Scott: Welcome to BiggerPockets Money Podcast, Show Number 73, where we interview Ramit Sethi, author of I Will Teach You to Be Rich.
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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 over the moon about today’s guest. Ramit Sethi. Most of our guests tell their story of their journey to financial independence and although we’ve got some great tips and tricks episodes, too, like Erin Chase from Five Dollar Dinners on Episode 3 and Rosemary Gruener from The Busy Budgeter on Episode 4, and this episode is another tips and tricks show.
Ten years ago, Ramit wrote a book called I Will Teach You to Be Rich. And he’s back now with an updated version.
Scott: Yeah, Ramit is just a wealth of knowledge in the concept of personal finance. I think as it applies to a lot of people like you guys who will be listening to this podcast here. And he’s just studied this concept over the last decade or multiple years before the last decade, right?
He’s just kind of engaged in lots of debate, listened to lots of stories and has a compilation of things about what he thinks are approachable and effective ways to automate your finances and build your position, increase your income, all that good stuff.
We debate real estate investing. We talk about first home purchases. We talk about everything on the show and man, he is a great debater and great conversationalist, great tips, great knowledge.
Mindy: Yeah, he is a powerhouse. He is a wealth of knowledge and I encourage everybody to listen to the entire show all the way through because he doesn’t stop bringing it for the entire hour and twenty minutes or hour and thirty minutes that he’s talking to us. It’s just boom, boom, boom, boom—he doesn’t stop and it’s amazing.
But I want to give the URL for today’s show up front because we link to a lot of things on the show in the notes. So that’s www.BiggerPockets.com/MoneyShow73 so you can find all of the information we have there. You can get the new book. Links to his site, links to his social media accounts, all of that. Okay.
Scott: And before we bring in today’s sponsor, I do want to give a shoutout—Ramit actually rewrote page by page the entirety of the book, I Will Teach You to Be Rich. It’s a New York Times bestseller and it’s actually being released this week, this second edition with a whole bunch of new updates.
So definitely, if you get a chance, you like the show and you want to learn more about this and kind of see that revised edition of this classic in the finance space, check out, I Will Teach You to Be Rich. I think you can get it on Amazon or you can get it at his website, IWillTeachYoutoBeRich.com and get the new edition.
Mindy: And everywhere else books are sold. You can buy a book there. You’ll find this book there, too. Okay. Before we bring in Ramit, let’s hear a note from today’s show sponsor.
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Mindy: All right, huge thanks to Fundrise for sponsoring today’s show. Are we ready, Scott?
Scott: Let’s do it.
Mindy: Ramit Sethi, welcome to the BiggerPockets Money Podcast. How are you doing today?
Ramit: I am great, thank you for having me.
Mindy: Thank you for coming on. I’m super excited about your book. What’s your book called again?
Ramit: It’s called I Will Teach You to Be Rich, the Second Edition.
Mindy: Second edition. I Will Teach You to Be Rich. What does rich mean to you?
Ramit: You know, when I started out, thinking about money, rich, to me, was being able to order an appetizer when I went out. Because when I grew up, we didn’t order appetizers. We ate out maybe once every six weeks and only to places we had a coupon for and we would never order an appetizer. So that was my dream.
My other dream, which was a very modest dream, was that when I moved to New York, I would be here in the hot summers and I would take the subway if I had to go to a meeting. My dream was to be able to eventually take a taxi without ever having to think about the cost. Very modest dreams.
Now that my business has grown and we have a million readers a month and all that stuff, I think my dreams have gotten a lot bigger. And rich, to me, is only working with people who I respect and like, never having to make a bad decision because of money, and being able to travel for a month every year and travel without looking at the price tag of any hotel or any flight. And being able to really sort of integrate my family as we travel.
So for example, taking our parents on part of our honeymoon was a big thing for my wife and for me. So, that’s what rich is to me and being able to do meaningful work. But I think it’s different for everyone. That’s why I called the book, I Will Teach You to Be Rich. Your rich is different than my rich and that’s perfectly fine.
Scott: Love it. I think it’s different that you stated rich as an emotional concept. We get that from time to time on this but I always struggled to—my desire at all times when I’m talking about the word “rich”, financial freedom, all that kind of stuff, is to put a number on something around that. But I get it. There’s a sliding scale, right?
There’s this, hey, I’ve got $5000 in the bank or enough to take a taxi without thinking about it and I’ve got the ability to go where I want in the world and do exactly what I want all day with my time. How do you think someone who is maybe in a middle-class income, maybe earning $50,000-$100,000 a year, living paycheck to paycheck—what should their definition of rich be, or what would they stand to gain out of learning to be rich from you?
Ramit: Well, first off, if you’re living paycheck to paycheck, the simplest answer is you should just get out of that cycle, right? If you’re living paycheck to paycheck, there are things you can do, it’s called the CEO strategy, which is called “Cut Costs”—everybody knows that internally but they waste their time cutting costs on meaningless things like lattes.
Cutting costs on lattes is like the worst advice ever. $3.00 a day doesn’t even add up to that much. Plus, you feel guilty. It’s the one joy you have in the morning. And you don’t even do it. So people waste their time, their limited cognitive resources on $3.00. Why don’t you just stop that and focus on the big areas you can cut—negotiating your salary?
That’s an example of the “E” part, which is “Earning more”. That’s another thing most people don’t think about. So they are like, oh, I’ve got to cut back on like the types of paper clips I buy but they forget that there’s a limit to how much you can cut, but no limit to how much you can earn and then “O” is for “optimizing your spending”.
So I think for those people who are living paycheck to paycheck situation, the first thing would be putting aside some savings every month. And it doesn’t matter if it’s $20-$2000. The most common objection to that is people would be like, there’s no way I can cut back anymore. And I’m like, okay—I’m being polite but in my head I’m like, here we go. And trust me, I love these conversations.
And I’m like okay, what have you tried? And they’re like, I’ve tried everything. I’m like, tell me. They’re like, you know, I try to eat out less. I’m like, okay, that’s cool. What else? Like, I mean, there’s nothing else. I mean, I can cancel my phone service. They went from eating out less to cancelling their phone service. That’s the extent of thought going into it.
So there are things that can be done that are on a big scale. There are also things like calling up the subscriptions and using the script in my book, literally negotiating your fees down. And those fees accumulate, right? They’re a credence so you’re not just saving $10 a month or $50 a month. It’s going over years and years. So that’s the first place, I would say, Scott, to get out of that cycle before you can look ahead and talk about financial independence, you need to be having some money automatically saved every month.
Scott: Love it. When I think about cutting spending, I’ll think about hey, there are fixed and variable costs here, right? And what it sounds like you’re talking about is those fixed costs, subscriptions. They’re really kind of an easy way to cut those. If you cut those, you’re just automatically saving lots of money every month which is what the latte is, the “variable” cost, which is a behavioral thing that you’ve got to go and change there.
When it comes through the larger expenses, you know, if you break out the average of American household spending, you’ve got 33% of that spending is in house living expenses—the mortgage, the rent, and all that kind of stuff. Housing. Then you’ve got another 17% at transportation and the next 13% is going to be food. And it’s sad that I know these statistics off the top of my head. But I guess that’s the territory here. When you think about it, do you have any advice on those three big categories for cutting those out?
Ramit: I do. And I just love that you know those offhand. Listen, anyone listening to this podcast, and certainly if you’re interviewing, you’re kind of a weird like nerd. Okay? All of us are weird. Let’s just admit it. If you know the difference between a ROTH or a 401K, you’re a weirdo.
So we’re all in good company here. I think that I really like to be conservative on the big items. So I have something that I call the “tripod of stability”. And for me, I really want to be stable in where I live, what my employment, and my relationships. Just like pure stability.
As an example, I moved to New York ten years ago. I’ve lived in the same apartment ever since. My net worth has increased during that time but I stayed. I’m perfectly happy. It’s a great place. I’m good. My computer, seven years old. It works. It runs. It might sound like an airplane but it works.
But what that does, being conservative in those areas allows me to be very risk-seeking in others. It allows me to invest very aggressively. It allows me to take risks with my business and also to honestly just splurge on the things that I love.
So I would say that if most people actually followed a few simple formulas when it came to their spending, they would be in really good shape. Here’s some simple formulas I have. I want to have a one-year emergency fund cash. That’s a little bit more aggressive than most but I like it. I want to have a no-debt policy overall. And if I do use debt, it would be maybe for a house. And so I would start with 20% down minimum, if not more.
And I have several other rules that I use that are very, very conservative. Though if you follow things that are 28% of your pay for housing, if you just follow those basic rules, you’re going to be in a really good conservative position. What happens is most people overspend on the big things. They forget to account for the phantom costs. And then they wake up one day and they’re like, where’s all my money? Well, the money you can’t find, you spent it six years ago on a poor decision you made.
Scott: I love that concept of the one-year emergency fund in cash and how you applied that in thinking, too, hey, that allows me to take risks in other areas and be much more aggressive. So does your investment portfolio reflect a very aggressive outlook, given that you have a large cash cushion there? Is that how you are structuring things?
Ramit: It’s actually a backwards-bending curve, because once you start off—in general, if you’re young, you’re slightly more risk-seeking, but there’s a new billboard that’s going around in New York and it says, “Be better than average”. You should actually be average and you should be happy with it. Oh, better than average.
Of course, I want to have a better-than-average relationship. I want to have a better-than-average bicep. But actually, in investing, you should be perfectly happy with an 8% return. It’s great. The real problem comes when you try to get 18% in returns and 16 years from now, you realize, oh, I really wasn’t as smart as I thought.
So no, the backwards-bending part happens as you become wealthier, you actually cut down on your risks. There is a great story about Suze Orman. She recommends people have simple index funds, etc. And then one reporter in the New York Times asked her, how much do you have? She says, I have about $25 million bucks or so.
They said, where do you invest it? She said, I put a million in the market and I put all the rest in bonds. And everyone in the personal finance community was outrage. Oh, my God. Why would Suze Orman tell everyone bonds? Well, Suze Orman has 24 million reasons than you to put her money in bonds. She already won the game of personal finance.
So once you win the game, you don’t have to compete at the same growth levels as other people. Therefore, I’m risk-seeking in my business, but in my investments, I have a very stable, roughly 70-30 portfolio equities and I wouldn’t call it aggressive. I wouldn’t call it conservative. It is slightly aggressive. That’s it.
Scott: It’s average.
Ramit: It should be average, exactly.
Scott: Love it.
Mindy: Where do you keep your one-year emergency fund?
Ramit: I split it up over multiple savings accounts. So I have like a variety of different savings accounts. People who want to maximize the FDIC insurance will use this thing called Cedar’s or a variety of other services and you can just split it out over any high-interest savings account.
By the way, one thing that I hear people make a common mistake about is they rate-chase. They’re like, what’s the best savings account that’s going to give me 0.02% more? And I call that a $3.00 question. Most people spend their lives asking $3.00 questions. You need to be asking $30,000 questions. Or once you become more successful, $300,000 or $3 million dollar questions.
If you take a $10,000 balance and you count a 0.02 or 0.01% difference, you’re talking about a few bucks a month. It’s nothing. We shouldn’t even be talking about this. You need to pick a good account, stick with it, move on. There is no more optimization you need to waste your time on.
Scott: I love that. I totally agree with that concept. I think I’d even apply it at scale to investing, right? People are always like hey, what should I do? Should I invest in stocks, bonds? Should I keep this here or there and they’re talking about $5,000 bucks, right?
And the answer is, no, you shouldn’t focus on investing your $5,000. You’ve got an extra return. You can think about it but be average. You need to get to that $50,000 or $100,000 in terms of your investment liquidity because that is when the returns actually begin to have significance. That’s when it becomes a $3,000 question instead of a $3.00 question.
Ramit: I completely agree. I’m so glad you had that. So, I had a woman write me an e-mail. I have an e-mail list at IWillTeachYouHowtoBeRich.com. We have 400,000-500,000 people on it. And I e-mail multiple times a week and I read every response and it’s very dynamic so you’ll hear from me a lot.
Try to send out some awesome stuff every week. And I once asked people, what is something you know you should be doing more of, you claim is really important to you but you just don’t do it?
And the answers were very typical. What do you guys think the answers were?
Mindy: Invest more, eat less, save more money.
Ramit: Bingo. Call mom more often, things like that. So there was a woman who wrote me and I was really struck by her response. I keep dreaming about going for a run three times a week. I never seem to be able to do it.
And I wrote her back and I said, why not just go once a week? And she wrote back and said, why would I run once a week? That doesn’t accomplish anywhere.
And I thought to myself, how interesting. This woman would rather dream about running three times a week than actually run about once a week. And that’s exactly what people do with their money. They would rather dream about being a millionaire or being financially independent or FIRE. Than to actually say, you know what? I’m going to put $1000 into this account. And then I’m going to ratchet it up to $250 and then $500.
So my message to people is dreams are great but all that really matters is, what did you do yesterday and what are you doing tomorrow? And so behaviorally if you’re on top of it, you’re going to end up living a rich life. If you’re not, you’re going to leave it up to chance.
Scott: Obviously, this is related to personal finance and getting rich, but more on the concept of personal development, what do you do to keep on track with these goals? Or what do you encourage people to do to stay on track with their goals? Do you have a goalsetting system or some sort of thing in your mind there or to just—
Ramit: Okay, so first of all, I think for a lot of people, especially in the FIRE community, there’s a lot we can talk about when it comes to FIRE but one of the key messages I want to encourage people to do is once you get your basic system set up, it’s not magic. It’s just math. You know exactly your debt payoff date. You literally know it down to your month and year. You know the exact month and year that you will become a millionaire or whatever your crossover point is.
So sitting there running another Monte Carlo analysis is not going to change your life. In fact, you need to turn off your spreadsheet, turn off Excel. You need to live your life outside your spreadsheet. Okay, that’s it. And what I find with the FIRE community in particular, there’s a lot of growth gains and [Inaudible][18:10] as well. But I think there’s some problems, too.
And one of the problems is that, at a certain point, it becomes very addictive to play with cell E62 because there’s a lot of control. E62 is never going to turn its back on you. E62 is never going to require your emotional intelligence to go up. E62 is very logical and the FIRE community loves it. Well guess what? E62 is the same as it was last week, last year, etc.
So you have a plan. Why do you need to spend more time on it? You need to actually develop the muscle of living outside the spreadsheet, and that’s really what a rich life is. It’s you automated your money. I spend less than one hour a month on my money and everything runs. It’s paid, it’s automatically saved and invested, all of that. But the real rich life is what am I doing on Friday? Which friends am I travelling with this year? Am I working out?
And I think for a lot of people, particularly for those people listening to a personal finance podcast, all you need to do is get 85% of the way there. Get there. Your asset allocation is dialed in. All that important stuff is good. But then like, you’re good. You’ve won the game. Now, it’s just time. And now you need to spend that time building the skill of living outside the spreadsheet.
Mindy: I really like how you acknowledge in the book that if you are inherently unhappy, becoming financially independent, fixing all of your problems is not going to make all of your other problems magically disappear. And you know, reading that can be powerful, especially in a book that says, I Will Teach You too Be Rich.
Ramit: Yeah, thank you for saying that. Listen, I know the name. The first thing you think is like, this is scam. And the second thing, you’re like, was this guy drunk when he named his book, which is like a New York Times bestseller now. No, I was not drunk. I was sober. And I have a friend, Tim Ferriss, and we both talked about how we picked the scammiest names on earth for our titles.
But when you open it up and you read like the first four pages, you’re like, oh wow. This actually is totally different than anything I’d expect. So one of the reasons I wrote this book, which was, I do want to teach you how to be rich. I do think that money is a foundational item and it is important, a small but important part of a rich life. But it’s very hard to live a rich life if your money is not dialed in.
What do I mean by dialed in? I mean that you should know all the basic stuff of what is the percentage of what I’m saving and investing? That stuff’s easy. Your money should be flowing automatically, right? You wake up, you should not be deciding over paying bills. That question should have been decided weeks, months, years ago. You should not feel guilty about a latte or a $500 jacket.
