. My first year base salary was $40,000 and I remember when I got the offer letter, I was like, wait, that’s it? $40,000? Which is not a lot in Manhattan so that’s why we partially lived in a studio and it was $1800 or something like that. $1700-$1800 for the two of us. But what I would do was, again, I would max out my 401K. I would live like a pauper. I would save and invest 100% of every single bonus. Literally 100%.

So the first year we didn’t make a lot. Maybe $40,000 base with $10,000 to $20,000 stub bonus. And then the next year, our base was only $55,000 and maybe we had like a $30,000 to $40,000 bonus. It wasn’t massive but obviously when you’re that young, it was pretty good.

Scott: Awesome. I mean that was just pure hustle for the first two years there. Plus $150,000 in a nice spin there. But like the majority, the fundamentals of what you were doing was going to work. It was just a big slog. And then you also had a lucky break through an advantage that you kind of spot with your job synergistically, right?

Sam: Yeah, there were synergies. But all I had was $3000 to my name. I mean, obviously starting to make money but $40,000 after taxes in Manhattan was not that much, even back then. And so you have to take risk. $3000 wasn’t a lot in absolute terms but in the percentage of my total net worth, which was $4000 then—I mean, it wasn’t a lot. I was going all in with what I had. And then you just kind of recognized—you’ve got to recognize luck. You’ve got to recognize when to get out. And you’ve got to recognize how to make money last for as long as possible.

Scott: I think it’s great. So you go into San Francisco. You buy a place. I think it sounds like changes. What’s your financial income and investment approach? What does it look like after you moved?

Sam: I think I got a raise to like $85,000 base. And I got a promotion to associate which was cool because I would skip the business school route, or skip the full-time business school route. But I continued being frugal because I went on Craigslist and I found a two-bedroom, one-bath, really dumpy place at the edge of Chinatown in San Francisco. It was a pretty rough neighborhood.

So I remember it was just really loud, really noisy, and it wasn’t that expensive. It was actually cheaper. It was $1600 for the two of us. So I got a raise and I lowered my rent by a couple of hundred dollars a month total. And then my girlfriend moved in and then she contributed a little bit as well. So I lowered it even further.

But I was pretty focused on not renting for my entire life because I was at $1600 for the two-bedroom so I was paying $800 and we finally moved to a one-bedroom. It was like $1600. We were there for like a year. And we hated our neighbor. He was just like this drunk guy and he always played house music until 2:00AM. So like that methodical nonstop bass sound when I had to go to work at 5:30AM. So I was like you know what? Let’s go buy a place.

So I had some gains and some savings from that stock and the bonuses. Let’s go buy a place. So like a day after my 26th birthday in 2003, I bought a two-bedroom, two-bathroom condo for about $580,000. That was good. I thought it was cheap back then actually.

Scott: What’d you do with that? Did you move in just you and your girlfriend or did you have a tenant or roommate that was renting out the other room or how did that work?

Sam: It was just my girlfriend and I. It was not that expensive. It was $2300 gross plus property tax. But then after the deductions and everything, it was maybe like $2000 which was kind of almost on par with what we’d want to rent for. $2000 a month was our cutoff. We wanted a nicer place but we didn’t want to spend more than $2000 in rent. If we had to do that, then we were going to go buy a place. So I remember that was the line in the sand.

And San Francisco is so much cheaper back then than Manhattan and it’s still so much cheaper than Manhattan right now, no matter what the media says. Because the media says San Francisco is more expensive than New York City. But I’m comparing more apples to apples. San Francisco, seven miles by seven miles and Manhattan. Manhattan was ridiculous. It is still 30-50% more expensive.

Mindy: Okay, so do you still own this property now?

Sam: I do. I paid off the mortgage, I think in 2015. And it’s good. I got some tenants there. They pay $4300 a month in rent. They haven’t bothered me in four months, which is great. Yeah, it’s there. Now, I look at it as a piece of diversification and kind of an insurance for when my son, if he grows up and decides he wants to live in San Francisco, I can’t imagine what rental prices will be in 24 years, but it’s kind of an insurance that, hey, here’s a place and pay for the cost of maintaining the place and give me some rent as well.

Mindy: Yeah, you said it’s renting $4500 a month right now?

Sam: $4300.

Mindy: Oh, $4300. And it’s already paid off so is there an association fee?

Sam: Yeah, it’s like $600. So the net is probably about $3000 or $3100.

Mindy: It just goes into your pocket that can contribute to your living expenses.

Sam: Yeah, so we kind of earmark that. To make it fun or more purposeful, we earmark the income from the rental property of that condo to actually, paying off our mortgage today. We have a mortgage on our primary residence right now. But that’s because we locked in 2.5%.

Mindy: So that turns out to be a really good investment. $580,000. In 2003, I was looking at $580,000 thinking, wow, that’s a lot of money. But I wasn’t living in San Francisco. So you said that New York is more expensive than San Francisco. Is that why you didn’t buy in New York? I mean, you were making $40,000 a year. Was there anything even affordable? I’m not that familiar with New York. I know there’s five burroughs and I don’t understand what burrough is.

Sam: I mean, again, I was 22-24 years old in New York. I didn’t have a big base income. I didn’t have a lot of credit history. And my parents weren’t rich. So yeah, I had the $150,000 gross windfall before taxes. I definitely would have tried to buy in New York. I was looking at this awesome place, a two-bedroom, two-bath, 1300 square feet, double balcony, facing the Chrysler Building. It’s like on 22nd and Madison. Amazing. $799,000.

I remember. And I thought, man, that’s a good deal. And if I had bought that, it would be $2.5 million today, for sure. For sure. But again, I wasn’t going to last at Goldman because I was like the public school guy that just snuck in the backdoor and the market was falling apart. So I had to leave. I went to San Francisco. And then it took like a year and a half to figure out where I wanted to live. And then I bought the place in 2003.

Mindy: Again, so what is that property worth now, the condo in San Francisco?

Sam: So here’s the thing. So my neighbor last year, with the same layout, sold—it’s remodeled—a little bit better than mine, for sure. It sold for $1.36 million. So maybe mine, let’s say it’s worth $1.3 million. So if you take $3100 net that I make from it times 12—that’s $37,200 and then you can divide it by $1.3 million dollars. That’s only 2.8%.

So if you think about it that way, it’s actually not great rental income. 2.8% net return and you’ve got to maintain the property and deal with tenants is less than what you can get on the risk-free rate of return for the ten-year bond yield right now at 3.15%. So you can invest in a ten-year bond yield, do nothing, relax and earn 3.1% and it’s state income tax free and you just have to pay federal income tax.

Scott: But you get appreciation on it and if you ever wanted to, you could theoretically move back into the property for two years and sell for a huge chunk of that tax-free.

Sam: Yes, you might get appreciation. Historically, San Francisco has increased by 6-7% a year, for sure. Yes, you could move back in and get a prorated exclusion. But I’m never going to move back into a place for two years. But I’m saying overall, compared to the heartland in America where I’m definitely moving my money to—heartland real estate, you can get 10% and you can do it maintenance-free now because you can invest in real estate crowdfunding.

So I think there is an obvious arbitrage going on where you take your expensive coastal city money and you plow some of that into heartland real estate, get the higher net rental yields and live passively. And then go rent in places like San Francisco, New York, Honolulu. Because even though rent on an absolute level is high, it’s great value compared to the cost of buying the place.

Scott: So what happens after you buy this place? What’s kind of the next period? It seems like this is where you start having the nice financial cushion. You’ve got a real estate investment and you just start to go a little better. What happens next for you?

Sam: So 2003 was a great time. I bought this place. I was going to see business school part-time at Berkeley. Finally, that was like 20 hours a week on top of 60-70 hours of work a week. So that was brutal. But I finally graduated in 2006 or something. Things were going well. I got promoted. And I ended up buying another property two years later in 2005 because I felt, you know, this property is just not good enough for me. Something like that. And I was doing well in my career.

So I ended up buying a single-family house in the north end of San Francisco for $1.52 million. I remember putting $300,000 down which was all my money at the time. Again, this was another theme, trying to go all in. Remember, it was $3000 for that stock. Now, it’s $300,000 all in for the down payment for this house because I felt I needed a house. Even though I didn’t have a family, I needed a house. And so I bought the place and I was immediately sweating bullets because I had a $1.2 million dollar mortgage.

And then of course, a couple of years later—I bought in 2005 and then about 2007, you can really start to see the cracks in the housing market and then things got crushed in 2008-2009. But the story is not over yet. In 2007, I bought another place, a Lake Tahoe vacation property because I got promoted to VP and I was on top of the world. I was making more money than I ever thought possible so I was like, you know what? Not only do I need a single-family home that I don’t need, I need a vacation property in Lake Tahoe for my family that I don’t have. Because I like to snowboard.

And I bought that because I was like, this is good value. The original buyers bought it for $810,000 and they sold it to me for only $718,000. I was like, wow, that was a great deal. And then of course, the financial crisis happened and that property ended up losing I would say 40-50% further in value. Which was crazy because everybody started foreclosing on their loans and I was the only idiot who was like, I’m not going to do that. That’s like dishonorable. And so I kept that.

Mindy: Thank you for saying that.

Sam: I understand people, why they did. Because they were so under and they were like, there’s no hope ever. But I didn’t lose my job. And so I was like, well, let me just own up to my obligations.

Mindy: Okay. I want to clarify my thank you. You had a job. I’m assuming that you could still afford the payment on the house and it was still worth to you the payment. What bothers me is not the people that lost their job and then had to quit paying because there was no money to pay their mortgage—that sucks. But the people who could still afford to pay their mortgage but now the house is so upside down, I’m just going to walk away. That’s not how it works.

Sam: Well, that is how it works. Do you know Carl Richards from the New York Times?

Mindy: I do know Carl Richards. I mean, not personally.

Sam: He’s a New York Times columnist. He’s got a book on teaching people how to be financially independent and all that stuff. But he wrote a big op-ed piece saying how he foreclosed on his home strategically during the crisis. And yet, after that he was able to get book deals and the column and everything.

So it’s interesting. In America, do we really not like people who welch on their debt or do we praise them for being strategic? So I made a mistake paying—I don’t think it’s a mistake because that’s part of my culture to just be responsible. But it’s interesting to see his rise to the top after not paying his debt.

Scott: I think it’s good perspective. And I think regardless of your opinion on bankruptcy protection, the fact that there is bankruptcy protection and you can do that is a good thing for the country overall because the alternative is kind of like a perpetual servitude in some ways. You can never pay off the debt. You’re just completely hopelessly out of this situation.

So I love the law itself and the protections it offers people to give them a chance to go around but I agree that there’s something a little—you go bankrupt or you foreclose and you lose your asset because of your irresponsible ability to handle your financial situation. Maybe that’s not the right way to give advice to other people or suggest that as a practice.

Sam: And that was an example—I have so many examples where I knew that I could make it in America if he could foreclose on his property and be able to write two bestsellers and be employed by the New York Times and get a huge following. I knew that that was a great example where anything happens to me—I didn’t do that, but I can succeed as well. So I always find these funny stories and these funny idiosyncrasies in society that motivate me to do better.

Like the Yahoo president who crushed his company and lied on his resume, but got $100 million dollar exit package. Or the latest guy from CBS, Les Moonves, who got $150 million dollar exit package for being a serial predator over the past 30 years in his career. I was like wow. That’s amazing. So I’m trying to tell my readers and my listeners, hey, this guy got a $100-$150 million dollar severance package. Why can’t you negotiate a severance package? And you’re a normal person. Believe in yourself.

Scott: Let’s talk about that for a second. So over the course of 2003 to 2007, you see the property value—what’s your income trajectory look like? What’s your career looking like during that period?

Sam: So I got promoted to VP in 2007 so that’s why partly why I bought the vacation property. And then I made the huge error of extrapolating my career and my income for the next ten years. So my forecasting was wrong. I had failed to forecast my misery there. So when you’re a VP, you probably make—back then, it was $150,000 base, $200,000 base or something like that and then you had a bonus. But then everything went away with those terrible bonuses down 50-100% and everybody was getting fired.

And so I quickly realized I made a huge financial mistake with the vacation property. The single-family home was like, it went up and then it went down. Maybe it was down maybe 5-10% of when I bought it but it was not that big of a deal. But I remembered sitting in my living room and I was thinking, man, I had spent so many years doing the right thing. Saving and investing, taking calculated risks. Working 70-80 hours a week. And I lost 30-40% of my net worth in six months. That took ten years to build.