Hey, you want to buy a $1000 pair of shoes? Be my guest. That’s guilt-free spending. You already decided? I’ll show you how to do it. In fact, I have a story in here about somebody that spends, I think $21,000 a year going out and I totally applaud that.
And then, really, you should have—you get to the point by Chapter 9 where you’ve already automated all this stuff. You’ve done the mechanical parts. So now it’s the real stuff like talking to your partner about money, getting aligned. Do you have parents who are in financial distress? What about going on a trip with your friends? Or like, what about investing in yourself?
Maybe you want to take a class. Maybe you want to splurge on something. Where does that fit into a rich life? That is the more advanced part of personal finance, which I really enjoyed updating and writing about in this book.
Mindy: Yeah, that’s the fun part, the getting your spouse on board. The talking to your partner about money. If you’re married, if you’re in a long-term committed relationship, you really can’t do this without having your partner on board. I mean, you can, but you are really fighting an uphill battle.
And some of the common complaints of people who, maybe couples aren’t on the same financial page. My partner spends more than I do. My partner feels like we should spend more money now, not save for the future. I really like in the book, you talk about your fantasy of hosting a TV show where couples have their first financial conversation together on the show and you throw in potstring questions like ooh, what’s a secret that you’ve been hiding from your partner about your money? I would totally watch that show, by the way.
Mindy: I would totally watch that show. I’m sorry, have you ever heard of a show called Jerry Springer? Small show. Maybe I just got it in Chicago, but yeah, they were on for a couple of years.
Ramit: That’s a good show.
Mindy: How do you start that first conversation with your partner? Maybe you don’t want to be a guest on the Ramit Stir Sh*t Up Show. Oh, I just said a bad word.
Ramit: You definitely want to be a guest on that show. I’m accepting applications for my new show, not even announced until Mindy here just told us, it’s happening. So if you and your partner have money problems and you want the biggest stir on earth, sitting there, eating chips and habanero salsa, just throwing pot shots, send me an e-mail and you might be the first guest. Okay.
Mindy: Yes, and for people who aren’t on the show.
Ramit: All right. So let’s think about what most people do and let’s think about how we can do it differently. So I got an Instagram DM the other day from a woman who wrote me and said, my husband spends, WAY TOO MUCH, in all caps, WAY TOO MUCH on iced tea. And I rubbed my hands together and I said, here we go. Let’s do it.
I said, how much does your husband spend on iced tea? And she goes, he goes out at least 20 times a month. It’s at least $1.50 each time. We’re talking $30-40 and I said, wow. I knew where this was going but I had to lay the track. I said, hey, out of curiosity, what’s your household income? And she got real quiet. She didn’t respond for ten minutes.
Then finally, she wrote back and said, “I’m not comfortable sharing that”. I said, give me a ballpark number. I’m not going to share your name or anything. What do you think that she said their household income is?
Mindy: I’m going to go like high 5’s or low 6-figures?
Ramit: So let’s just say $100,000. And Scott?
Scott: Yeah, I would go with that $80-$120K.
Ramit: $80-120K. Okay. The answer that she gave me was $600,000.
Mindy: Oh, my God. What does he do?
Ramit: They live in New York. So let’s just take this example, because interesting your reaction. First of all, it’s like exactly the same whether they make $100K or $600K. The $30 monthly expense is meaningless. It’s literally a rounding error. So it literally doesn’t matter that they earn $80K or $600K, it doesn’t matter.
What’s the psychology going on here? The psychology going on is that she has a money value that you can make iced tea at home and I would be willing to bet her parents raised her, saying we don’t usually do that kind of thing here. There’s no need to eat out, etc. I know because I was raised in a similar household. Her husband’s money perspective is probably very different.
And what happens is that are both speaking at this tactical level, the level of, you do iced tea—and by the way, if we looked at her expenses, I’m sure we can find something that she’s “wasting” money on. That’s what they’re focused on. They’re fighting a ground war. When in reality, they both need to reframe themselves, instead of infantry, they are generals. They need to be having a strategic conversation and move one or two levels up.
The questions that I would start with would be, first of all, I would pick something that we could do together. I’d say, you know, my husband or wife or boyfriend or girlfriend, I’d say, you know what? I really want to get better at money. And I’d love to pick up a book. This book coming out, I Will Teach You to Be Rich, or whatever book. Would you be down to read it with me? I think it would be a really fun exercise.
Okay, so let’s just go through the decision tree. If your partner says yes, I would go through it week by week. And I would encourage you to both put some skin in the game. Maybe for Chapter 1, your partner writes the notes up. Maybe for Chapter 2, you write the notes up, right? Make it something where you’re both consumers. You’re actually producing.
As you get to the later chapters, you’re going to have lots of realizations. You might discover that one of you likes a lot more money sitting in your checking account because it makes you feel safe. That’s what happened in my relationship. The other might say, I really like to invest in a local bar in Brooklyn. Well, you’re going to lose your money but okay, you want to do that? Fine.
So you’re going to discover lots of things. What you’re doing now is you get to have a conversation about values. What do you want to do with our money? What’s important to us? Oh, we want to travel? What kind of hotels do we want to stay in? Where do we see ourselves? Do we want to live in Manhattan or Chicago? In what kind of place? What about kids?
These are the conversations that we need to be having. These are big conversations. And when you talk through those, how were you raised? Did you go out to eat? By the time you get those big things out of the way, you can have those conversations in the spreadsheet. What happened with this couple on Instagram was they started with the spreadsheet and they just started attacking each other.
$1.50, $1.50, iced tea. That’s too much. They’ll never get out of that unless they get a third party to come in and help. And so that’s what I would suggest is, take it up a notch. Have something together that you can work through that will open up conversations. And when you do that, it’s going to be less about, you did this wrong and I think this and more, here’s a plan that somebody wrote. What do you think? Do you agree or disagree? Where should we go together as a team?
Mindy: You know, I love this. I love the suggestion to take notes on every chapter. The book is called I Will Teach You to Be Rich, but the subtitle is No Guilt, No Excuses, No BS. Just a Six-Week Program That Works. And it does work if you do the work. If you are looking for an excuse for this to not work, you will find it. You will always find whatever you’re looking for. So if you’re looking for success, you’re going to find it.
Ramit: Yeah. And I think success, by the way, one thing that I talk about, when it comes to relationships is the most common thing people do when it comes to money is they start by telling the other partner what they’re doing wrong. And that’s a real surefire way to basically pollute your money relationship forever. I actually would encourage a couple to start off by saying, what is something amazing, something so over-the-top and awesome that we want to do this year?
We want to take a trip to Thailand. We want to take a weekend trip to London. Whatever it is. Okay, great. Let’s ballpark it. How much is it going to cost? Well, it’s going to be $1000 for the flight and this and that. Ballpark it. Fine. Okay, awesome. $3000 or $300, it doesn’t matter what the amount is. Okay, great. Let’s start there. That’s one of our goals.
Now, let’s figure out how we can make our money work for us. Notice the profound shift of let’s start from a place of richness from what we want and let’s work towards that and make our money work, versus you’re bad, you’re bad. Lattes this. No jeans, no vacations. No—just seal yourself up until you’re 68 years old and then one day you can have some compound interest. Not a good place to start. Start from what you want, not what you don’t want.
Mindy: I cannot agree with what you’re saying more because I am actually in that position. My husband is—I say my husband is financially independent. We’re both financially independent. What’s his is mine. But he doesn’t work anymore. He’s this financial independence guy who did not—he didn’t enjoy his job and now he’s got other things that take up his time that he enjoys doing a lot more.
But he actually just wrote a post a few weeks ago about how he wished he would have done things differently because it was like this mad dash to the finish line. And then, oh, well it could have taken an extra year to get here and that would have been okay, too. I would have had more enjoyment in my thirties if I would have stopped to smell the roses. And it’s not just a fun thing to say. It’s actually something that you should really be doing.
Ramit: Yeah, so this is what I was talking about with FIRE. I do want to talk about the thing that I love about FIRE. My actual favorite thing is, anything in America that gets people to save more, I’m a big fan of. We’ve got a horrible savings rate and what I love about FIRE is they came along and said 10% savings rate, 20%? Screw that. Let’s do 60% and they just blew the barn doors off. It was amazing.
Now, for most people, we’ve all seen the common threads when there’s a mass media piece. People are like, that’s impossible. Inheritance. And I think it’s inspiring. I thought I was doing well and then they come along and make me realize there’s always another level. I love it. So when they did that, I thought it was absolutely amazing. And guess what, I guess it did get some people thinking like, hey, do I really need to be spending on all this stuff that I really care about? Let me get conscious. Okay? So I love that.
I will say that, it attracts a certain type of person and that person tends to have certain things in common. They tend to be hyper-logical. They tend to have the wherewithal to change their lives. If you’re going to have a 50, 60, 70% savings rate, you’re willing to make a sacrifice, which is amazing.
But I would also say there’s some troublesome things in FIRE. I would say that there are a lot of words like people saying “I’m unhappy with my job” and if you just go to the financial independence subreddit right now, at the top of the 30 posts people are using words like anxious, hate, hate my rat race job, want to get out, can’t wait for the weekend. Those are not the signs of a healthy financial decision-making framework. That’s simply the sign of somebody who does not like it, and humans don’t like pain so they want to get away from pain.
You know, you asked a question. Well, why don’t you just get a better job? And the answer is always blown off. I don’t want to do that. I just want out. Well, what are you going to do when you finally achieve FIRE? I’m going to sleep. What kind of answer is that? You’re going to sleep? What is that? I would rather people say, you know what, I don’t know that answer right now. But I tell you what, I’m really unhappy. Here are the steps I’m taking. I’m going to go look for a better job. Maybe I find it, maybe not.
In the meantime, I’m increasing my savings rate. I’m also taking a couple of classes. I bought a couple of courses and some books and I’m meeting with my friends every Saturday morning. Who knows what FIRE will look like, but I’m setting myself up for success when I get there. That is a much healthier perspective than, I hate work. Work is not for me. Get me out of here, and I’ll save 80% and then one day after I take a long nap, I’ll figure it out.
So I just want to call out—there are lots of pluses to FIRE. Anything that gets you to save more and be conscious, I’m a huge fan of. But I also want to make sure people study who they are taking advice from. If all the people around you are unhappy at their jobs, saving 70%, spending two hours a night in their spreadsheet, that might not be the role models you want to follow.
Scott: You know, I’ll chime in here because a lot of what you describe kind of describes me. When I first started in this FIRE thing. I worked my first job at literally the worst company to work for in the United States of America. It got that ranking.
Ramit: Wait, what is it?
Scott: You can look that up afterwards. I don’t want to publicly disparage anybody. But yeah, I was very unhappy at that role. I didn’t want to do that long-term and I discovered the concept of FIRE. And I remembered, after I discovered FIRE, I cut everything. I stopped spending basically any money. I made my lunch every single day. I would literally have days where I would show up to work. I would make breakfast, show up to work, listen to podcasts the entire time.
I would leave work, go and tutor or drive Uber and whatever else and then get back at 9:00 or 10:00 o’clock at night. Miserable, right? That lasted for three to six months and then I got a new job at this startup called BiggerPockets.com and really started loving my work from there. But I literally went through a phase that you’re describing of this all out thing because I was so afraid and stuck in my old position.
So I couldn’t completely relate to that unhealthy obsession with FIRE for that first maybe two and a half years of my journey towards FIRE. That was kind of the piece there but it did allow me to make up some of that money in those first big investments that kind of propelled my position forward.
Ramit: Totally agree on both counts and thank you for being so candid about that. I think it’s amazing to hear people who have gone through the process. And I have a concept I want to talk about called Hot to Cool. So, I gave a talk yesterday actually at Business Insider and there are 50, 60, 70 people in the audience. I asked them, what are the words that come to mind for you when you think of money? And what do you think the words were that they shouted out?
Scott: Margaritas on the beach.
Ramit: No way. Not even close. That never comes up. You guys have been in too many FIRE rooms. I can tell you no one ever says those answers. It’s always the same. Anxious, nervous, overwhelmed, is it too late, confused, stupid, all negative words. Okay, this is average Americana. When you ask normal people, not FIRE nerds or FAT FIRE, LEAN FIRE, none of them, just normal people—that’s how they think about money.
Just think of the words they are using. Overwhelmed, anxious, confused, stupid. Those are hot words. They are very hot. If you think about scale, they are really hot, right? They are boiling over.
We were testing a fitness class for many years and these were people who were trying to lose weight. And we studied the psychology quite a bit of people who struggled with their weight. And they would tell us these heartbreaking stories.
They would say, I sit down at a restaurant. There’s a plate of nachos in front of me. They would say, it’s like I’m fighting a demon and the demon is trying to convince me to get the entire plate of nachoes. Right? They are literally fighting a battle every day of their lives. That’s a hot emotion. Now, what I told them in the first week is by the end of the program, your emotions will go from hot to cool.
Cool means, you can see a plate of nachos and you can say, you know what? I feel like having a couple of nachos. I’m going to have it. Or you know what? I’m not in the mood. I’m good. Similarly, with money—you know what? My savings rate is 12%. I think that’s pretty good. I’m good. Or you know what I feel like I could use? I want to increase my savings and I’m going to take half of it and go spend it on something. I’m good. Cool. Okay.
FIRE has a lot of hot emotions. Hot. And that’s not healthy. Hate my job. Depressed. What’s that canonical famous saying? I built my savings but I never built my life. I think that when you go a little bit at sort of the FAT FIRE side, there’s slightly healthier psychology there. Now, I get that FAT FIRE is earning way more money, I get that. I read all these different subreddits.
But you will see that people are not saying, oh my, God—I hate my life. I want to retire. No, they are much cooler about it. They’re like, you know what? I have two kids in private school in Connecticut and this is what it’s going to take so I’ve decided to work extra and dah dah dah.
I want everyone listening, if you’re FAT FIRE, LEAN FIRE, NO FIRE, to realize that when you get your infrastructure in place and when you have a healthy mindset and psychology around money, it shouldn’t be hot. Money should not be exciting. It shouldn’t be dramatic. It shouldn’t be fun. It should be boring. You should log in maybe once every six months. And your real life is outside the spreadsheet.
So if you find yourself listening to a kajillion podcasts, except this one—this one is okay. You guys can listen to this every day. This is the best podcast ever.
Mindy: I agree.
Ramit: But if you’re listening to like 30 FIRE podcasts and 50 FIRE blogs, you have a larger problem. Get the FIRE stuff right, but then flex the other part of your muscle, which is living outside of the spreadsheet.
Scott: And I think it come down to that savings rate. Automate your savings rate. Automate your investing program and you’re going to be on track to achieving FIRE or whatever it is that you consider to be rich, in a pretty short amount of time. Right?
Ramit: It’s not that hard.
Scott: Especially if you can get it up to maybe, let’s call it 30%. If you get to that kind of range, you’re going to be on track. I like to get more aggressive and we’ll obviously continue to encourage you, the listener, to be more aggressive than that 30%. But I like it. It shouldn’t be stressful after you get to a certain point. Once you get to a year of runway or a year of savings in the bank, life is good. You’re going towards FIRE and it’s a matter of how fast. You’re right. How much do you want to give up of my life in order to get there a year faster?
Ramit: You know what, when my wife started talking about money, I think that having frameworks or general rules are really good in life. For example, I mentioned one rule I have in one year, no debt, etc. Some people have rules like, I wear the same thing every day, right? Some people have those rules. Some people have rules like any flight over five hours, business class.
One of the things that I talk to my wife about, which I had to remember to compromise because I haven’t had to compromise on money in the last 20 years. Now I’m married so we have to like talk about it and we have to go through that together. I’ve been learning that lesson, which has been very humbling, and I said, you know what? Here’s how I feel about it. As long as we’re doing a savings rate of roughly 20-30%, the rest of it in general is good.