So I was like, you know what? I’m going to start Financial Samurai. I’m going to start this site as a way to get over my fears and my grief of losing so much money so quickly. And I thought about starting Financial Samurai in 2006 but I had just graduated from business school and who has time for that? The economy was so good. But once the economy melted down, I thought, you know what? Now is the best time ever to not pick up smoking and not pick up drinking but use writing as a well to help myself out. 

Mindy: I like that. I’m not going to drink or smoke. I’m going to write instead. I like that those were your three choices.

Sam: There you go.

Scott: I will say, in 2007, the economy rebounds and Financial Samurai is getting going—what’s the buildup to you exiting your career?

Sam: So the buildup is Financial Samurai started in 2009 when basically, literally the bottom of the market, July 2009 if you look at the chart. I started, I hired some dude from Craigslist to help me set it up. I paid him like $1000 then or something. It was kind of painful but I didn’t know what I was doing so I got some help. I said, you know what? The hardest is to get going so I’m going to hire someone who knows what he’s doing to get going.

Once I started it, I had so much fun. I was just writing and writing probably three to four times a week just about everything from investing to getting your finances right to the crazy San Francisco real estate market to the downturn to people losing their money. It was just so fun. And it was so easy to do and so easy to connect with people.

So after about a year, I started making some sheckles and then after a couple of years, it started making a decent amount of money. Not a huge amount of money but like several thousand a month. And so I remember in October 2011, my wife and I were in Santorini, Greece. And so Financial Samurai had been running for two years and we were walking around for three hours hiking up the hill, riding the donkeys, and looking at the overpriced shops to buy some overpriced scarves. And I told her, I was going to go have a beer.

So I went to this amazing bar at the top of the crater, overlooking the water. It was 78 degrees. And there it was, Wi-Fi access. It was 2011. And I had my phone. So I whipped out my phone and I checked my e-mails and there was this guy who basically said, hey Sam, I would like to advertise on your site. And I said, okay, I’m in Santorini. What do you want me to do? And he said hey, can you put up this link to some random product on your homepage and I’ll pay you, I think it was like $1100 or $1200? And I said, $1200? Sounds good because this beer is like $10. It’s killing me.

And so he sent over the code. I copied and pasted the code onto my website. And I said, hey, it’s up. And then within 30 minutes, he transferred over $1200 over PayPal. And I was like, wow, this is awesome. And so I immediately ordered another beer. I was like, let’s celebrate. And that was like my lightbulb moment, October 2008 where I was like hey, this is so fun. There is life after finance. I’m bored out of my mind after doing this for 13 years and everybody who works in finance is a bad person, according to the mainstream.

So I want to get out and do something else. But I still had one fear. And that was the fear of obviously losing a steady paycheck. So I came up with the idea of engineering my layoff. Engineering my layoff is simply a way to negotiate my severance in a win-win scenario for the employer and the employee to get out so you have money in your pocket so you have a nice, long, financial runway so you can do whatever you want.

Scott: You’re prompting the question here. We’re waiting in anticipation. How does one engineer a layoff and what was yours?

Sam: Well, thank you for asking. I wrote a 150-page book on that but the essence is you have to understand that if you are employed you provide more value to your employer than your cost, otherwise you would be unemployed, right? So that’s 101 basics. So a lot of people, they think the honorable way is to say, hey boss, I love this place. See you later, smell you later. I’m going to give my two weeks’ notice. And that is exactly the wrong thing you’re going to do because you’re going to drive your boss crazy and scrambling to find your replacement.

So I knew as a producer, I generated revenue for the firm, that I had value. And I knew that if I had left or if I had gone to a competitor, that would be a net negative for them. So I had talked to other people who actually got laid off during the financial crisis and I understood what they got from severance. And basically I had a conversation with my boss when I got the courage to say, hey, you know what? I’d be okay without a job if I had a severance.

I said hey, look, I’m looking to exit and I’d be willing to transition my accounts to the junior person I hired a couple of years ago so we can have a seamless transition. In return, I would love to get all my deferred compensation of stock and cash. I would like to get my investment the company made for me during the financial crisis, which had a seven-year vest, unbelievably. And I would like to get a severance.

Initially, he was like wait, what are you talking about? But as he thought about it, as I sold him on the idea that look, I was no longer as hungry as the guy that I once was when I joined ten years ago and we’ve got this great replacement who is younger, who is hungrier, he warmed up to the idea.

So the key is really to recognize what your company’s needs are, what your boss’s needs are. And have an honest conversation about how to negotiate a separation agreement that is a win-win for us all instead of just quitting and leaving your boss in the lurch.

Nowadays, back then—I guess social media wasn’t as huge—but nowadays, you can torch reputations over social media. So every single company out there is afraid that some ex-employee is going to bad mouth them about some product, some inside information or something. And so I think companies are well aware now that they need to treat their employees right if they want to continue their business operation lines.

Scott: So this is a different—most people, I think, are not leaving their jobs unless they have something else lined up or other options. It sounds like you used the term ‘financial runway’ which I think is a great term for that. And you’re saying, you had us all built up in advance prior to coming into this. You were ready to go. And that’s from a position of power.

You were ready to kind of have those negotiation rights. This is from someone that’s like, most people go in and they’re like, I need a job. I’m going to switch jobs. And this job is going to pay me $5,000 more a year so I’m going to give my two weeks’ notice and take that one. You’re saying that this is a different approach here, right?

Sam: Well, this is a different but similar approach. Every single job is just kind of stepping into something else. Whether it’s early retirement, travelling around the world, spending more time with your kids, being a stay-at-home parent, or finding another job. Or going to business school. The bottom line is, never quit. Get laid. Never quit. Get laid off. Right? Another great tagline. Never quit, get laid.

So the idea again is if you want another job, don’t be a fool and quit on Friday and start another job on Monday, if you have another job lined up, you also want to negotiate with the other employer, hey, let’s start in a month or two months so I can have a wonderful vacation.

And that gives you the buffer to negotiate with your existing employer, hey, let’s work on a transition here where I do xy and z and you give me a severance and you know, xy and z like deferred stock options or whatever it is. There is always an ability to negotiate and what I’m trying to teach people and tell people is, you have more power than you realize as an employee.

I think people feel, it’s David versus Goliath, the big corporations have lawyers and HR people and they’re afraid of their bosses. What I’m trying to do is tell you guys, when you get out of the office, you guys are all equals, right? This is not like high school when you’re afraid of the bully or the popular kid or whatever. You guys are all equals. You actually have more power than you realize in today’s social media, internet world where doing the right thing is really, really important.

So it’s about having a conversation and being a wise negotiator. Because the easiest way is to quit. That’s the easy way, right? You break up with someone, you text them hey, I don’t like you. But the hard way is to see them face to face, buy them a beer, and then say I don’t like you and leave them a bill, right?

Mindy: Okay, so I want to take this idea and kind of use it within the context of people who are in financial independence. Let’s say I was going to quit my job. I don’t want to quit my job but let’s say that I was going to. What are some things that I can do and negotiate on with my company because there aren’t layoffs happening right now. Right now, BiggerPockets is hiring. You can find our jobs available at BiggerPockets.com/jobs.

So we’re not in the layoffs. And when I think it would almost—this sounds so mean. I don’t want it to be mean. I think it would almost be easier when there are layoffs, to say hey, I’ll go, too. But what’s something that you can do when you can’t, when layoffs aren’t happening?

I love the idea that transitioning it to a younger guy, to be around a new person and yeah, being around to smooth it over whenever. What are some other things you can offer your employer when you’re trying to engineer your own laid-off?

Sam: Let’s say you’re an outstanding employee or let’s say your company is not letting anybody go at the moment because it’s booming. Number one, no manager wants an employee who doesn’t want to be there. You don’t have to telegraph, hey look, you have to say your value proposition but in reverse. Everybody is trying to sell themselves on why they should get hired. You need to sell yourself on why you should get laid off.

Just think about it in reverse. And if you don’t want to be there, this is what happens. You start taking sick days or you might take all your vacations. Oh my gosh, God forbid in America, you take all your vacations, but it’s a faux-pas in America. You might take your Family Medical Leave Act, which is by law what is required—every employer allows that. Or you might want to talk about taking a sabbatical. So you put these seeds in your employer’s mind that hey, you know what? Actually, they really don’t want to be here and there are hungry people wanting your job. Let’s figure out a solution.

My wife, I helped her engineer a layoff at 34 in 2015 as well. And they were really scared that she was just going to leave. And because she basically stayed on, one of the strategies was, look—I want to leave. I’ve been here for nine years. I want to do something else. Okay. Instead of five days a week, I’ll work two or three days a week. In exchange, the business doesn’t fall down. Everything runs smoothly. We’re going to give you time to hire people from New Jersey to come to San Francisco.

In exchange, you’re going to give me full pay. So if you only work—let’s say you only work three days out of five days, you suddenly work 40% less but you get paid the same. It’s kind of like getting a 30% raise. So I’m using this as an example to show, hey, times are okay. If you’re a great employee, you still have options because once they realize you don’t 100% want to be there, they’re not going to want to keep you there.

At the same time, they don’t want to insult you and make you angry. So it’s a really delicate balance and also, no manager wants to lay anybody off. It’s the worst conversation you can ever have to tell someone they’re no longer needed. So you can help them help you reach that topic. A lot of good things happened. This is not money out of their pocket. It’s a corporation’s pocket. And they want some harmony there.

I think it’s great and I think that maybe one of the things that is more difficult here—it sounds like in your position, you were a power player at your company. You’re producing revenue. You leaving was a hit to like very tangible value that your firm could kind of attribute to your career and what you kind of produced there. What if you’re more of like a frontline customer support or early in marketing? How is that negotiation different or what does that kind of look?

Sam: It’s not really different because the fundamental reason why anybody has a job is because they produce more value than they cost. It doesn’t matter what they do. Yeah, some might make more because they produce more revenue or more value. And some might make less. But there will always be the case that there is a margin where the employer gains more of a benefit than you cost. And that is why every single employee can ask for a raise. But most people don’t because they’re afraid.

And so it’s about believing in what you’re worth. And so for example, if you’re employed by BiggerPockets and you’re doing this podcast, maybe you guys can do some numbers on the growth of the podcast numbers, see what kind of revenue it generates, the traffic figures—how much time you spend—and then you say, hey guys, look at this trajectory. But hey, my salary has been flat for the past twelve months—it’s time to follow that line upward.

Mindy: Sam, I’m going to call you when we’re done here. Scott, can I schedule a meeting with you tomorrow?

Scott: Nice.

Sam: Whatever the case, again, know your worth because if you have a job, you’re worth more than what your salary is.

Mindy: That’s really true. That’s really awesome. So I’m going to ask you in a minute where you can discover your worth. Is there any place online that you can go? But I want to address this to specifically the ladies. I don’t know about men because I’m not a man but there is this common theme among a lot of women, who they don’t push for themselves. They don’t advocate for themselves. They don’t want to put it out there. There’s guys who do that, too, but I’m not talking about them. I’m talking about the ladies right now.

This is really important. You are worth more. You’re worth something. So if you’re working for free, stop. Look at your salary. I look at a job and for four years, I never had one raise. Because we were having financial problems. But I was still bringing value and I could have used this podcast 12 years ago when I was working there.

Okay, so let’s talk about where you can look up where your worth is. I know there’s Glassdoor. Is there any place else you can look? And there’s big discrepancies and different jobs in different areas of whatever, but to give a general idea, if you’re making $30,000 a year but the going salary in your area is $80,000 a year, you should have a conversation.

Sam: Well yeah, I mean obviously I think a rough rule of thumb is if you go on the open market to do your same job elsewhere, you can get a 25-30% raise immediately. I would think that’s a standard. Whatever you do. More or less, it’s about there. For my case, I was helping my wife engineer her layoff. She was always the one who is, I’m happy, I don’t want to look elsewhere.

I said, look, you are worth more than you think. Let’s go. So talk to your competitors. Just have an open conversation. They want to know just as much as you do. Have open dialogues. Can you give me some guidance on how much you get paid when you’re talking to some competitor?