We need to keep an eye on expenses, etc. but if we’re hitting that number, we’re in a good place. We don’t have kids at this point but I said, I’d like to actually be higher than that because we’re in a really fortunate place. Dual-income, no kids, all that. So that took some talking through but I totally agree. If you have a few key numbers you’re hitting correctly, 20-30%. 28% of your pay for housing, etc. You’re in a really good place and all of a sudden, it’s not that hard to gain a substantial amount of money.
Scott: Love it.
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Scott: One of the topics that we haven’t talked about yet, we talked about getting that automatic savings rate, kind of automate some of these things, investing to the average, all that kind of stuff. You’ve got some really good stuff about increasing your income, and negotiating a raise. Do you want to touch on that real quick before we get more into the changes for the new book?
Ramit: Yeah, so I’ve become known for, if you Google Ramit Sethi and negotiation advice or you subscribed to my newsletter, I sent you a bunch of scripts. Word for word scripts. Now, first of all, Americans hate negotiating. You guys are scared of picking up the phone to order from a restaurant, much less going in and talking to your boss. It’s so funny, you talk to Americans and they’re like, negotiating? What am I going to do, kick in my boss’s door and demand money?
I’m like, who said you have to do that? Where’d you come up with that? The concept of negotiation in this country is so bizarre. Now, I grew up with immigrant parents. I tell the story about how my dad, when we bought a car growing up, I literally thought it was normal to go to a car dealership for five days in a row to buy a car. We did that. I thought that was normal. Then I found out, normal people just go and they pick a car and leave with the car that day? I’m like, what?
Anyways, I learned all about negotiation. Anyone with ethnic parents probably does. And I grew up in America so I also know American culture as well. And this dichotomy gave me a really interesting perspective. I negotiated my salary in multiple places, both at jobs and also as a freelancer and consultant as I raised my rates. I started at $20 an hour, eventually raising my rates to thousands of dollars per hour for a client.
So you have to understand that when you move up the value chain at those levels, there’s a lot of things that go into that. You don’t just go into someone else’s office and say, give me $3000 an hour. Nobody will give you that kind of money. You need to understand a lot of things happening behind the scenes, so I started helping people negotiate their salary in my early 20s and I would tell them this. They would say, can you help me? I’d say, yeah, I’ll help you.
Number one, you do everything I say any number two, you take notes. And they were like, yeah, okay. So they would negotiate on average, $6000. The number grew. People start making more money, you can negotiate more. Now, I live in Manhattan and I would say, three times a week, I walk down this street and people will stop me and say, you helped me negotiate $25,000. And I have a course called Dream Job. Well, I wanted to put some of the best stuff in this book.
So, I talked first about the psychology of negotiations. The idea that people are worried if they negotiate their offer, it will be rescinded or they’ll get kicked out, which is exactly the opposite. By negotiating, you can actually increase your perceived value, because the only type of people who negotiate are top performers. And then, second, there’s an exact way to do it. You don’t just walk in and say, give me money. Of course, your boss would kick you out. That’s a stupid question.
What you should do is spend the time doing the work beforehand telling your boss exactly what you’re doing, making sure that the boss knows you are going to accomplish these things and if you do, you are going to ask for a compensation or adjustment. Note the words I’m using. The words are carefully chosen. They’ve been tested. Field tested with thousands of people.
And then, finally, how do you walk in and have the conversation? For example, what if the boss says, we don’t have the budget for that. Well, guess what, I have 30 answers for that question which you can use straight from the book. So I think that most people are underpaid. We did an exercise on my email list and we found that my readers are underpaid on average something like $8,000-$12,000, which blew their minds.
That’s like saying there’s oxygen in the air. That’s not surprising. Of course you’re underpaid. You don’t know what you’re doing. Now, let’s talk about how to fix it. So, remember for people listening that you can be paid more. Remember that a single $5,000 raise in you 20s when properly invested, can be worth over a million dollars.
Remember that when people negotiate once, tend to negotiate multiple times. And remember that it’s not as scary as you think. It’s just a skill. You can learn it. There are actual words and processes to use. It is one of the best things you can do to increase your earnings.
Scott: So let’s roleplay here. I’m a senior financial analyst making $85,000 and I think I should be paid $98,000, right? How do I construct that argument? What do I say to my boss to get that raise using your kind of philosophy there?
Ramit: Oh, my God. I love this. I love roleplays. Can we flip it so I’ll be you and you be the boss?
Scott: Sure. Exactly.
Ramit: That’ll make it easier for us. Okay. So I’m going to e-mail you. Hey, Scott. You know what, I was wondering if we could talk about my role and I really want to understand what it would take to be a top performer in this role. Would you be available to discuss it next Friday or next Monday between 1-3PM, I can come to your office anytime. Great.
Great, so it’s Friday and I come in Friday. Hey Scott, thanks so much for taking the time. First of all, I just want to tell you, I really enjoyed my work. I’ve been working on xyz project and we had a goal, feeling really good about it. Now, the reason that I wanted to talk to you is I want to understand what it takes to make your job easier and also to be a top performer in this role. I have no interest in just being average. I really want to be the best.
So I figured I could come to the source and just ask you, what might make your job easier and what would it take for me to be absolutely amazing in this role?
Scott: Sure. So I need you to put together our Proformas or PNL to make sure that we’re spot on with our predictive analytics and what our Proforma financial statement or what budget is going to look like next year. I need you to help the team compute the ROI of various ad hoc projects, like the return of an investment of projects like this new blog post that we’re going to be putting in next week. Put in those types of infrastructures. Those sorts of things.
Ramit: So this is super helpful. I’m taking notes, by the way. So just so I understand, you want me to get the Proforma to you. It sounds like that would be a typical part for this role. How could I do that in a way that would be exceeding expectations? Would it be getting it to you say a week early?
Scott: Yeah, I think it would be getting it in on time and getting it in early, and then working with the people who are actually going to be operating against that Proforma. This is what I do for my regular job. I want you to put together this Proforma and work with the stakeholders that are important for each of the revenue and expense categories and make sure that they are driving performance against those things.
They are driving performance against those things and getting me kind of reports on that and in your opinion, from that perspective—
Ramit: Okay, I love that. So just so I understand, no one has given you these reports before, right? It seems that it’s up to you to have to go through it yourself and have to figure it out. So exceeding it would be me doing the work for you and taking it off your shoulders, is that right?
Ramit: Okay, great. So that’s number one, and then we do the same thing for number two and number three, and I’m just going to do one other thing. Scott, I totally understand this. Help me get some numerical targets here. So, I get it into you seven days early. Okay, great. But help me understand because right now it seems like a lot of process, which I will do, but I want to know what number I can be working towards.
Scott: Sure. So in this case, which would be a financial role, is port function for the business. How are you helping the rest of the team make cases for increased investment, increased budget, increase in the resources they have available so that they can actually expand their targets and drive results faster than before? Show me what that looks like in terms of the amount of return you think you can help facilitate.
Ramit: Okay, so I’ll tell you what I’m going to do. I’m going to go talk to John. I know that he was in this role four years ago and I’m going to ask him what he would recommend and I’m going to come back to you with a numerical target. It helps me really work faster and better and I will help you get a quality score that we can measure against. How does that sound?
Scott: That sounds perfect.
Ramit: Okay, great. So, if I do the following things that we talked about, x, y, and z, it sounds like that would be not just average but excellent performance. I just want to make sure I’m not putting words in your mouth. Is that correct?
Scott: That is absolutely correct.
Ramit: Okay, because that’s what I want to do. I want to just exceed expectations, I don’t want to just be average. And if I exceed these expectations, let’s say in the next six months, by the time we have our next discussion. At that time, one of the things that I would ask for you is that we have a discussion about compensation and adjustment. We don’t have to deal with that right now, but I just want to put that on the table so that we can discuss potentially having it later. Would that be okay as well?
Scott: I’d love that.
Ramit: Okay. Well, thanks so much. I’m going to send you a summary of this in an e-mail and I’ll keep you updated every week. Thanks so much, Scott.
Okay, pause here and just diagnose what happened. First of all, what did you notice, Scott?
Scott: Well, I noticed that I had to kind of define what outperformance looked like for this person, right? And then that gives them a solid target to go after, right? So now I kind of said, what do I want in addition to what I’m currently getting?
Mindy: That’s really important because you’re the boss. What I think is outperforming might not be the same that you think is outperforming. I might say, oh okay, I’ll have this to you six weeks early. And all you wanted was a week early. Great. I look like a better hero when I outperform your outperforming. But you made him—I love that because you’re exceeding your own expectations just by doing your job. I don’t know what to say. Go ahead, sorry.
Ramit: You were great. Here’s what I’ll tell you that happened in that conversation that I observed. First of all, Scott, clearly you know your sh*t because that was the best roleplay ever. I mean, you went into it. That was great.
Mindy: He’s not just a pretty face.
Ramit: So things that I noticed were, first of all, I took it step by step. A to B to C. I first e-mailed about having a conversation. Then I had a conversation. Now, I’m going to send a summary of the conversation and a weekly update for the next six weeks. Six months. And then I’m going to send an e-mail about the next conversation and only then will I walk in to request a salary increase.
Do you see that as I say in the book, 85% of the work is done before you ever walk in the room. So all these delusional people who think you kick down the door and beg for $20,000? Get the hell out of here. You deserve not to get a raise. But the people who really do the work, it’s not just sweet talking—you actually have to be great at your job to get a raise. That’s why it makes sense.
The second thing that I noticed was that you the boss didn’t really know what outperformance was. You were surprised. And what I did as a skilled employee was I pinned you down. I didn’t let you get away with these B.S. process things. Like, of course I’m going to do that process stuff, and then I’m going to come back in six months and you’re going to be like, that’s your job. So I knew that. And I said, okay.
Boss, I really appreciate it. I was very agreeable. But I’d really like a numerical number. It helps me work. Blah blah blah. And I pushed you. And then when you still couldn’t get me one on point number three, I was like, you know what I can do? Because I’m resourceful. I’m going to go talk to John. Who is the Senior Director and he’s going to give me some advice. I’m going to follow up with you.
And the final thing I did was I did not bully you into any answers. It’s easy to walk in with a structured plan and get the boss to be like, yeah okay, fine. Just get out of here. At each step, I slowed it down and I said, am I reading you right? Do you agree? Is there anything else I should be thinking about? Because I need you to be bought in before I go off and spend the next six months doing something.
So that’s like the beginning of a conversation, right? You’ll notice it was super agreeable. We were on the same page. Scott, if you were the boss, how would you feel about that conversation?
Scott: I’d feel like I’m about to get five things that fixed and implemented that I didn’t have previously that is going to make my life way easier and make results come way faster.
Ramit: You love it! You’d love it your employee out of the blue came and said, how do I do better at my job? Specifically so I can make your life easier. This is a boss’s dream. Okay, so just to fast forward the whole rest of the example. You now send a summary, make sure that they respond in writing so you have it.
Hey, this is what we talked about, compensation and adjustment. Every week, here are the three things. Here’s the goal. Seven percent conversion rate. I’m currently at two. Here are the issues I’m currently working on. Next point. Boom, boom, boom.
By the time you go in for that six months’ review, there should be no question. You should have crushed the goals that were set out. This is where the hard work really—if you deserve a raise, you’re going to crush it. And then you walk into that final meeting. You set it up. Just again, step by step. You walk in with your Salary.com numbers, your PayScale numbers, any other data you can pull. You say, you know what, boss?
Six months ago, I’m so excited. Because in that conversation, we talked about A, B, and C. We talked about these numbers. Here are the numbers I got. You already know it because I’ve been updating you every week. How do you feel about that? I feel great. He’s going to say, he or she. Oh, my God. My life is so good. You know, I’m in utopia. Okay, great. You know, there’s just one other thing. We also discussed the compensation adjustment. I’d like to discuss that now.
Based on what my research shows, this is where you pull out your briefcase or your backpack or whatever. I call it the briefcase technique. I would encourage everyone to Google the briefcase technique. You will see this happen in magic. It’s like truly magic. This is responsible for people getting $30,000-$40,000 raises. I put it out on YouTube for free.
You say, you know what? Based on the research that I’ve found, my role actually should be, I should be compensated at a rate of, you know, between 92-96,000 and I’d like to discuss a compensation based on my performance. Boom. Now you’re having a discussion based on performance, not on does he or she like you and what’s in the budget? It’s like, this is what the market is. Let’s talk about it.
And the rest of the script is in the book and I would encourage you to use it and please Instagram me, e-mail me, tweet me. I want to hear your stories about your negotiations. You will be blown away how you can get massive salary negotiations but there’s no tricks. You have to actually be great and you have to be good at your job and then you have to learn communication skills.
Mindy: That. That right there. You have to do the work. You have to be great. You have to just say hey, in six months, I want to talk to you about a raise. And other compensation adjustment and then you know, come back in six months and be like okay, you didn’t do any of the work. You have to do the work. You have to present yourself as a valuable employee.
But Scott, if somebody came to you and said, hey, I want to do this. And you said, okay, do all of these things and they do all of those things, how much is your life better? Like a million percent.
Scott: Oh, I’d look great. Yeah.
Ramit: I mean, a rich life is about being fundamentally about being excellent at what you do. When you are excellent at what you do, everything falls into place. I remember my parents—again, both immigrants. My dad worked. My mom stayed at home with us. And it was so funny and peculiar the way they behaved about education but in retrospect, I believe they were completely right.
Indian people love education, right? They’ll spare no expense on education for their kids. And I can think of one specific example where my parents, like we really did not have a ton of money. We went on vacation. It was driving. My mom would pack lunches. We would stop on the side of the road, eat, and go down, drive to L.A. and visit family.
We hardly ever stayed at a hotel as a family ever. So we grew up pretty middle class. I would say that one thing that surprised me when I was in high school, there was a Kaplan class. You know, these classes, they try to teach you how to take the SAT and stuff, and I was interested in it. It was $600. That’s a lot of money for a class. My parents said no problem. And I don’t know to this day where they had the money or found the money from, but they would spare no expense on education.
Well, when it came to college, they said, look. Of course you’re going to go to college but we don’t have any money so you have to apply to scholarships. And I’m a systems guy. I talk about this in the book. I built a system to apply to 65 scholarships and pay my way through undergrad and grad school. So they really taught me a lot about that.
What was amazing was their nuanced understanding of psychology which was get in, be good enough to get into a great college and the money will take care of itself. So be excellent first and the money will take care of itself. So I think for all people, whether you be FIRE, whether you want FAT FIRE, whether you just want to take an amazing trip to India or Thailand, if you’re excellent at your job or your business, if you’re excellent at your savings rate, you’re investing your allocation, all the rest of it falls into place. But that excellence is really the core foundation of it.
Scott: Love it. It’s just like business, too. Like hey, what is your customer? If your customer is your boss, what do they want? How do I serve them as well as I possibly can, and if I do a really, really good job, I’m going to be really indispensable. Right? And that’s amazing. I love it. Great philosophy.
Mindy: Okay, so Ramit, let’s talk about your book. You originally wrote, I Will Teach You to Be Rich in 2009. And you’ve updated it for 2019. What is different in this Second Edition?
Ramit: Okay, so ten years have passed. By the way, March 2009 was the bottom of the recession. Do you know that? It’s so crazy. And the people who bought the book in March ’09, who followed the advice, are financially set for life. Now, that is a little bit of luck, right? The last ten years have been crazy. I don’t believe in market timing at all, but I also know that people seize opportunity when they see it.
And if you had a chance to do it versus the people who sat on the sidelines and said investing is over, blah blah blah, the people who followed have done tremendously well. And I believe the people who buy the book and follow it now will also do tremendously well over their lifetime.
I did a top to bottom update of the book. Every page, I went through. I reviewed it. I updated it with new tools. There are a lot of new tools out there, new accounts. I’ve changed credit cards, bank accounts, etc. I named names in the book so I tell you the best accounts. I also tell you the worst accounts. Like the absolute worst ones and I really go hard on them because they are predatory.
So I don’t care if they are never going to cut a deal with me, they are not my customer. You are. The people listening. And so I told you the truth about who are the best and who are the worst. There are also new insights about money and psychology that I’ve had over the last ten years. You know, there’s these things I call invisible scripts. Beliefs that we have that are so deep, we don’t even realize they are visible.
For example, most people in America believe that real estate is a great investment, always. I happen to disagree. And I talk about that in Chapter 9. I show you how to run the numbers yourself as opposed to saying, I’m throwing away money on rent, which is not true. Did you throw money away on a sandwich you bought yesterday? No. You paid $5 and you ate it. It was a great use of money. Same thing for renting a place.
So there are different ways to look at real estate. I know some people might disagree with me. I welcome the challenge. I think you should make your own decisions but I show you some counterintuitive stuff. I also talked about love and money. So getting married. Going through that process, and I’ve shared some things I never really shared publicly with my wife’s blessing, that we wanted to talk about because we find that people don’t talk about these kinds of things publicly. It’s really behind closed doors and I want to shine the light on it.
So lots of updates. Lots of new ways to look at it. Also lots of things that I talk about in terms of spending psychology. You know, everybody teaches us how to save, but nobody teaches us how to spend. And that is a very different way of looking at money. I think people will find that whether you’ve heard of the book before, whether you have it, or whether you’ve never gotten it, it’s a very different book than most other personal finance books and I think you’ll really enjoy it.
Scott: What are some of the intro to the book? You talk about some of the key mistakes you made in the First Edition, which I think is really cool that you can kind of look back and do that. I have a book called Set for Life as well and there’s a couple of things that I would change that I think are mistakes—I need to go and update that. I need to include travel. Oh, I’ll get to those at another point. This is your show.
What were some of those mistakes that you had in your book that you think—
Ramit: Well, I’m really glad you asked that. There were a couple of things that were just, accounts have changed. And that’s normal. That’s to be expected. I really should not have included interest rates. That’s a massive mistake I made because when I wrote it, interest rates were 5% on the accounts. Like the day after they published, it dropped. Just like a rock. And I started getting these e-mails, and by the way, I’ve gotten these e-mails for the last decade. And they are like, “Hey mother-effer, where’s the 5% interest rates? You’re a liar”. And I’m like, oh my, God. Plus, it doesn’t even matter. The amount they have in their savings account is like $300. I’m like, we’re talking about pennies. Anyway, I shouldn’t have done that. So I changed that. And you know, so that was another thing. I also think that I’ve matured over time, so to be very honest with you, I had some jokes in there that I just don’t—they don’t align with who I am now. As somebody who has matured, I think that I wanted the book to be very inclusive of everyone.
In fact, if I can show you something, one of the things I’m most proud of and I’d fight the publisher for this, was to show people’s photos and their rich life stories. And these are people who used the book to create their rich life. And some of them are massive wins and some of them are modest. One guy, in here, he writes that he retired and he and his wife, they retired from full-time work at 33 and 35. They travel around in Airstream RVs—
Mindy: That’s Steve.
Ramit: Yeah, that’s right.
Mindy: I know him.
Ramit: I’ll bet. You are like on top of it. So what I love about that is, first of all, that’s not my rich life but that is his and his wife, and I love that they used the book to accomplish it. I also love that there’s men, women, black, white, young, old. And I’m so proud to be able to share their stories because I think ‘rich’ has traditionally been thought of as one type of person. And I want to shatter that myth, right?
We can all live rich lives. You can have ten million dollars, you can have $50,000, you can have an extra $20 bucks a month. But if you are aligned with how your spending is working and where you’re spending your time and money, you can be living a rich life, too. So just to bring it back, in the last book, I really dialed in on all the tactics and I was perfect on that, really good.
But I think that I neglected some of the psychology which I have now corrected. I made a couple of comments which I think some people wrote me some very thoughtful notes saying, Hey Ramit, I love your book. It’s earned me a ton of money. But it makes it a little difficult to share because there are a couple of jokes in there that really—they’re just not appropriate.
And I wrote back and I said, you know what? Thank you. Thank you for being honest enough to write that to me. For being so thoughtful. And I can tell that you took the time—you didn’t have to take time out of your day to send me that note. Like, the way they wrote it was so caring that I knew that it was actually doing myself a disservice to not acknowledge that.
So I’m very proud to have grown as the decade has gone by and I think the book really reflects that. I think people will enjoy it. The jokes are still there. I call the ball when it comes to crypto-lunatics. And others. I call it out exactly as it is. But I also think that this is a book that you can be proud to read whether you are in your 20s starting out or in your 40s or 50s. Age doesn’t matter. It’s just about your mentality about your rich life.
Scott: You mean bitcoin isn’t going to be my key to financial freedom?
Ramit: All the bitcoin people hate me because I call them out like very early and also—it’s funny. The bitcoin people. They used to have it on their LinkedIn profile, right? Bitcoin expert. Hey guys, where’d you go? All the profiles are wiped and now it says CBD expert. You’re not a CBD expert, my friend—you’re just jumping from one thing to the next.
Mindy: Wait, that’s not a sound financial plan?
Scott: My favorite book in the whole insanity of this crypto phase was when Kodak released Kodak coin and their market capitalization tripled overnight. I was like, oh wow, that is going to change the fortunes of Kodak.
Mindy: Oh, my goodness. My favorite story about the bitcoin was the guy who went—he bought bitcoin really low, went really high, sold it, invested it in something else that, spoiler alert, went to zero. And then had this huge bitcoin capital gains tax bill that he couldn’t pay. Because like, $75,000 tax bill that he couldn’t pay because he had lost all of his bitcoin earnings. If you make money in bitcoin, cash out now and stick it under your mattress.
Ramit: You know, I’ve got to tell you something. First of all, that’s a horrible story.
Mindy: It is.
Ramit: Actually, most things about bitcoin are horrible, including why it is what it is. I remember writing this book and I remember sitting in a coffee shop and I spent six hours writing two pages. Because I’m kind of rusty. I hadn’t written a book in ten years. So I was writing about bitcoin and I had looked at the writing I’d done and it was garbage. It was like, on the one hand this, and on another hand, that.
And I found that I was pulling my punches, that I wasn’t being honest. The reason that the book had done so well and has helped so many hundreds of thousands of people is that I just came out and I told you exactly what I had seen. Now, you need to believe me. You need to trust me, and I happen to be right about a lot of things. But I think people want to hear what somebody that they respect thinks about the world. And that’s a great reason that people listen to, for example, Oprah Winfrey, who has earned her credibility and trust over decades.
So when I found myself pulling punches and saying, well, on one hand, this. And I tore it up and started it again. And I think the bitcoin section for one, is one where you see the edges back. I tell you exactly what I think. I’m not gratuitous. I tell you exactly why they do it. What’s the psychology? What are the analogies? And you can start to identify, hey, do I want to invest in crypto? If so, fine, but let me have some parameters. Let me have a framework around it.
Meanwhile, let me look at what most people are doing. It’s called ‘dumb money’ for a reason. And let me help you understand, what is this psychology that gets people into fad after fad after fad? So you know, I do want to have a little fun with it. I think money can be fun. But I also want people who can apply it to their own life. If it’s not bitcoin, it might be another fad. So I want people to understand what goes into these decisions and how I can apply them to your own rich life.
Mindy: Well, that brings up an interesting point where in the beginning of your book, you say that you made three mistakes. I disagree. You made two mistakes. Your second mistake was that you said you were overbearing. Are you too overbearing? And I don’t agree with that at all. I think you were, let’s call it Forceful, no let’s call it authoritative.
Scott: Appropriately bearing.
Mindy: Appropriately appareling. You named your book, I Will Teach You to be Rich. You didn’t name it, I might teach you to be rich—maybe this book might teach you something about money. I Will Teach You to Be Rich. You have to back that up.
Ramit: Thank you for saying that. You know, usually start off a sense with, you had three mistakes. They usually complete it by saying, you had 30 mistakes. And I’m like, thank you so much. I mean, this is the best day of my life. I will say this—you know what? I love having a strong point of view.
If you’re still listening to this podcast, or if you turned it off, that’s fine. I’m not for everybody and I totally acknowledge that. If you’re still listening, I think you’re going to find that the book is written exactly as I talk, and when people tell me that, I consider it a compliment because it’s very easy to water down your writing.
But what I want to do is make money fun, is to challenge you, is to have some fun with it. We can tell jokes about each other and you can still become rich. you can become extremely knowledgeable. You will know more about investing, asset allocation, different ladders than anybody else in America. That is the gift that I wanted to create, which is to teach normal people, not just nerds about personal finance. But normal people can give it to your friends or your parents and they can become really smart about money.
I was overbearing, though, I’ve got to say. What I realize is in the FIRE community, it’s really great because in the past, I said your rich life is yours but I had one way to get there, which was 10-20% invest save, compound, maybe start a business. But like, that’s sort of the caputilate rate. That’s sort of the general path. FIRE came and they just blew that out of the water. They said, no, I’m going to save 50-60%.
And so what I have come to maturely understand is, your rich life destination is yours but also how you get there is whores. You better not want to live in Manhattan. It just might not appeal to you. And now, I get that. And I should have respect it back then. I wasn’t mature enough to. But you know what, some people are like hey, I live with my husband or wife.
We live in a quiet ranch. We don’t care about going to the newest bar or whatever. We enjoy ourselves. We like being outdoors. Respect. You have consciously decided—that’s the title of Chapter 4, Conscious Spending. You’ve consciously decided where to spend your time and money. Who am I to say no? If anything, I should say, tell me more. How’d you decide that? Teach me.
Now, I might not want to live on a ranch. I’d rather be dead than live on a ranch, but—I love that you decided to do it. And you’ve changed your whole life for it. So I think I was overbearing. I think that the book now—allows for a bigger diversity of different people.
For example, Steve, who travels in an RV. That’s why I’m proud to feature him and other stories like his in the book. So I think it doesn’t matter whether you wanted to live FIRE-FIRE, FAT-FIER, this one you got this. No FIRE. You will find a story in the book of people who resonate with you and I think there’s nothing more powerful than finding a group of people like you. To me, that is rich.
Mindy: Wow, that’s beautiful.
Scott: All right, so before we go and kind of get to our Famous Four and the closing statement of the show, I want to kind of see if you’re open to discussing your viewpoint of why you’re not a fan of real estate investing. And let’s exclude the topic of buying our first home. I think we all have a similar viewpoint on hey, you probably shouldn’t buy the nicest, fanciest home if you’re trying to become rich as a smart investment. bBut what about property investing in particular? What’s your approach to that or how you think about that as a suggested investment asset class for people?
Ramit: Okay, thank God. First of all, by taking the first house, your primary residence out of the equation, we’ve now taken out like 98% of the bad decisions in real estate. If you want to invest in a rental property, God Bless! I’m all for it. Run the numbers. And I find that people who invest in rental properties are pretty disciplined in general. They are disciplined about cash flow. They speak to other people, they understand risk tolerance. I love it.
The one thing that I would say that they are a little bit less disciplined about is their overall portfolio. You will typically find a lot of real estate investors way overweight in real estate and they don’t have equities to balance it out. And you see this because what happens is, they start buying. They start to understand leverage and you know, they start to get better at it so they’re like, oh yeah, I’m going to roll my next thing over and get two and three and four. Now I’m really cash flowing in that.
It’s like, all right. That’s all great when things are going up. But like, what happens when they are not? So I would encourage real estate investors—not speculators—to diversify their portfolio, to make sure that you’ve got stocks, make sure that you’re thinking about your cash equivalents and all those things. But aside from that, I have nothing but great things to say about true real estate investors.
I have a lot of things to say about mom and pop who bought a house for $200,000, sold it four or five years later for $450,000 and they magically think they made $250,000 as if that’s a good thing. First of all, you didn’t make that much. Second of all, even if you did, that was horrible performance. Even if you could, you could have put it into index funds and made way more. Third, you are intentionally undercounting all the phantom costs, taxes, maintenance, all those fees. But that’s mom and pop. We’re talking investors? I’m double thumbs up on that.
Scott: Okay, got it. One of the things I think is interesting about what you said there is, people overweight in real estate investing. I think that that’s true for a certain percentage of people but I think the real problem for investors long-term is that real estate as an asset class, performs worse as a stock market as an asset class, unless you’re applying leverage in a consistent way. So it’s like balance of risk and return.
Ramit: Listen, I want to say that, but I’m in the lion’s den here. Come on, I’m on BiggerPockets, man. You want to talk about returns? Yes, in general, real estate asset class returns are way less than stocks. People find that hard to believe. What about San Francisco? What about New York? Well, what about the rest of the cities? And also, what about the fact that you can’t predict which ones will go up before it happens?
So leverage is a great powerful concept. Leverage also works on the way down as well. And most people, they just see leverage as, you know in Super Mario World, you get the star and you go triple speed? Yeah, leverage is great when you are going well. The minute it drops, even if it drops 10%, it can be devastating to your returns.
The point is not to stay away from real estate investing always. I’ve never said that. The point is to run the numbers and make sure you’re managing your risk. I think that’s a fair perspective. I think if you can argue with that, then you might not think of it as an investment and you might have a religious belief about it. I have zero interest in religious conversations.
Scott: I think that’s a totally fair comment, and to go back to your point about the homeowner buying a place for $200,000 and selling it for $450,000 25 years later—the point I’m trying to make is that in the early years of that hold period, they’ve got a loan and they’re using leverage. So the returns are reasonable in those first few years. That’s also where they’re at the biggest risk because that’s where the market tanks or you’re completely wiped out. You’re under water.
As you pay it off, you’re making no money. You’re literally just making inflation at that point down the line. And that applies to investors in rental properties, that applies to home owners as well, and I think that’s the trap that kind of really compounds against the homeowner to a certain extent.
Ramit: Man, I feel like we’re best friends here. How—this is like so great? I 100% agree. Yes. I’m so glad because I think there’s nuance in real estate investing and what I think I just have zero tolerance for is this idea that I need to buy a home because if I don’t, I’m going to get priced out and I need to do it for the tax deduction. Also, the stock market is gambling. I don’t understand it. All of those are naïve perspectives.
If you want to make the biggest purchase of your life, whether it’s primary residence or it is an investment, you need to get smart. You need to have understood what a lot of people did. You should be pretty good at this, borderline expert. You should be highly familiar with all the terms and you should seek out disconfirming evidence. If you’re only reading sites that are called “How to Make a Kajillion Dollars on Real Estate”, then you’re an idiot.
If, however, you’re reading, “Pro Real Estate”, “Anti-Real Estate”—you’re reading all of them and making an educated decision, then you’re going to be in a way, way better spot.
Scott: Fantastic. Completely agree. Let me and Mindy share what we’re doing with our housing and let me see what your reaction to that is. Okay, so I over the last four years have lived in two duplexes, right? So I bought a duplex, moved into it, fixed it up, rented out the other half. They paid down the mortgage, and then I have a roommate which helps to cover a little bit extra.
So basically, living for free after all the maintenance expenses, move out, keep it as a rental property. Mindy, do you want to tell them what you are doing?
Mindy: I buy incredibly unattractive houses. I make them look significantly more beautiful while I’m living in them as my primary residence, and then after two years, I sell them. I pay no capital gains taxes, thanks to the Section 121 Exclusion, and then I do it again. So I’m taking that $100,000 and putting it in my pocket instead of Uncle Sam’s pocket. And I did not fair so well in the downturn. The house that I bought in the beginning of 2006 and was ready to sell at the bottom of 2010 was not the best choice.
Scott: You’ve done this eight times, right?
Mindy: I’ve done this eight times. And I’m ready to sell the current one for $270,000ish more than what I bought it for, more than what I have into it.
Ramit: Have you taken anything out over those ten, 15 years?