Yes, you can look online but all those online figures all seem funny enough, really light. They are always lighter than reality. So talk to people. Talk to people and find out what your competitors are getting paid and if you are not getting paid that, then you are getting underpaid. It’s the market. It’s a fishing market.

But people are inefficient because of fear and because of laziness. They just don’t want to rock any boats. You’re going to regret in 5, 10, 20 years if you didn’t fight for yourself as hard as you should. That you weren’t as direct as you should. Because nobody cares more about you than you.

Mindy: Perfect.

Scott: So let’s go through years. So if I’m thinking this right, 2012, you negotiated this for yourself. What happened after that?

Sam: So 2012, in the spring, I negotiated a severance. I got, I think it was three months of WARN Act Pay, which is Worker Adjustment Retraining Notification Pay. It’s a law. A lot of people confuse the mandatory WARN Act Pay of one of the three months as a severance, which it’s not. It’s the law. And then I got a severance check. And then I got over the next five years, my deferred cash and stock compensation. Every single year for the next five years.

So my last severance associated payment was in the spring of 2017. So I knew that if all else failed, if I miscalculated my passive income figures, if the markets rolled over again, if Financial Samurai never went anywhere, I could live off my severance for the next five to six years. And from there, I was like, well my wife still didn’t want to leave. So I told her, look, she’s three years younger than me so I said if I’m still alive and we’re still okay after two years, you’ll be 33, we’ll consider negotiating a severance for you as well.

So for the first year, she was like no, I love my job. And the second year, she was like I hate this. And the third year, she got passed over and she was really pissed off and then we were like all right, let’s go, let’s negotiate. She was 34 and a half years old. We believe in equality. So I left at 34 and a half and I was like, let’s do it. Let’s do 34 and a half as well.

So during that time, we basically travelled around eight weeks a year. We checked off all our bucket lists, did all that, and I negotiated her severance in 2015. And then basically we tried to start having a family and just building Financial Samurai and living free. And our son finally came in 2017.

Scott: Well, congrats on all of those things. Particularly the most recent one, is your son. That’s awesome. So in transitioning here, you kind of follow the standard financial advice of live extraordinarily frugally at like $40-$50,000 a year and only spend 4% of your income each year. Is that correct? I’m kidding, obviously.

Sam: No, no. That’s not really correct.

Mindy: No, it’s not 4% of your income.

Scott: Oh, 4% of your net worth. I’m sorry.

Sam: Yeah, no. Basically, when I left, I had $80,000 a year in passive income and that was from real estate, dividend stocks, CDs, savings, and just some random private investments. So I knew $80,000 a year in passive income would allow me not to starve in San Francisco. Further, my housing by that time was not that expensive. And then my wife worked, right? So I’m going to get on her healthcare. I’ll go first. She’s three years younger. I’ll go on her healthcare so I knew that $80,000 plus healthcare plus my wife, we’re fine.

And then, of course, there was the severance. So what I did actually was I reinvested the entire severance check into the stock market in 2012.

Mindy: Nice timing.

Sam: Thank you. I thought it was just free money. I was like, wow, this is like winning the lottery. Let me just invest the money. It was a six-figure lump sum into the stock market and I said, okay, I’ll live frugally. Passive income—this is the thing. I tried so hard—not so hard. I put my house that I bought for $1.52 million on the market in 2012 for $1.7-$1.75 million. And I said you know what? I’m unemployed now. We’re retired. I need to live more frugally so let’s sell this house while the market recovered, right?

Because it was probably worth only like $1.4-$1.45 million during the depth of the crisis. But I thought maybe I could sell it for $1.7. Maybe a $200,000 gross gain. And I thought okay, we’re going to sell this house. It was like a 2100 square foot house, three bedroom, 2.5 bath plus a one-bedroom, one bath bonus room. Too big for us. There was only two of us.

And we’re going to go rent a two-bedroom, one bath place like the place that we rented back in 2003 at the edge of Chinatown for $2400 and live really, really frugally. $2400 a month might not sound like that little but it’s little for San Francisco for two people as well. And so I put the house on the market. Facebook had just gone public. I was like you know what, we’ve got all these multi-millionaires. They’re going to snatch this house in a jiffy.

So my tennis buddy was my listing agent. So we showed it multiple times, like 15 times, private party. It was off-market. Still kind of on-market but off-market. And nobody put in an offer. And my agent friend said, I got some whispers for way under asking, maybe like $1.5 or $1.6 million. I was like, screw that. I’m just going to hold onto the house. And thank goodness I did because 2012 was literally the beginning of the real estate market taking off in San Francisco.

So we lived in that house until 2014 and I still had a really frugal mindset, mind you. So I had like a CD that came due. It was like a large CD. It was like a $400,000 CD. It was a seven-year CD earning 4%. And I said, you know what? What should I do with this CD? And so I was looking at the properties on the west side of San Francisco, which was much cheaper. It’s like 40% cheaper. And I found this fixer-upper for $1.25 million. But it had panoramic ocean views on both levels.

And I was thinking, wow, I had never seen the ocean before and I’m in San Francisco. It didn’t make sense. So we basically took that property down and rented out the old house that I tried to sell in 2012. And that was the house that gave me a lot of headache because it became like a party house. It was four to five dudes all the time. You know when you think about tech bros in San Francisco?

I swear to God 90% of the perspective tenants were all guys. And it was all dudes. Given I’m an equal opportunity person, I rented out to all dudes, and you know they threw parties and they ran on the roof across to the neighbor and I got complaints and they tore up things. It was like ridiculous. But I was getting $8800 a month in rent.

Mindy: What was your mortgage?

Scott: For a three-bedroom house.

Sam: So it was four-bedroom, 3.5 bath really.

Scott: Okay.

Sam: Which is a lot, right? Because I would never—see this is something people don’t think about—I would never pay $8800 a month in rent for my house. And when I realized that, I was like, I’ve got to rent it out because I’m not willing to pay that much for my house. Although this was like an economic waste, right? So I rented that out for several years until my son was born in 2017. I was like there is no way I can be a good dad and still have to deal with these crazy tenants who were not paying on time, wrecking the house, and everything.

So I was like, you know what? My original plan was to own this property forever. It would be kind of like our insurance policy for all of us just in case because I believe in 20-30 years, San Francisco properties will be more expensive. But I just couldn’t. It was like a war of attrition. I could not survive being a landlord and I could not survive paying $23,000 a year in property tax alone for this house. And so I said, okay, let’s try again. Let’s try again. I did a pocket listing again.

And I said if I can get $2.5 million. So remember, I tried to sell it for $1.7 million and I didn’t get anything. And it was after 30 days so I took it off because I was embarrassed and I was mad. So I was like, if I can get $2.5 million, I will sell this house and I’ll forget my dreams of owning a nice single-family home on the north side of San Francisco. So I said, okay, I think we might be able to get it. Let me ask around. And so in one week, we got an interested party who offered—

Scott: And that’s all the time we have for today’s episode, everybody. Oh, sorry.

Sam: And then I was like okay, $2.5 million, baby. Come on, baby–$2.5! Doesn’t that sound good? To me, it sounded ridiculous. $2.5? Nobody wanted to buy it a few years ago for $1.7. And then she goes, Sam, I’ve got an offer. Okay, what is it? You’re going to be happy with this. I said, okay. Tell me. $2.6. I was like, what? $2.6? And here it is in writing. I was like wow, that’s amazing!

And then I talked to my wife and I was saying, man, I really feel bad selling this property. I mean, I want it for my family and all that. And so we rejected them. And we said, how about $2.8? Why not? Because we actually didn’t want to sell the house. But we were also stressed out of our minds as new parents. And so, long story short, we went back and forth and then they finally agreed to $2.75.

Scott: Wow.

Sam: And they were terrible on hitting their contingency deadlines. They failed the financing contingency and then the construction contingency. Everything went late. But 45 or 50 days later, we closed and that was the end of my single-family home that I bought in 2005.

Mindy: You made $1.25 million off of that?

Sam: Gross.

Mindy: Yes, yes. Okay. So that’s an interesting number. I wrote down $1.25 million for the fixer with the panoramic views of the ocean. Did I write that number down right?

Sam: Yeah. That’s what I bought it for in 2014. And so in 2014, I bought a house for $250,000 for about 20% less than I purchased a house for in 2005 when I was 28 years old.

Mindy: And what was this fixer-upper?

Sam: So the fixer-upper was $1.25 million in 2014.

Mindy: And how many beds and baths and all that?

Sam: Three bedroom, two bath. Just really standard 1900 square foot house. Nothing fancy. So everything is relative, right? So in 2014, I spent less than I spent in 2005. Yet my net worth is much higher. Because I realized the key again is don’t let obviously your lifestyle and your expenses inflate with your net worth. There has to be some kind of break.

Scott: I love it. What is your kind of situation right now, and what are kind of your plans for the future going forward from all this?

Sam: Yeah so, I walked away with $1.8 million from the $2.75 million after fees and all that stuff because I was paying down the mortgage after all those years as well. So I reinvested $1.8 in 30%. It was like a 30-30-30. 30% bonds, 30% stocks, and then the rest in real estate crowdfunding. So that was my shift. So I did $550,000 of $1.8 million into real estate crowdfunding to take advantage of higher rental yields and lower evaluation markets.

So far, it’s been good although you are seeing cracks in the real estate market. But whatever happens, I feel fine because the house that I sold for $2.75, I had $815,000 mortgage. So by selling it, I at least leveraged at by $815,000. And then I diversified the proceeds from one single expensive home in San Francisco to bond, stocks, and real estate crowdfunding at a lower valuation.

So I feel fine. I think things are going to be okay. I always feel a little bit nervous that there’s going to be another downturn again, because again, I lost 30-40% of my net worth in six months in the last downturn. And I don’t want that to happen again. That’s like rule number one after you become unemployed is never lose money again.

Mindy: I think that’s work stuff. It’s rule number one, never lose money. Rule number two, see rule number one.

Sam: Exactly. Exactly. And there’s more at stake here. My wife doesn’t work. I have a child to take care of. I have no job and the net worth figure is much larger.

Mindy: But you’re in bonds. I’m surprised to see you say you’re 30% in bonds from that reinvesting. From reinvesting $1.8 million in bonds because you are fairly young and you’ve got a lot of growth potential. Although after the week the stock markets had, maybe that looks a lot smarter.

Sam: I can’t time the market or anything but I can properly asset allocate based on my risk tolerance. Even though I’m 41 years old, I am investing like maybe a traditional 60-year-old. Again, because I am not willing to go back to work to make a full-time income because I don’t want to miss out on the first five years of my son’s life before he goes to kindergarten.

So after he goes to kindergarten, I’ve told my wife, we can go get full-time jobs if we want or need to, when he’s in school most of the day. But before then, let’s see if we can go all in and be parents. I’ll write on Financial Samurai and keep that thing alive and we’ll see what happens. Because I feel that I have a saying, and I’ll teach my son this—never fail due to a lack of effort because effort requires no skill.

I never had much skill or talent in much of anything but I really wanted to try really, really hard because my biggest regrets all the time were if I looked back and I didn’t give everything I had. And so as a parent, I don’t know exactly how to be a parent because there’s no manual. There’s all these books I’ve read but I don’t really know so I want to look back.

Just in case my son turns into a problem child or something, I can say hey, we did our best in this time period. There’s nothing more we can do. Maybe we could have neglected him a little bit more and maybe he would have turned out better but I think we didn’t want to regret not doing our best in that case.

Mindy: Okay, before we transition to the Famous Four questions, I would like to know one last thing. What is your passive income now?

Sam: Passive income now is about $215,000-$225,000, something like that.

Mindy: A year?

Sam: A year. Something like that.

Mindy: Oh. That’s not bad.

Sam: It’s good from $80,000 in 2012 and the passive income is obviously generated from active income from Financial Samurai. I continued to basically plow the large majority of revenue from Financial Samurai into passive income investments but also, we’ve had a huge bull market since 2012. It’s not skill. It’s just hey, the markets are up huge.

And again, remember, San Francisco real estate market, it was up like 80% since 2012 and I sold in 2017 and then I converted that $1.8 million into more passive income. So I’m really trying to continuously build passive income. If you check out my site, I have a post that says $300,000 in San Francisco is a Middle-Class Lifestyle. And people might scoff at that. But if you read the Department of Housing and Urban Development, they say $100,000 per kid is low-income.