Mindy: I’ve only lived in this house for—well, it’s been six years now. But yeah, no every time I sell it, I take all the money out of it and I put it in the stock market.
Ramit: Oh, interesting. Okay.
Mindy: I put 20% down because I’m not going to pay Private Mortgage Insurance. And then yeah, we cash flow the repairs. At the time, my husband was a computer programmer so that was a lot easier to cash flow those repairs.
Ramit: Yeah, I mean, overall, one thing that I hear both of you doing is you’re very intentional seeking about your decisions. Also I hear sacrifices, right? Scott, you are living in a duplex with a roommate. That’s a sacrifice. It makes it financially very attractive but very few people would be willing to do that. So I think that’s very thoughtful about you.
And Mindy mentioning that you’re taking it out, you’re putting it into the stock market so you have a diversified portfolio and you’re taking advantage of all minimizing taxes and you’re living in it while you’re upgrading it. So there’s lots of sacrifices I hear, and lots of thought. I think that’s great. This, to me, is like the bare minimum of thought that needs to go into real estate. And I know you’ve only given me the high level but clearly, you know what you’re doing. That’s a lot of thought. I think that’s awesome.
I think that the timing issue is one that, if I’m playing from a risk-mitigation perspective or risk-management, I want to be planning for failure. I never want to get caught off guard so I want to be saying okay, if my next investment goes down because the market goes down, what am I going to do? I want to have a full playbook for what happens.
I’ll give you an example. My assistant created something called a travel protocol. So when I travel, my whole life changes, right? My plants magically get watered while I’m out of town. My e-mails gets handled in a different way. If somebody calls me and needs to reach me immediately, it’s all like routed different. I love that kind of stuff. I love convenience. That’s my travel protocol and if things go bad and I’m late to a meeting, we have that protocol as well.
So I think creating what I call a failure expectation. Just expect you’re going to fail sometimes and make a playbook for it. When times are good, that’s awesome. Because when bad things happen, you just pull out the binder and you read it and boom. It’s like a pilot. They don’t learn how to handle engine failure when the engine fails. They’ve planned it all way ahead of time. So I think if you do that with your money, you’re in a great place.
Scott: And I think we can all agree that it is not a wise financial move to live you know, just to save up $40,000 over the course of five years and put all of that down on the nicest, biggest, single-family home you can possibly qualify for and put yourself into a paycheck by paycheck, living paycheck to paycheck situation. Which, sadly, it seems like what most people seem to do with these first-home purchases. These are all liquidity on that home purchase.
Mindy: But the lender said I could. The lender said I could afford this very, very high price.
Ramit: Yeah, I mean one of the reasons I wrote this book is that I was so tired of hearing these stories about people being taken advantage of. My mom was a schoolteacher for a long time and towards the end of her career, I looked at her Prospectus, and I was just like mortified. The scams that these investment companies run on California schoolteachers is truly unbelievable.
And you know, they write it on these colorful, like a kid wrote it in crayon, it looks like really friendly. And meanwhile, it’s just like, if you actually know what the words mean, it’s just saying like, we are screwing you left and right. And I wanted to write a book for people so that they knew how the game is played. In fact, I have a whole chapter on The Myth of Expertise and how all these Wall Street guys, etc., it’s like all B.S. and I’ll show you these crazy stories you wouldn’t even believe.
I found some great ones and some new ones, too. And what you realize is, you can actually be smarter and better performing than all of these fancy stuff that people do. But it’s actually like really boring. So when people ask me like, Ramit, what’s your cool investment strategy? And I’m just like, yeah I have like 90% of my portfolio is in index funds and I hardly ever check it and it just like runs automatically, they’re just like—what? Where’s the cool stuff? And I’m like, I’d rather be rich than be cool. So there you go.
Scott: I love it. I’d rather be rich than be cool. And guess what? That’s Mindy and I. We do the same thing. All index funds, right? That’s the majority, index funds.
Mindy: Yeah, well I’m transitioning out of stocks that we’ve picked that have been really, really good but they are like, outliers. So we’re moving into index funds. Every year, I have to reduce my taxable income enough so I can pay as little capital gains taxes as possible. That’s a story for another day. Yeah, this was fantastic, Ramit. I have really enjoyed speaking with you.
Ramit: Well, me too. Thank you for having me. I’ve got to say, I love this conversation, everything from your real estate decision-making to the negotiation roleplay, like I’m so glad we got a chance to do this.
Mindy: Scott is not just a pretty face. But we’re not done yet. You’re our new best friend. We still have our Famous Four.
Ramit: I’m ready.
Mindy: Okay. These are the same four questions and one command that we ask of all of our guests. What is your favorite finance book?
Ramit: I love Bogohead’s Guide to Investing. I think it’s fantastic.
Mindy: Yes, rest in peace, Jack.
Scott: I always think it’s funny that they’ve got a whole forum for Bogoheads. The concept of Bogoheads for those that don’t know is like, hey, I’m going to follow Jack Bogle, founder of Vanguard—how do I invest in index funds and passively just kind of follow the market and be average? And I was like, how much discussion can you have about this concept? But they find a way at Bogleheads. I think it’s Bogleheads.com, too.
All right, what was your biggest money mistake?
Ramit: I took my high school money and I invested in stocks. I thought that investing meant picking stocks and I lost half my money immediately. In fact, by the way, that was so—I also took scholarship money. That’s what I meant. I took my scholarship money, which they wrote the check to me and lost half of that money. That was not good.
So lesson learned, but that’s what got me interested in money, because I was humbled. I was so smart, you know. 1999, 2000, not that smart, actually. And I started learning how long-term, low-cost investing actually works. And the answer is not picking stocks that go out of business four weeks later.
Mindy: Wow, Scott, do you have any hot stock tips to share with Ramit?
Ramit: Please don’t.
Scott: I have the same story right out of college. I invested in Chinese stocks, right? Because hey, this company has $100 million in cash, no debt, and trading at $70 million. How can I possibly lose? Well, everybody other than me knew that Chinese companies don’t always report exactly accurate financials. So, lesson learned. Turned my money about half.
Mindy: I think this is interesting. This is the second week in a row that the guest invested scholarship money in the stocks.
Ramit: Oh, really?
Mindy: Yeah. Last week, Dawn Brennigan was on and she did the same thing. She invested some of her extra scholarship money, which I thought was interesting.
Ramit: That’s very interesting.
Mindy: Okay, what is your best piece of advice for people who are just starting out?
Ramit: It’s not that hard. This is not that hard. It’s not that hard to make a lot of money. This is a skill. It’s a skill like anything else. Don’t let anyone tell you that you need to be a genius at picking stocks or that you need to know a lot of math. This stuff is not that hard. And I just want to keep saying that over and over because I want people to know whether you’re young, old, man, woman—it has nothing to do with that.
I intentionally chose to feature stories of different people, different ages of sophistication levels, different genders, different everything. Because I want to show you that you can take control and also that nobody else is coming to do it for you. So I really—I just want to let—my dream is for the people listening to this to take control. My real fantasy, besides some of the stuff I talk about in the book—would be for people to listen to this to write me. Send me an e-mail.
I have my e-mail address on the back cover and all throughout the book. Please. I’m on Instagram. I read every DM. I read every e-mail. And I would love for you to send me a note saying, hey, I heard you on the podcast. You know what? Here’s what I agree with you on. Here’s what I disagree with you on. I got your book. I followed it. I did the six week program and here’s where I am now. Your life will be completely different. In less than six weeks.
By the way, six weeks are for people who are like barely literate. If you can spend a little time, you can do this in three weeks. And your money will be totally flowing where it needs to go. It will be in control. And best of all, you’ll have a totally different way of looking at your rich life. That’s my fantasy, that you send me an e-mail or a DM and tell me what you did.
Scott: Love it.
Mindy: I love it.
Scott: All right, what is your favorite joke to tell at parties? If you don’t have one, Mindy, I think has been eagerly anticipating telling a joke here.
Ramit: Okay, okay. Let me try one. I haven’t tried this. I’m going to try it for the first time here. Okay. A crypto-investor walks into a—wait, there is no such thing.
Mindy: That’s the best one. Okay.
Ramit: Sorry, speculators.
Mindy: So one of our listeners sent this one in. What nationality is Santa?
Ramit: I don’t know.
Mindy: North Polish. Which is now my favorite new joke.
Scott: Oh, dear. All right.
Mindy: Okay, now are we ready for the command?
Mindy: Tell me where people can find out more about you.
Ramit: You can find me on my website, IWillTeachYoutobeRich.com. We have a newsletter there. We have 400,000-500,000 people on there. We’d love to welcome you on and show you some of our best stuff. I’m on Instagram at Ramit. I’m on Twitter, @Ramit. My book is called I Will Teach You to be Rich and it is on Amazon, Barnes and Noble, Books-A-Million. It’s at every library and every bookstore there is, and I would love to hear from you. I’d love to connect.
I really genuinely love to hear what you took away from this conversation. There’s a reason that I love what I do and I’ve been doing it for almost 20 years now and you can tell I’m as fired up today as I was when I wrote my first blog post in August 2004. And it’s because I get to hear from people who listen and read and follow. So, that’s why I appreciate the opportunity today.
Scott: We are delighted to have you. Your passion is just outstanding. You are obviously very knowledgeable about this. You love the debate. You love the challenge, which I think is fantastic. And just to piggyback on what you said there, I see two versions of the book on Amazon. The one you want is released May 14, 2019 not the 2009 version.
Ramit: The new release, it has a black cover. They took me off the cover because she said, look, if you were like George Clooney, we’d put you on the cover. They put me on the back cover now. I was demoted from my own book, but hey, it’s good to know where I stand.
Scott: It sounds like you have some great advice there. Just kidding.
Mindy: Yes. So we will include links to all these things in our Show Notes, which can be found at BiggerPockets.com/MoneyShow73. Ramit, thank you for your time today. This was fantastic. I thoroughly enjoy having a new best friend.
Ramit: Thank you, Mindy, Scott, I appreciate it. So much. And thanks to everyone listening.
Mindy: Okay, we’ll talk to you soon.
Ramit: You guys are great. Thanks so much.
Scott: All right, that was Ramit Sethi from IWillTeachYoutobeRich.com. Mindy, what’d you think?
Mindy: Oh, my goodness. Did I fangirl too much, because I feel like I kept it in check okay. But every once in a while, I just found myself like, wow, everything he is saying is so true. I can’t believe how amazing that show was.
Scott: Yeah, I think—this is a guy who has clearly passionately studied how to help ordinary people build wealth and improve their financial situation for a very long period of time. And really thought through a lot of different scenarios and the context of people, the psychology of what they’re going through, all that kind of stuff. And you know, it’s a great privilege to get a chance to talk with them and go toe-to-toe with them, challenge a couple of ideas, and hear his perspective.
I was amazed at how similar our thought processes were—yours, mine, and his, in terms of building wealth, even given the differences in how we kind of construct some of our arguments around personal finance. He’s obviously less FIRE and more this concept of rich, and what that means as an emotional state and a place of happiness. And we’re pretty mathematical about it and hey, it’s about when your passive income exceeds your lifestyle expenses. At least in terms of financial freedom.
Mindy: Yes, but I really like that he brings that up. If you just doggedly pursue this one goal, what are you going to do when you get there?
Mindy: All you have is one goal. Then once you hit that goal, what’s next? What are you going to do? I’m going to sleep. Okay, great. That’s a day. Maybe two days if you’re super tired. What are you going to do after that? So I really love that he addresses that in this book.
Scott: Yeah, I think that’s really important also along that point, like hey, it’s not about getting away from something I hate, a bad situation. Maybe that’s how I was kind of approaching things in my first year or two on my journey to financial freedom, right? It’s about going towards what you want at the end and backing into that and using money as a tool to get to that outcome. Now, that’s a really important point and a reasonable criticism over some sections of the FIRE movement, maybe inspired along the wrong reasons at first.
Mindy: Yes, and you know, like he said, okay, you hate your job. What are you doing about it? Why don’t you go get a better job? Oh, I can’t. Well, are you looking for reasons to be miserable? I mean, I’ve worked. Not the same company that you did. The award-winning worst company in the world to work for or whatever. But I’ve worked for a company that I really, really, really hated. I hated—I liked my job but I really hated my micromanaging boss.
Okay. Maybe it would have been better to go get a job that didn’t have a micromanaging boss. Check. Now I do something that I love to do. I get to do this. Every day and it’s fantastic. And I’ve never been happier. And I am financially independent and I don’t have to work. But I choose to because I love what I do.
You have to be doing something. I didn’t have a hobby. My kids were my hobby. I really love that point that he just continues to talk about all throughout the book. You need to get your life in order. You’re going to lead a rich life. He’s not teaching you to just have a lot of money. He will teach you to have a rich life. By the book, called I Will Teach You to be Rich.
Scott: Yeah, and what gets me up in the morning every day to do what I do is I believe in the concept of financial freedom as a specific of that rich life. That’s kind of my passion. That’s the deal here, right? When you move towards that and live a rich life, achieve financial freedom, whatever you want to call it. That is when I think people have a chance to live up to their potential with these kinds of things. That’s the advantage of moving towards this goal is you can reach—you have greater odds of fulling your potential, being happy and making a difference in the world and that kind of thing. So that’s my little schpeel there.
Mindy: Yep, I think financial independence can walk hand in hand with Ramit’s rich life.
Scott: Love it. Absolutely.
Mindy: This was awesome. Okay, Scott, should we get out of here?
Scott: Let’s get out of here.
Mindy: From episode 73 of the BiggerPockets Money podcast, this is Scott Trench and Mindy Jensen and we are going to go lead our own rich lives.
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Mindy: Okay, huge thanks to today’s show sponsor. Jordan Klint, welcome to the BiggerPockets Money podcast. I am so excited to have you here today.
Jordan: Yeah, I’m so excited to be here.
Mindy: So can you walk us through where your journey with money begins?
Jordan: Yeah, I can do that. So it started—I’m from southwest Michigan. I know Mindy’s been there. It’s a pretty awesome place right by Lake Michigan. I was the oldest of six kids. We were all homeschooled growing up so that’s a little bit there of my background. My dad was an industrial electrician so his work was very contract-based. When there was construction, things were good. He worked 13 days, 12-hour days. That was the most you could work.
But he would do that for several years and then there would be nothing. He would be off work for the winters and stuff like that. So I really learned some of the principles I applied later in my life which is there every single day, it was something we saw. So, when times were good, it was peanut butter and jelly and hot dogs, and when times were bad, it was peanut butter and jelly and hot dogs. It was very consistent. That’s how it was.
Probably, looking back on it now, I’d say we were lower-middle class, I guess, growing up. But it didn’t feel like that because we never saw those ups and downs. As kids, we didn’t see that. It was just one of those things that just kind of happened, I guess. I always knew I wanted to stay in the area, so I eventually met my wife and we got married.
When I was 20 and she’s a little bit older than me, I was 20 when we were married and we were both in school. She was studying to be a nurse. I was studying to be an engineer. We got married, stayed in the area—I guess that’s a little bit of the background.
Mindy: So you are financially independent but you don’t have any kids, right? Because you can’t do this with kids.
Jordan: Oh, yeah. I have five kids so it’s not the same as zero. Five is a different number, yeah.
Mindy: Slightly larger.
Jordan: Definitely larger. When we got married, I had this engineering coop job while I was working through school. I would do three months of school and then three months of this coop opportunity. And I remember, it was some Sunday night and I’m like, I don’t know if I can even go back tomorrow. And my wife, we were talking through it and yeah, you can go back tomorrow. And I was like fine, I’ll go back tomorrow. I think I could do this for 20 years and then I need to be done with this.
So right then, I set this 20-year deadline in my head. I’m like, I’ve got to get out of working for the man in 20 years. I’d never heard of anybody even doing that at that point of my life. It was before I was in with Mr. Money Mustache or FI before he was even on the internet or things like that.