And all the reports, after I published that post—all the reports say hey, look, you need $300,000 a year to afford a home in San Francisco. And I go through the detail budget of where that $300,000 goes and it goes pretty quick, not just the taxes. But if you don’t win the San Francisco public school lottery system, which we think we will win, then we’re going to have to go to private school and private school is $20,000-$50,000 a year after tax. So it’s always good to have goals. We’re at like $220,000 now and our goal is to get to $300,000 by the time our son doesn’t win the lottery and has to go to private school probably, in four years.

Scott: One of the things I think is interesting about your commentary in general here at a high level is you planned initially a fairly frugal lifestyle and your income and assets expanded and now you have the situation, you’re retired and you have lots of assets. You have millions and millions of dollars and hundreds of thousands of dollars in passive income.

And you’re still worried because you’re thinking hey, this is my kid. This is my lifestyle. I want exactly what I want and I want the absolute best situation here and I’m going to continue going after things and creating a situation that’s capable of sustaining exactly what I want.

And I think that’s a particularly interesting commentary if I’m picking up on that correctly because I think a lot of people go into this with I’m going to live at this expected level of income and lifestyle forever and I made—my needs and wants may change after, as life goes on and will probably increase in terms of that.

Sam: It will definitely increase because of just inflation but what happens is once you have a kid, you will love your kid more than anything in the world and two things will happen. One, I think you’ll wish you had your kid earlier so he or she can be a greater percentage of your life because you think about your life and your mortality more. But two, even if you can afford things, you have two options for your kid.

The problem is this is why tuition is so inelastic. It’s so expensive. Because they know that parents are going to be like, well, for $10,000 more, are we really willing to sacrifice our kids not getting the best? This is the thing that I think a lot of parents struggle with, at least here in San Francisco and maybe New York and a lot of the bigger cities.

It’s such a grind. So the grind and the rat race go from work to how to best provide for your kid. And that’s one of the reasons why I want to get out of San Francisco. It’s one of the reasons why I left at the north end of San Francisco where it’s a wealthier neighborhood and I moved to the west side because it’s a very middle-class neighborhood. The price that I bought, $1.25 million was under the median home price in San Francisco. Again, everything is relative, right?

And it’s just a much more middle-class neighborhood. I just want to get out of that grind. I don’t want to go downtown. I don’t want to hang out downtown with people who are going to talk about their next tech startup and their billions of dollars. It’s just annoying. And so I hope if we can go to Honolulu, it’s a really family atmosphere, right?

We had to work Ohana. We had multi-generations living under one roof. And it’s one of the highest child per capita populations in the country. Maybe it is the highest whereas in San Francisco, we’re the lowest. So the different stage in my life, and I’m going to have to try to figure out how much to give and how much not to give to allow my kid to be independent and not to be spoiled rotten.

It’s a real challenge and I hope that based on our frugality and our lifestyles, us growing up—we’re still really frugal, that he can learn to only believe that he deserves only what he has earned. And I think if he can believe in that and some other principles I talk about all the time—like never failing due to lack of effort because effort requires no skill—I think he’ll be fine. I don’t know. I’m a new parent so I’m just going to do my best.

Mindy: That’s really all you can do. It doesn’t get any easier as they get older. Sorry to spoil.

Sam: I’m sure it’ll be quite a journey.

Mindy: Okay. So this was super fun. I’m very glad you were able to come on the show with us. We just have a few more questions for you before we let you go today. I know we’ve gone really long because you’ve just had a lot of really great information to share.

The next portion of our show is called the Famous Four questions. These are the same five questions that we ask all of our guests. The last one is the easiest for you to answer. The first one is what is your favorite finance book?

Sam: Yeah, so besides How to Engineer Your Layoff: Make a Small Fortune by Saying Goodbye, written by me and should be read by everyone, I don’t have a favorite finance book. My favorite book is Healing Back Pain by Dr. Sarno. And it’s a wonderful book that talks about what the hell is going on with the explosion in lower back pain and chronic pain like sciatica and it’s because society has just gotten crazy and we’re all so stressed out.

And that hey, this is how you heal this chronic pain. I remember I had chronic pain for a couple of years and it was terrible. I couldn’t even sit down. I read this book and two months later, I was back pain free and it’s been pretty much back pain free for at least ten years.

Mindy: That’s good. Back pain is—that was not the answer that I was expecting. It has never been mentioned on our show before but you know what? I have had some pain in—not chronic pain because it did go away. But when you’re in pain, you can’t really focus on anything else.

Sam: No. Being pain-free is super important. Health, feeling good. You get that down, you can do a lot more with your life.

Mindy: Very true.

Scott: What was your biggest money mistake?

Sam: Biggest money mistake was what I mentioned in the podcast, buying a vacation property in Lake Tahoe in 2007 where I thought it was like a 10% discount and it went down another 40-50%. But I still own it and I didn’t welch under my debt and I’m excited, excited, excited to take my boy to touch the snow. This is something I’ve been dreaming about for 11 years so I’m excited to take him there.

Scott: Awesome. So it doesn’t sound like a big money mistake to me at the end of the day.

Mindy: Yeah, what is it worth now?

Sam: It might be worth $700,000. Probably not. It’s still probably under what I bought it for. Thankfully, what happens is as you get older and you get wealthier, hopefully, it just becomes a smaller and smaller part of your net worth, so then your mistake gets smaller and smaller as well.

Mindy: That’s a good way to look at that. What is your best piece of advice for people who are just starting out?

Sam: Okay, the best piece of advice I can give is if the amount of money you’re saving each month doesn’t hurt, you’re not saving enough.

Mindy: Love that.

Scott: I like that a lot. I’ve never heard that.

Sam: Yeah, it’s like if you’ve ever had braces, if you’re not feeling the pain in your teeth, then it’s not doing it.

Scott: Here’s the most difficult Famous Four. What is your favorite joke to tell at parties?

Sam: Oh, man. Gosh. I should have prepared for this because I think you guys gave me a heads up. I don’t have a joke. Oh, my gosh. I have really bad jokes. So I can’t online. No, I can’t say online. I should have prepared for this. I don’t have a joke.

Mindy: That’s okay, I have people who send me jokes.

Scott: Yeah, someone just sent me a joke today.

Sam: I want to hear ya’ll’s jokes.