But it was something, I was committed. I can do this for 20 years if I set a final deadline. I didn’t know how I was going to get there. I didn’t know what it was going to look like. We didn’t have any kids at that point. But it was one of those things I committed to and we’re like we can make this happen.
Mindy: Okay, so let’s talk about your schooling for a little bit and then the 20-year mark. How old were you when you said I can only do this for 20 years?
Jordan: I guess I would have been 21, I think. But somehow the 20 years, I was going to be 42—when I turned 42, I had to be on my own, have my own thing figured out by 42. So it must have been somewhere in that neighborhood. I told you I graduated from school when I was 22, so maybe that’s what it was. Something like that. But I know 42 was my drop dead year. So by 42, I had to have this all figured out or I was going to be an internal failure.
Mindy: So no pressure.
Jordan: No pressure.
Mindy: So with your schooling, I really like this coop thing. Was this through a school or—
Jordan: Yeah. Kettering University was the school. It’s primarily engineering-based. They have a few other programs you can do. It is pretty cool. When I went and looked around—I was going to stay in Michigan for my Bachelor’s. I did two years of community college so I had an Associate’s, which is a very, very smart way to do it and I would recommend that to anybody that’s looking.
It gives you two more years to make a decision on your schooling and community colleges are one-tenth of the price of private institutions or four-year schools. Also, I had my Associate’s and I transferred over to Kettering and they had this coop program where it’s a requirement to graduate. It was this back and forth between paid internships essentially and then school and you go back and forth.
And really, it helps you develop your engineering side. I couldn’t imagine graduating and have never been in a facility before and then showing up and saying, yeah, I’m going to justify this huge paycheck that I’m earning and I don’t know how to fold a blueprint. I don’t know how to find a bathroom. I don’t have any of that. I couldn’t imagine that.
So it really was beneficial and again, if you’re interested in that, it’s Kettering University. It’s an amazing program. You could do it on your own through other institutions. I know, by us, Western Michigan, they have a good engineering program but everybody has to find their own internships. So if you have those connections, it’s worth it but Kettering was pretty cool because it was a requirement and they have guidance counselors and things like that to make it happen.
Scott: So you had a very intentional education that prepares you directly to earn a good living as son as you graduate. You do it at an extraordinarily low cost because of stuff. What is your financial position in terms of income and assets upon graduation?
Jordan: Yeah, so I did take out a little bit of a loan. We borrowed about $20,000 to get both of us through school. So we had a nursing degree and an engineering degree and we were about $21,000 in the hole from that. I think we could have done it differently. But it just wasn’t a priority to do that because it was available.
Scott: $20,000 is good.
Jordan: Again, junior college and then bleed over into those. So we graduated in nursing and engineering. Those are two of the fields. Like you could find a job in almost any economic climate, you can find those kinds of jobs. So we were able to land really good jobs in our area. We didn’t have to move or anything like that. Again, those are like vanilla, bland, basic, we can get these jobs anywhere. It’s not a problem.
Scott: So what did you do right after you got those jobs? What did you—how did you begin approaching your personal finances from the get-go?
Jordan: Yeah, I guess earlier on we hooked up with Dave Ramsey kind of thinking. Trying to avoid this debt that’s pretty bad. Again, I love Dave Ramsey if your net worth is minus up to $50,000, I think that’s really the bang for the buck area. And if you can set those principles of here’s what a budget is. I can’t spend more than that budget. Avoid monthly payments of any kind. All these kinds of things.
Those really set you up to really launch your spending going on and off from that. On a personal side, we bought our first house—it was before we were married, actually. I bought my first house. It was a live-in flip that I did. My dad financed it and then I did the work and got it done and then we split the profits on the backend after we got married. We had lived there two years and then sold that with the homeowners’ exemptions.
Mindy: I’m familiar with that plan. I like that plan a lot.
Jordan: So that rolled over. We split those profits that rolled over. My dad got half. I got half. That rolled in my down payment on our first real house where it was just my wife and I.
Scott: Was that a launching pad for your financial position going forward after that?
Jordan: I think it really did. It’s a good thing to have that down payment, you know, on your first place. People take a long time to save up for that but it really set the principle for us, was really we can do this. It doesn’t matter what it is. We can figure out a way we can kind of accomplish that.
So that’s one of the things I think that’s worked out well for us, is we’ve never had a road block. We just say, we figured it out the last time. We’ll figure out this time. What can we do to gradually change this or increase it and we can get through this next step.
Scott: What was your—you said you were following Dave Ramsey and all that kind of stuff. What were some of the things that you think you were maybe doing differently when it comes to your household expenditures relative to maybe some of the folks you knew that were in similar position income-wise?
Jordan: Yeah. We’ve never had a car payment. We’ve never had a new car, but those car payments—I just couldn’t even figure out how people would try to justify that kind of stuff. That’s one of the big things Dave says, is who are you going to put on your payroll? So every time you get one of those monthly payments, that’s putting Netflix on the payroll. That’s putting GM on the payroll. I don’t want them to be my first employee. I’m not going to do that.
So that kind of mentality really helped us. I mean, we have a few monthly subscriptions now, but that’s one of those things—if you can avoid those things, those things add up over time and that really kills you. So we drove rough cars. Thousand-dollar cars and things like that, but that’s one of the things you just learn over time. I can find a good deal on the purchase and I can take care of this.
Especially with YouTube now. Anybody can replace a wheel bearing. Just find somebody on there that’s done it before and you can just really copy that. So it doesn’t take much. I mean, I think I’m naturally handy and that’s what’s going to come out of my story. But I don’t think it’s a barrier to anybody now. I think you can overcome that through at least the internet or a bunch of other avenues to get over some of those things.
Again, my story is just my story. If I was ten years older, it would probably look a little bit different. If I was ten years younger, it would look different but I’m not saying you can’t do any of these things. You can get over all of these little hurdles if you just have mentality.
Mindy: Okay, I’m going to jump in here and say that I am also—I don’t want to call myself naturally handy because I’m not. I am YouTube-lly handy. You can find out how to do almost anything on YouTube. I think they don’t have like self-open heart surgery videos, but everything else, you can find on YouTube.
So if you don’t know how to change out a light switch, you can find a YouTube video that shows you exactly step-by-step. You can find a YouTube video that shows you how to fix anything, specific down to the actual thing or whatever kind of car you have. Whatever part you’re missing. YouTube is amazing.
I can imagine doing this—I mean, I did it before I had YouTube but I had books. I can’t imagine not leaning on YouTube to do this. You don’t have to be naturally handy. You can just watch somebody do it and it’s not that hard.
Jordan: Yeah, totally agree. That’s how we did our first flip. There was a couple of the skill trades, people call them, that live-in flip that we did where we didn’t do them. Like plumbing, we had somebody else do it just because that seemed complicated. But then after I paid that big bill to the plumber and that cut into my backend profit quite a bit, I’m like, I think I can figure this out.
So going forward and all the flips, I mean we do whatever we can legally do. I do want to preface that. But that’s one of the things—you can figure this stuff out. I mean, there’s no obstacle now.
Mindy: That is very interesting that you say that, whatever you can legally do. Because I only do live-in flips. So you are legally allowed to work on your own house. You don’t have to hire a plumber to do plumbing work in your own house. But that’s a good distinction because when you’re flipping a house that you’re not living in, then you do need to hire somebody. In most cases, the city or the municipality will require that you hire someone licensed. But yeah, when it’s your own house, you can learn your own self.
Scott: And a lot of that is based on insurance as well, right? So you may be allowed to do it. It just may not be insured and you may be liable for the problems that arise in the future, is that right?
Mindy: Well, when I do it, yeah I am liable for the problems that happen when I don’t do it right. I just do it right. So Jordan, how long were you married before you had kids?
Jordan: We were married three years, I think, before we had our first.
Mindy: And had you graduated college and you had real jobs?
Jordan: We had graduated college. We had gotten into our first real house—we had already done that one flip or whatever but then our first house where we were on our own kind of thing, we were in there. That was, our second house was another flip. It was another live-in flip. We added a second story on so that was pretty awesome. We started that with no kids and finished that—we definitely had some kids by the time we finished that one.
Mindy: Wait, it sounds like you didn’t just do that in 12 seconds.
Jordan: No, no. So that two-year window when you do a live-in flip, you need the two years sometimes. There’s two years’ worth of work. Again, at this point—when we started that, we both had full-time jobs. So it’s like some hours but that’s one of the things we always found enjoyable. So date nights were, you go down to Culver’s and you head down to Menard’s. We used a lot of those.
So our nights and weekends were, that’s what we called it. That’s where we found our hours to really do these kinds of things and you really built kind of a side hustle. Again, this was before we even called it a side hustle. But you built this side hustle on nights and weekends and TV time. We didn’t watch any TV so there you go.
Scott: It sounds like these first two to three years before you had kids that you’re really going all out. You graduate with very low amount of debt, you get good jobs, you’re saving a lot of money. You’re not submitting a car payment. You’re leveraging your housing position and your house to take advantage of the live-in flip and all of those tax advantages and that kind of stuff.
So what position do you kind of end up with two or three years down the road if you pay off all the debt and are starting to stock pile a sizeable amount of investable liquidity?
Jordan: Yeah, so we were—again, this is kind of where we started to diverge a little bit from that classic Ramsey approach. So we never paid off our house all the way. That wasn’t something that we did. We like the lower interest rates and we kind of just want to see what was out there and kind of stick around. And then, this is about when the crash would have started, right about this point.
So we’re like okay, we’re going to keep a little bit of this liquid as we can—we’re not going to pay off the house and things like that. So that was one of the things that we never quite did. But yes, we were investing a lot into these live-in flips at the time but we were doing pretty well. And it was definitely enjoyable.
One of the things that we enjoyed was when we had no kids, we were investing all of those times in our day jobs and then into our night and weekend activities. But that really became kind of engrained into who we were. So once things changed a little bit so the people that were going—we hustled a little bit. We worked pretty hard and we enjoyed it and that was kind of what we built on.
So I think that was the number one thing we got out, even more than the financial position was we can do this. We’ve done nights and weekends before. We can figure out how to do this. And then after we got one kid, two kids, three kids, we kind of built through that. It changes with kids. It’s definitely a little bit different but you can find a way to make it all work still, once you’ve laid that foundation.
Starting with five kids, it would be different, I’m pretty sure. But I think the principle is the same. But again, you have to lay that foundation. So for us, we just added one more brick into that and you just kept going. It wasn’t something ever that was a big change.
Mindy: Were you saving anything that this time? Did you have any sort of savings and investing outside of the live-in flip?
Jordan: So I’ve always invested up to the 401K match, our FSA match, if we were in that kind of an insurance system. But I would only put into the match because I didn’t want to invest the time it took to learn the stock market, I guess. And then just throwing money in there always seemed like a gamble if you didn’t know what you were doing. So I wasn’t going to be putting a ton more away in there. But again, we would build up.
Eventually, we had to start buying. We buy some rental properties eventually in this story, but we would save up and buy one and save up and buy one. So that’s pretty much how it worked on the back end. So we got—we were definitely probably around 50% of our income was going towards either some kind of investment or savings. But not straight into the stock market. That was one thing we didn’t really do.
Scott: I’m sorry, what was that percent? Did you say 50%?
Jordan: About 50%, yeah. I don’t have the exact numbers because that’s not how we thought about it at the time but that was probably where it was. And as I got raises through my career—I was very blessed and I did well in my field, my wife would step down. I would get a $10,000 raise, she’d step down $10,000 worth of hours.
Basically, as we were having more kids—each time we had a kid, she wouldn’t go back to as much work. Wouldn’t go back, wouldn’t go back, and then eventually it was just a stay-at-home mom now.
Scott: So can we walk through that? What did it look like when you had your first kid? What was your position like at that point?
Scott: Financially, and then how did you—
Jordan: We were strong and while we had the kid, she was still at the hospital those three days before she came home or whatever and I went back home and I installed all the windows in the house. Because she said, windows had to be in the house before she was bringing the baby home. And so I’m putting all the windows in. And when you’re putting in windows by yourself, that’s a little complicated. So I missed my partner on that, you know.
Mindy: This sounds like my life.
Scott: But you had your first kid and did your wife step down immediately to a lower number of hours?
Jordan: No, it definitely didn’t happen, I don’t think, with our first kid. So about that time, probably she changed to a relief position at the hospital, which actually pays better but you have to be more flexible in the department you work in so you don’t always work in the same department. So she was like a floater, I guess. But that would help offset some of that. And then she would do her own scheduling.
So if she wanted four days this week, she could put in for four. And then if she wanted none the next week, that just kind of worked out. That’s how the scheduling worked on that. So it worked out pretty well for us. She was on—I guess she was doing evenings at that time so there were a couple days a week where I had one kid, I guess. But I was daddy and remodeler and everything at the same time there.
Mindy: Okay, so what were you doing for child care while your wife was working and while you’re working? We have some people who ask these same questions over and over again. Child care, healthcare, and that kind of thing.
Jordan: So healthcare, at this time, when we were fulltime, we had healthcare through my place of employment all the way through until I wasn’t there anymore, I guess. Child care wise, we are in the same time as my support structure. My family is there, so it worked out pretty good. Again, she was working second shift for most of that time. So I’d get off at 4, I guess. So she would head off at 2.
So there was only a couple of hours a day that she worked—there were only a couple of hours that we actually needed a sitter. We could leave her at my mom’s or my sister’s or something like that and then I can pick her up, having dinner there with whoever was watching them, and then take them home and finish up the project.
So again, some of that works well for our situation specifically because we had the support structure, but I think that’s one of the things you need to consider. We made the commitment at some point is, I could make way more money if we went down to Houston or out in the oil fields in North Dakota or whatever.
There were things that were way better opportunities just on the income and dollar side, but then it’s going to change your expenses on the backside. And you’ve got to consider some of that. So that’s definitely thanks to my mom and my dad. They really helped us out there. But that’s how we pulled off the sitters.
Scott: Did that continue with all of your kids?
Jordan: It gets more complicated when you say, I’m going to drop off five kids for a few hours. So it definitely changes. But again, as our life changed, we adjusted what we were doing on the side. So we changed that structure. So we do less flips now outside of the house. The live-in ones aren’t as complicated because you’re there with the kids and that’s something that’s easier to pull off. The flips in other outside residences, we do less of that now just because it’s a little more complicated.
But yeah, eventually we started to pay for a sitter because with five kids, that was a big burden for everybody. So we do have a sitter now. It’s a standing date night. She comes, watches the kids, puts them down. It’s great. But we just factor that right into, that’s just like a marriage expense, I guess. We would call it at this point. So you’ve got to put in the work that you need on that side to keep everything pretty strong and pretty healthy.
Mindy: So I have asked this question of a lot of people. I have asked this question of people in my life and people on the show. And child care just seems like something you’re going to have to plan for. If you don’t live by your family, you don’t live there, then that’s just going to be an expense.
I had somebody send me an e-mail once—what about this expense? That’s going to be an expense that’s unique to you and you’re going to factor that in. So what I’ve discovered over asking so many people the same questions is there’s no just magic button for child care.
If you want to have children, you are going to have to factor in some sort of child care options for them, whether it’s a you’re a stay-at-home mom or a stay-at-home dad and you have families that can help. Or you can’t or you can’t be a stay-at-home parent and you can’t have family, you have to hire somebody and it’s going to be an expense.
I think that’s just, there’s no magic in saying, just leave them in the truck. Like you can’t do anything that isn’t safe. You have to provide care for your child. So that’s interesting that you had made—was that a conscious choice to stay by your family or you just wanted to be there?
Jordan: So, I mean it definitely was a conscious choice. It’s a vacation community. I mean, it’s a pretty amazing place and besides January and February, the rest of the year, it’s pretty awesome. Actually, the beach picture behind me—we are in Florida right now and my mom does have my kids. It was minus ten degrees when we left and it was 78 when we landed. So it was a pretty big change.
We’re at a little getaway for my wife’s birthday but you are able to pull some of that stuff off, you know. But yeah, you just have to decide. If it’s more important to keep the income side of that and keep that elevated, you can do that. But there’s tradeoffs and we didn’t want to do two incomes the whole time. That wasn’t ever part of the plan. We didn’t want to have them at eight hours a day care.
That wasn’t really the plan ever. So we just didn’t. I mean, but I don’t think those are limiting factors, like you said. It’s just a different set of inputs into your formula.
Mindy: And you said the word “planned”. You have a plan for what you want to do and I think this is—if financial independence is your goal, then you have to make a plan. It’s not just going to happen. You can’t just be like, oh whatever, and all of a sudden, you have enough money. You have to make a plan.
Scott: So two years into this, you start having your first child. We talked about how you kind of navigated some of the hurdles with child care, obviously making the intentional choice to not go after the big income but stay around your family. When did you become intentional about building passive income?
Jordan: So again, like I said, I set this 20-year goal, had no idea what I was going to do. Didn’t really ever even—I hadn’t heard of somebody even able to pull that off. I mean, I guess there are the people that win the lottery and sell your tech startup and stuff like that. But I wasn’t in tech and I don’t play the lottery, so neither of those were going to work out pretty well for me.
So one of the reasons we started to look around was okay, what are we going to do next after we finish our second live-in flip, which we actually held onto for a while. So we didn’t sell that one right away. We did put that second story on but it took us a long time to actually decide to move from that place. But we started looking around. This is right about, probably the bottom of the recession.
So we’re up to 2008 now. I think we had three kids at that point—no, we only had two kids still. So bottom of the recession and we started to look around and was like, some of this real estate that was pretty expensive a little bit ago was starting to look cheaper. It was definitely on sale. So we started looking there in the Fall of ’08 and then picked up our first place in ’09 and that’s where we went from there.
Scott: So going into that purchase, how much did you stockpile? How did you come up with the liquidity to purchase that deal?
Jordan: Well, the very first deal, we had some cash, obviously. And then we did have a ton of equity in that house that we were living in, so the first one we actually rolled was just a line of credit on our personal residence. We were able to pull off that first property.
Scott: And that’s because you added lots of value to it. The market went down but you had added so much value to it through sweat equity that you were still able to pull out a big chunk.
Jordan: The market probably went down almost 50%, probably, in our area. Again, we’re a vacation community so things are really different. I’m sure there are some people out there that are familiar with that but the high ends are crazy high but the low ends are still pretty high because it kind of gets compressed in the middle there.
The mid-range houses got hurt pretty bad, but yeah, no, we had a ton of equity in there because we had done so much in the previous point. And we were in the position where even if the thing sat empty for the whole year, it wasn’t going to affect too much. We’re very conservative in that. That’s the value. We don’t want to get it aggressive or anything like that so our story probably went a lot slower.
Sometimes I listen to these people on here and I’m like, holy moly, they did it so much faster than I ever could even think about doing. But we weren’t ever going to put ourselves in a position where it was going to be a stressful situation if we had some vacancy or if we had some kind of major problem or whatever.
Everything went a lot slower than it could have gone but again, that’s what we were comfortable with. We weren’t looking to get rich quick. That wasn’t even one of the things we were even thinking about. Again, we had this 20-year deadline. So when you’ve got—now, it’s down to 15 years or whatever. But it’s getting shorter and shorter but you still have a long runway on something like that. So we didn’t have to get aggressive.
Scott: Let’s go to this first deal. You take out a line of credit and you buy this deal. How much passive income does this produce? This is your first cash flowing investment.
Jordan: Yeah, again, we didn’t quite know the formulas. We didn’t quite know that there was probably an easier way to this. I knew the construction side of it enough and I’m looking for solid houses. So I avoid weird additions, things like that. To me, that’s going to affect the long-term maintenance on something like that because you don’t know what kind of yahoo turned a screened-in porch into a bedroom. You don’t know what’s really going to be there.
So those are the things I kind of avoid. I avoid flabs. We do have a few flabs up in Michigan but again, it’s one of those things like, I’m not really interested in something weird. I do love roof problems, so houses that have a lot of water pouring in, that’s a good value to me. I can fix all that. But you can find your little niche there.
So this was a house, it was a foreclosure. It had some roof issues. I’m like, I can fix these pretty quick. Again, I didn’t know about the 1% or anything like that. I didn’t know that but I knew a year and a half earlier, this thing would have sold for over $100,000 and we picked it up for $59K I think, or $60K. Something like that.
Scott: So once you fixed it up, how long did it take you to fix it up and what were you renting it for?
Jordan: We put somebody in it, I may basically, immediately. The beginning rent, again we didn’t know, but I’m like, if we rent it for $650, I know we can make some money on this. I didn’t know even how to look and see what other stuff was renting for. Again, this is our first shot at this so I’m like, let’s try $650 because it’s going to more than pay this line of credit that we have and it’s going to—we knew what the insurance was and we knew what the taxes were going to be so I’m like, I think we’re going to be okay there.
$650 was way too low for the market so we had it filled up in a matter of no time with some great guys. But that became one of our principles going forward was, probably, every time we list a place, we could get a little bit more money but that wasn’t always the point. We wanted to get a little bit better tenant, is what we were looking at. So if we leave $50 on the table, that wasn’t going to be the end of the world to have a better tenant.
Scott: I love it. I think a lot of investors come at it with a completely different approach. They’re like, how do I get the most rent but deal with the least amount of repair problems? Give me a structure with the repair problems that are up my alley and then I just want a tenant that won’t give me any trouble and I’ll sacrifice the rent on that.
Jordan: Yeah, but that’s one of the things. I don’t want to put down anybody else’s perspective on this so if you have an avenue or you think that you have something else, then you should exploit that. But again, I knew what mine was. I’m an engineer. I don’t really want to interact with 40 tenants. That’s not really up my alley. But I can fix a roof problem. So give me a roof problem, let me have better tenants, and make a little bit less money and I’m going to be okay with that.
Scott: So I think what would be awesome to hear next is, how did this kind of progress right up until the point where you actually discover the concept of financial independence and began going down that rabbit hole. What was the journey up until that point from here?
Jordan: So probably all through this point, and we’re going to get to it later, but I was probably thinking, oh—a construction company. If I open up a construction company, that way, I wouldn’t be working for the man anymore and I can have that rolling and then I can phase out of my W-2 employment and then more into this self-employment thing.
So for the first, at least ten years, that’s what I would have been thinking, is something more along that line. Like I could find—I’ll do the work that I want to do. I’ll be honest. I’ll call people back because if you can call people back, you’ll have a business. And that’s all I really need to do.
So that’s probably where I was thinking that I was going to go, had not thought at all about passive income being the key there. Definitely, you learn that over time as you’re more involved in this and less involved in that. And you start figuring out, hey maybe this is a better path. So that’s where we were at.
Scott: After that rental property, did you acquire more rentals? Did you invest your money somewhere else? Did you stockpile cash? What did that look like?
Jordan: Yeah. So we got our first rental and we were like, this one worked out great. Had a great tenant. Then we’re like, hey, we’ll just look for the next one. So then the next one was a short sale, which I had never done a short sale. I didn’t know what a short sale was going to be, so we put in our offer and it was like six months, the bank sat on it. And we were like, okay, it’s probably not going to happen. So we didn’t worry about that one.
So then I went, hey, there’s going to be an auction right down the street from my first rental property. I go over to this auction and take a look over here. So I show up at the auction and there’s only two bidders at the auction and one is a couple that I really respect, or one of the people that I always kind of thought, hey maybe they’re doing this thing—I had never actually spoken to them about it but I’m like, the Millionaire Next Door kind of thing.
They didn’t look like it but I always had this suspicion. I’m like, I think they’ve got something going on there. So they were there at the auction, and then my tenant at my first property was there. So those were the only people that were there. The older couple said, okay, we’re not going to do this. And then I’m like, I can beat out my own tenant for a house. This is going to be easy.
So I beat him out and then I got my second one there. And then the short sale called up and they wanted to close. So we closed on the same day on our rental house number two and three, we closed the same day, which was kind of stressful. And again, not probably how you would have planned it.
But that’s definitely how that went. And then my good tenant, he did eventually find his own place and he moved out. So you kind of find out he’s looking when he shows up at the auction with you.
Scott: So you have these three properties now. I assume you fixed it up or do you get a tenant right in there? Going from there, basically I want to know, how does that portfolio keep building over time until you—
Jordan: It goes exactly like this. It was slow and it was boring and there was nothing just amazing to say about the whole story. So we basically—we added pretty much two doors a year. That’s kind of how we were looking. That’s about how we could cash flow on our own side.
We occasionally would pay for them straight in cash and sometimes we would have enough saved up to pull it off and pay for it or use the home equity. So we would pay off the home equities and then fill them back up and pay them off and fill them back up.
Before the banking rules changed, I was able to get a home equity on one of my investment properties, which was pretty awesome. I know they’ve adjusted the rules like four or five times since then. But we had that one for a long time. So that’s how we kind of used it. So it just went up and down, up and down, and add another couple here and there. We were looking for the stuff.
I was very selective. I wasn’t going to stretch it. I wasn’t going to buy something that wasn’t a good fit for us. I wasn’t going to buy something that was far away. Every house we owned was within five miles of our house or something like that. I wasn’t interested in something else. There’s a couple of markets that are a little bit further away that you can do better. Your numbers will look better.
But we were like, we’re not going to touch those. Those are out of our scope. So we really limited it down and that way, you knew when you were going to find those two houses a year because there’s only going to be like four houses that fit your criteria and you’re not going to win all four of them. So you’re going to win a couple of them. That’s kind of how we looked at it.
Scott: I love that. What you’re talking about is so repeatable, right? You have a strong savings rate. You have low expense rates in your housing, transportation, I assume you’re living responsibility everywhere else. So you’re stockpiling a lot of cash.
So you’re buying solid singles. One after another that you’re extremely comfortable with that are really convenient for you at every aspect. And you’re just doing it slow and steady over a period of years. Where do you end up? What’s next?
Jordan: I had a couple of different jobs. My next W-2 jobs changed a couple of times. I wasn’t really in tune with what my goal was yet. I still had this age 42 number sitting out there that I was thinking about once in a while and I would adjust my ten-year goals and my five-year goals and everything and make sure that they were somehow on track for this. But again, I didn’t really know how I was going to get there.
Eventually, I was out of a job and I got this great promotion and I was super stoked about this promotion. And within three months, they promoted somebody else from below me to above me and then it pushed me down and it got all messy and I was not thrilled about this. And I’m like, well, this is kind of a good thing and I was really excited about it. What am I going to do now that I have this boss that I didn’t want to have?
I would never have signed up to come and work for this position so it just kind of happened. And I’m like, you know what I’m going to do? I’m just going to knuckle down. So that’s really when we figured out, hey, we’re going to get this whole thing up and going. We’re going to make sure we hit our numbers. We’re going to make sure we get the right number of houses, we get them paid off, and we’re going to be able to pull this off.
Because I loved my employers that I had but when it comes time to it, your W-2 employer is going to let you go. If it’s good for them, it’s what they have to do. I mean, there’s no other way to look at it. So that stable income that you get every other week or every month or whatever that you’re getting paid—that’s not really that stable because you don’t have control over the back end.
So they lose a contract, they have to let some people go. And one of those days, it’s going to be you. I did survive a few layoffs but when you see that happen, you’re like, how did I survive this layoff and he didn’t survive this layoff and that was just kind of just how it went? So you learn ways to stay employed and then you learn like this is not that stable of a paycheck, honestly.
Scott: So it sounds to me like this line of thinking became more concerning to you because the position at work changed for the worst. So you were liking it but it wasn’t really essential to mind that the paycheck could evaporate. But then as soon as this new boss came in place and you weren’t liking your position as much, the risks became magnified. You’re like, not only do I not like this but it’s also risky and as of this thing that came to light. Is that fair to say
Jordan: It was definitely—it put that sense of urgency. It really kind of kicked me in the pants. That would have been 2013, I think. 2012, 2013, somewhere around there. And I’m like, we’re going to step on this now. And again, step on it again—I’m pretty flow, I’m pretty conservative.
So it wasn’t like that next year, we had it all rolling or anything like that. But we really ramped it up so we started to do some stuff. We doubled up on a few things. We made sure we had some flips going outside and personally flips. We moved. We moved back.
Scott: What was your position like at that point? How many properties did you have and what was your passive position at that point, when you kind of had this motivation?
Jordan: Yeah, so we would have had probably six properties or seven properties or something like that. We had a couple of loans. The rest of them would have been paid off. We weren’t up to the point like they wouldn’t have paid for our lifestyle at that point, but we were very conscious like, hey, we’re going to really double down and commit to this.
So we had a pretty level—we hadn’t bumped our lifestyle that much but we did cut some things out like, we’re going to cut back. We’re going to save a little bit. We’re going to scrimp. We’re going to try to lower our spending side. The quicker you lower that spending side, the quicker you’re going to get to it on that passive income side. So it’s one of the things we really hit it pretty well there.
Scott: What were some of the changes on the spending side?
Jordan: So we dropped eating out. It just went away. We cut back on a few other things like that. We didn’t do a ton of vacations before but we dropped all the vacations, things like that. Most of the times, a vacation day for me was we would take it off to work on a big project.
So some of it, you get a roof or whatever, you can’t always pull a roof off on a weekend. So you take a Friday off and a Monday off from your day job, you can get a roof done in a four-day week. You can make that happen. So that was one of the things we looked at.
We started to pick up some work, like just actual contractor work. I have my builder’s license, so I’m approved in Michigan to do some of that stuff. We picked up some side work and did that, too. My wife helped out a ton. She enjoys that. And again, we had built a lifestyle where we were able to stay on our feet and keep going for lots of hours every day. And weekends, and things like that.
But she was supportive of me and she wanted to make sure that we were in a position where we were going to be stable. And again, I love my employers. That wasn’t the thing. It was just you realize at some point, you’re like, if it comes down to it, they’re going to let you go and you’re going to be back on the street and you’re looking for a new job and nobody wants to do that, especially an engineer. We hate looking for new jobs.
Mindy: So what sort of passive income were your properties generating at this time?
Jordan: So in 2013, we were probably doing—I mean each house does a couple of hundred bucks, probably. It was probably stable. So we were up in the $1400 a month, maybe something like that, I guess.
Mindy: Okay. So that’s not replacing.
Jordan: Definitely not at that point. But that’s why we had to step on it and we knew we had to step on it.
Scott: What were your lifestyle expenses before and after your kick in the pants there?
Jordan: We probably were able to cut probably $600 a month out of our expense side and not change our backend of our lifestyle a whole lot. But again, we were very aware of our spending and we’re very in tune. As a marriage, we’re on the same page. So some of those decisions are a lot easier for us.
But again, we ramped up some of the side income stuff and then really committed that we were going to get some more doors, basically, and make that happen. Did a couple more flips. Then it really started to roll. Again, this is a great time. If you’re going to pick a time in history to really start doing this stuff—starting 2009 and then ramp it up in 2013, it’s a great time to do this stuff. So again, I’m definitely blessed by the situation that we were in.
Scott: Let’s fast forward to the next milestone that you receive in the journey.
Jordan: Yeah, so that would have been November. We go down to my uncle’s for Thanksgiving, so I love going down there. And he has a different outlook on life and a different take on things. And that’s one of the things. So we sit there and we talk and we go over some stuff. And we realized probably in November of ’15 that we had gotten to a number—it wasn’t the number that I originally thought.
But if we scale back our lifestyle just a little bit, we would be stable. So I was within spitting distance of that FI position and we’re like, okay. If we just build up the courage here over the next little bit and get a little bit more passive income coming in, we’ll be in a position where we can back this down all the way. But it took me all the way from November of ’15 all the way until August of ’16 to actually step up and commit to that position. So again, I’m slow. I’m a little nervous and jittery, so it took me a little bit of time.