Scott: This one comes from Vaughn who e-mails me a joke pretty regularly now and this joke was, I like taking photos of myself standing next to boiling water. My doctor says, I’ve got selfie steam issues.

Sam: Oh, man. That’s terrible. That’s a terrible joke.

Mindy: That’s the kind of joke that gets told on this show. So if you don’t have one, that’s totally fine.

Sam: I have really bad just can’t be talked about jokes. They’re terrible jokes. So I’m going to have to pass. I don’t know—I’m going to work on that, though. I don’t go out much anymore because I’m a stay-at-home dad so I don’t have to entertain anybody anymore.

Mindy: Well you’re going to have to entertain your son. Pretty soon, he’s going to be telling you these terrible jokes. So I don’t remember who sent this in and I can’t find it in my e-mail. I’m sorry for you who sent it in. What do you get when you cross an elephant with a rhinoceros?

Sam: A big animal.

Mindy: Elephino. So there you go, Scott. Terrible, terrible, horrible joke. My daughter just had one and it was really funny. I need to remember it. She actually has a lot of really good jokes. When they come out of her mouth, they’re funny. When they come out of Scott’s mouth—

Scott: They’re even funnier. All right. Where can people find out more about you?

Sam: You can just go to FinancialSamurai.com and I’ll be there and you can see all my articles and go to the About page and that’s the best way. Actually, I have a forum, I haven’t told anybody really except for my newsletter guys because I’m really too busy. But FinancialSamurai.com/forums with an ‘s’.

Mindy: Awesome.

Scott: Definitely go check out FinancialSamurai.com. You’ve got incredible data-driven posts that have gone on for years. I’ve used the resource for many years myself personally so it’s been a huge privilege to chat with you today and get to know you. And I definitely recommend all the listeners go and check it out for some really good data and some really good perspective on your site.

Sam: Thank you very much and I’m going to work on my jokes. It was really a privilege to speak to you guys as well. Literally nobody asks me to do anything so whenever someone says hey, come on board, someone says okay. Sure. Because I feel like I’m just out here in no-man’s land in San Francisco.

Mindy: No-man’s land in San Francisco. Yeah, there’s just nothing as far as the eye can see out there.

Scott: They don’t even have internet out there.

Sam: There’s nothing here. I wish there was a bigger community of people in the finance space, but it’s New York and it’s the heartland. And maybe Portland or something. But nobody here for some reason.

Mindy: Yeah, Portland has a big—the heartland definitely. But I think it’s easier because it’s so much cheaper to live.

Sam: But Portland, I guess it was not that expensive but now it’s getting more and more expensive. Portland has a really good personal finance and also location independent lifestyle folks. So that’s pretty cool.

Scott: Well, should we get out of here for this episode?

Mindy: We should. Thank you so much, Sam, for coming on and sharing your story and we’ll talk to you soon.

Sam: Thanks a lot.

Scott: All right, that was Sam from FinancialSamurai.com. What’d  you think, Mindy?

Mindy: That is a whole life lived in half of the time. So now he’s got the rest of his life to kind of do more stuff. It sounds like he’s not going to stop. Which I think is very interesting. You know, a lot of talk in the media lately about financial independence and what are you going to do afterwards or why do you want to just quit your job?

I think this has been said several times by a lot of different people but the drive that gets you to the point of financial independence is the drive that isn’t going to allow you to just sit around and watch TV and do nothing for the rest of your life. And Sam now has a little boy to keep him on his toes.

Scott: I mean, you can tell that Sam is a wealthy man. He’s a guy that’s made smart choices over a long career and for all of the retired, stay-at-home dads—this is a man that is going to become wealthier and wealthier over time, is not going to end up 30 years from now less well off than he is today.

I mean, he is a smart, high-level view of finances. He understands what he needs to do it hit that position. I think that frankly, more people need to think like him in order to get ahead. The theme, that I was picking up from him was a ferociousness about standing up for himself and his interests. We talked about the severance package, those kinds of things. Why aren’t you stick up for your interests in a way that Sam does and putting yourself in those situations to get it the way he did.

Mindy: I like what he said in the show—nobody cares more about than you. So start caring more about you. Stand up for yourself. That’s absolutely right. And there’s nothing wrong with standing up for yourself. When you’re being picked on by a bully, you stand up for yourself. You’re taught to stand up for yourself. Stand up for yourself in all areas of finance as well.

Scott: And put yourself in a position of power, right? I observed earlier that maybe you’re Marketing Specialist I or something and you’re just starting off in your career, the power that Sam had was built up over the course of him applying his mindset consistently. It’s not like Sam is unrelatable or ahead of my career, or a different career or had my position.

It’s how do you put yourself in a position of power like Sam over the course of a career and make the smart investments? Look, it was a combination of living frugally and investing aggressively and going all out for his career. That kind of got him ahead. What’s unrepeatable about that? Effort doesn’t take skill, right?

Mindy: Yeah.

Scott: What was his quote there? He had a great one.

Mindy: He had a great one. Never fail due to a lack of effort because the effort takes no skill. I really can’t add to any of that, Scott. That’s just like spot on. So I am going to say, from Episode 46 of the BiggerPockets Money podcast, this is Mindy Jensen and Scott Trench and Scott has to catch a plane so goodbye!

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In This Episode We Cover:

  • Sam’s money journey
  • His first memories about money
  • What his career at Goldman Sachs looked like
  • His financial position after graduating from college
  • A look at Sam’s first investment
  • How he realized it was time to start converting his money into assets
  • A discussion on bankruptcy protection
  • How he started Financial Samurai
  • The story of how he engineering his layoff
  • The importance of negotiating a severance package
  • Where you can check what your worth is
  • What he did after his son was born
  • His plans for the future
  • His passive income now
  • And SO much more!

Links from the Show

Books Mentioned in this Show

Tweetable Topics:

  • “It is important to forecast your misery. That is the best way to forecast your happiness.” (Tweet This!)
  • “Never fail due to a lack of effort, because effort requires no skill.” (Tweet This!)
  • “Don’t quit. Get laid off instead.” (Tweet This!)
  • “Know your worth.” (Tweet This!)
  • “Nobody cares more about you than you.” (Tweet This!)
  • “If the amount of money you’re saving each month doesn’t hurt, you’re not saving enough.” (Tweet This!)

Connect with Sam