Scott: That’s not that long. But let’s walk through that ten-month period.
Jordan: Yeah, so August of ’16, we were definitely in a spot. I wasn’t sure how my W-2 employer was going to take it when I came in and said, I’m going to retire. They’re not prepared. I would have been—that would have been, 33 or 34. Something like that.
Scott: Seven or eight years ahead of schedule.
Jordan: Yeah. But again, we had really pushed down on the spending side. That was one of the things I want to make sure people understand. If you can commit—it’s so much easier to cut a dollar of spending than increase a dollar of income coming in. I mean, I can’t express that enough. Raise your hand and clap, whatever you need to do, but that is a point.
So if you’re at $4000 a month spending and if you can get that to $3000, that changes your 4% Rule. It changes any kind of passive income. I mean, those are just huge numbers. And think about what you’re going to gain if you can give up eight hours a day of sitting at a desk or whatever you’re doing. I mean, think about that.
So we were at the position in August of ’16 where worst case, if I had to do a little bit of outside work, I could pay the bills. So I went in, sat down with my boss, and explained this. And you could just see the like—what? I’m obviously a little bit different. I’ve got the big, red beard and everything so people don’t always know how to take you in a position like this. And again, you’re getting up into the FU money numbers, so you have a whole different outlook on life and it changes how you perform at your job.
That’s one of the big things. Like, I can do what needs to be done and I don’t have to worry about somebody having a problem with me because, have a problem with me. I’m going to do what’s right for the company every single time. That’s not an issue. You can’t really touch me. So that’s one of the things, I think it’s really good for the employer in the backend. But it makes for some weird conversations because they’re not used to losing that leverage all the time.
So you come in and say, hey, I’m going to make a change here. If you want to work something out, we can work something else out. Otherwise, if it’s all or nothing, I’m going to take the nothing instead of the all. So that’s where we were. They were very, very gracious and decided that some of me was better than none of me so we did work out a part-time position going forward.
My role did change a little bit but I was still able to help them part-time. Which again, that cushions—if the plane is coming down to land or whatever, you’ve got a nice, soft runway then.
Scott: And that’s what you wanted, right? That was the best possible outcome for you?
Jordan: It probably was the best possible outcome. I went into that meeting 100% uncertain of the outcome. Like, I had no idea if they were going to rip away my key card and throw me out the door that day, or if they were going to work out some kind of part-time deal. I was not at all sure. Probably should have been more confident that they would have worked something out, but again, I was uncertain and that’s why I waited so long because it’s just a little scary to go in and tell them.
If I were to do it again today, I would probably be just as scared. I mean, that’s not something—if you’re in that position, take a shot at it and do it but realize that if you’re a solid employee, they’re going to want you to stay around and I know I hear stories about this happening all the time where people are able to work out remote gigs or part-time gigs as a way to cushion and do a gradual step down. So it definitely worked out for me and it can work out for you.
Scott: So when you went into this, one of the big, I think, concerns that a lot of people have when they’re about to do this is healthcare. So I got all the numbers in place but that’s an expense that now all of a sudden comes in place. Were you prepared to handle healthcare expense if they cut you off?
Jordan: Yeah, I started preparing that day that they gave me that new boss that I wasn’t super thrilled about. I’m like, I’m going to make sure this is all ready to go in case this gets really bad, I’ve got to have something lined up that day even though—
Scott: Even though you have five kids.
Jordan: Yeah, even though my passive income wasn’t going to be there back in 2013, I’m like, I’ve got to be ready for this. So yeah, we are on one of those medi-shares type deal. That’s what it’s called, right?
Mindy: Yeah, the medical health shares.
Jordan: So it does qualify for Obamacare insurance but it’s not insurance so don’t get them confused. It’s like an inner agency donation program kind of thing where essentially we’re just helping each other out. So it’s a little bit different and you’ve got to get used to that. But every insurance now is a little bit different than when they were in two years ago, so there’s some getting used to even for some regular W-2 insurance.
Pricewise, we pay less than we paid at my other job. So even though I don’t have anybody else contributing, my personal payment is less every month than my payment was before. So it definitely works out good. Ours does have a religious component—we had talked about that before but it works out well for us because we are appropriately religious.
Mindy: Yeah, and I think Phillip Taylor from Episode 38 went into the health share plans a little bit as well. They can be a really great option when health insurance is so expensive. You still have a job though, right?
Jordan: I still work at that same employer, yep. I’m still part-time there. My wife says I like it too much to quit. I don’t know if that’s true. I’m not certain. But I’m still there. I really enjoy helping people out and my actual skillset lines up really well with what they need. So it works really well and I don’t have a lot of reason to change it at this point, so if you want to say semi-FI, I’m fine with that. Semi-retired, I’m fine with that.
I don’t really need the definition. That’s not going to change it. I’m pretty happy with my current position and as long as it stays something that we both can be happy, it’s going to stay. I don’t see any reason to really speed it up and change it.
Scott: How many days a week were you working—obviously, you were full-time before. How did that change after the conversation and what’s it like now?
Jordan: Yeah, so it took a little bit of time to actually change my role so I was engineering manager at the time. I had a bunch of reports and things like that so we gradually phased out some of that. I went into more of a project-based position and still engineering projects. A lot of cost-savings and improvement ideas, things like that. And I also picked up some software stuff that wasn’t in my background before. I’m not a software engineer. So I did pick out some of that just because the role was available so now that’s one of the things I do with quite a bit of my time.
It went down—as soon as we got the transition, it went down to three days a week. So I work Monday, Tuesday, Wednesday. So my Wednesday is my Wednesday-Friday. If you want to know a way to make your other employees smirk and hate you, call it Wednesday-Friday every single week and you don’t show up until Monday and they work Thursday and Friday and then text them on Thursday and Friday a bunch of times that you’re off and you’re home and you’re doing other stuff. So that’s a good way to motivate other employees, right? So my Wednesday-Friday, that’s my big thing, is Wednesday-Friday.
Scott: That’s awesome. And you still work the three days a week now?
Jordan: Yup, still three days a week. Again, it’s pretty flexible. I do work from home some and I kind of come and go when I need to so it doesn’t really get in the way, and when you have time off like that, I don’t need to take—I do have some vacation time. It’s a little bit different in this position, but you don’t have to take days off to go to doctor’s appointments and things like that so you don’t have to worry about a lot of those kinds of things because I do have open days every week already, so it really kind of works out pretty well.
Scott: What has changed about your lifestyle, then? Do you go on a lot more trips, travel—what are some of the perks?
Jordan: So again, one of the things that’s important to us is obviously our family and our kids, so we homeschool our kids as well—the ones that are old enough, I guess. We have a 12, 10, 8, and then two four-year-olds so the four-year-olds are young still.
So I help out on Thursday and Friday. I guess I’m part stay-at-home dad but then we push a lot of our project work on some of the rentals or any of the flips that we’re doing. We do push that to Thursdays and Fridays as best as we can.
There’s still the emergency calls. But I’ll do that. I went back to school and started to get my doctorate, so I work on that some. But pretty much, I mean I think that’s what retired life is supposed to look like so I’m doing whatever a 35-year-old semi-retired guy would do.
Scott: That’s awesome. So as far as finances go, do you have plans to continue building the portfolio or are you kind of done there?
Jordan: Yeah, again, I’m going to build it the same way. We’re going to go slow. We’re going to be appropriately cautious. We’re going to let it grow a little bit. We switched over. We’ve done a lot of things in the community to kind of change that, so I feel like I don’t know if ‘made it’ is the right word, but I’ve gotten to the point now where I want to help other people and I want to give back a little bit.
So we’ve done some land contracts with some people where we’ve given them pretty good deals and made that happen where they might not have been financeable at a regular bank. So we’ve helped some people like that. And I really—I mean, I like it. It’s kind of fun. And then we’ve done like that. We’ve looked at a few other different kinds of projects because you can open up your horizon a little bit when you get that flexibility.
So we’ve looked at some weird stuff and haven’t always decided if we want to do weird stuff yet. We do have an offer accepted on an apartment so that will be our first multifamily at all that’s there. So we’re going to try baby steps again. It’s a five-unit with a standalone single-family. So it’s six doors together but we don’t have anything like that so it’s a little bit different and it needs a ton of work.
But I think we know how to make that happen. So again, go slow. Go steady. And then we’ll just keep going. I don’t know where it will take me in the next five years, ten years, I’m not really sure. There’s nothing pressing at this point. There’s no need to change it up a ton.
I did some construction work this summer outside and found some stuff that I liked and some stuff that I didn’t like as much so I think there’s a guy that I’ve been working with so maybe next summer, we’ll do a little bit of that and maybe we won’t but it’s one of those things, you don’t do it in the winter but that’s no fun, so we don’t do that in the winter.
Scott: I love it. I mean, you’ve won and you’re just like, great, I’m going to enjoy it. I’m going to figure it out.
Jordan: I definitely don’t want to say we’ve won. That doesn’t sound right. I don’t want to say we’ve won.
Mindy: You’ve won! I will say that you have won. You don’t have to work anymore. You get to work at a job you love. You choose what you want to do. You don’t do what you want to not do. There are people who have to be doing all that stuff in the wintertime because they have no choice. You won because now you can choose to not do that stuff when you don’t want to do it. I will say it.
Jordan: The Lord has blessed us a lot so.
Scott: You did it slow but you speed it up. Those people don’t have five kids while they’re doing this and they’re not doing it at 33.
Mindy: I have two and my live-in flip was really, really difficult.
Jordan: Yeah, we bought a farm. We did move. We bought a farm. It needs a ton of work. It’s a hundred and something years old, which is pretty old for Michigan. So it is cool and we’re trying to claim it back from the wilderness. The wilderness takes over so quick. So that’s our new little treat. We don’t have any animals yet.
We don’t have it cleared up to that point but I know the kids are kind of interested in doing some of that stuff and that’s something we’ll play out. I don’t think we’re going to get a combine and do all that type of farming or anything like that, but it’s pretty cool. You never know.
Mindy: My friend, Mr. Frugalwoods, has this awesome tractor. And maybe not a combine—what’s a combine, is that the one that picks the corn?
Jordan: It’s the one that harvests the corn, the giant one.
Mindy: Yeah, okay. You don’t need that. But you definitely need a tractor. If you have a farm, you need a tractor.
Jordan: I’ve got a backhoe. As soon as I got the farm, I went out and got a backhoe. Everybody wants a backhoe.
Mindy: I want a backhoe.
Jordan: I know. You can smash so much stuff. It’s so fun. So yeah, I had to go out and get the backhoe. It was the first big purchase. I did not take it on payments, so it was a cash purchase. Don’t buy a backhoe on payments. If you can’t buy it in cash, don’t buy it.
Scott: That will be the quote we’ll do to market the show.
Jordan: Yeah, so that’s the fun stuff. Again, I’m super excited to see where it goes from here. One of the things that I’ve really tried to work on now is talking to other people and trying to figure out, how do you actually change somebody and get them the perspective they need? So nobody came to me and said hey, you can do this.
So between 18 and 24, I could have used somebody to come and say what this was and tell me what it was. But I didn’t have anybody. Nobody—or maybe they did and I was just too dumb to hear it. I don’t know. But there was nobody picking that stuff.
Mindy: I was going to say, did you listen? Would you have listened?
Jordan: I don’t know. Maybe. Maybe not. But now I’m here and I’m like, hey, you can do this. We’ve got to figure out, what actually does it take? So one of the things—I try to do a lot of work with my W-2 employment there where I talk with other people. People love to complain and they love to tell you how much they hate their job. And I do not like listening to people tell me how much they hate their job. Because you can change some of that stuff. There’s tons of stuff.
So I had one guy come up to me and say, I hate this thing, or whatever. And my daughter, she was probably 11 at the time or whatever. And I’m like, okay. Well, what are you going to do where in ten years when my daughter comes to work here, and she’s not your supervisor? And he’s like, what do you mean? Your daughter is like younger than me.
I’m like, yeah. But if she’s on a path, she’s going to be your boss in ten years and you’re going to be doing the same job and you’re going to say, I hate this job and you’re going to tell her you hate this job. And I don’t want that for her and I don’t want that for you. So what can we do for next year where you have either a different outlook on your position or you have a different position?
These are all things that can change. Well, I don’t have a degree in this. You don’t need a degree in social work to help people. Don’t tell me that. You can help people. There are so many ways to help people. You can have your current job and on the side, you can help people. You don’t even need to change positions.
So like, when people tell me these things, that’s one of the big things that I try to work through is what can I do to try to help them see that they have this barrier in front of them and they’re using this as like an immediate roadblock. I have five kids. You can do it. It’s just going to look a little different. I don’t have a degree. I can’t do it.
No, you don’t have a degree so it’s going to look a little different. But we can get over this. And that’s one of the things. Like, I want to be the one that’s there that says, hey, you can do this. This is really doable.
Mindy: That’s perfect. I can’t add to anything on that. This is doable. You can do this. In the beginning, you said that your story isn’t—what did you say? It wasn’t exciting or it wasn’t like—
Jordan: There’s nothing flashy. Yeah, like—
Mindy: Yeah, there’s nothing flashy. But you know what? That means that it’s repeatable. Scott and I talk about this over and over again. These stories that, oh, first I was born into wealth and then I won the lottery. That’s not repeatable. Hey, I bought a property I could afford and I put a tenant in there who was really awesome and then I bought another property that I could afford. And then I put a tenant in that one who was really awesome.
And that’s the story that other people can do, too. You can do this. Anybody can do this. You just have to make the plan to do it and then follow through. You can’t just sit there. Oh, I wish I was. Well, what is this saying—you can wish in one hand and blink in the other and see which one gets filled up first? So yeah.
Scott: Well, if you do wish, then Jordan’s daughter will be your supervisor in ten years and you will be complaining about it.
Jordan: Totally. Yeah. I’m going to make sure she gets on that track where she can come in and actually pull that off or something. But it’s more just, you just have to have these conversation points where you can get somebody awake and alert to where you can actually talk about. Because most of the time, people hear the words that you say and they make a sentence, but that sentence doesn’t mean anything to them. It just goes right in.
And I’m like, how can I say this stuff where it’s not just a sentence full of words that don’t mean anything and actually try to make the difference and really try to help somebody out? I mean, this isn’t—again, don’t copy my exact story. I don’t think I can copy my exact story. Adjust it a little bit. If you’re not gifted here and you are here, change it. That’s totally fine and I’m not at all saying that mine is the only path.
But get with somebody and have somebody there alongside of you or behind you kicking you in the butt, whatever you need and move this along and get the train going. Because once it rolls, the thing rolls. There’s no stopping it. It’s Newton’s first law, right? An object in motion tends to stay in motion. An object at rest stays at rest.
So if you’re at rest, and you dissatisfied in your job, you’re going to be in it and you’re going to be in a different position, in a different company in ten years. You’re not going to change that. But if you get this ball rolling, you can make a little incremental improvement and you can be somewhere different.
Mindy: And once it starts rolling, you can’t even stop it. You just watch it. It’s almost like it’s doing it on its own. After—you’ve got to push it a little bit but then it starts going and yeah, that is Newton’s first law. There you go. That is perfect. I didn’t know it was his first law. I didn’t study that. In college, I studied fashion design and we don’t talk about Newton there.
Okay, Jordan, is there anything else that you want to share with us before we move onto the Famous Four?
Jordan: I want to make sure that my kids get a perspective of money that’s very similar to what I have. But I can’t replicate what my parents did for me. Because my situation is different. Just like my situation is different than yours and my parents were different than your parents. I understand that. But I want to make sure that they’re picking up some of those highlights. And again, I’m not at all saying that I’m doing this right. But I’m trying and I’m going to make some mistakes and make some adjustments.
I’ve got five kids so there’s a chance that I’ll get one of them to work out just right. But I want to make sure—again, being well off or arrived or whatever you want to say, we can afford a lot of stuff. But stuff isn’t the thing that’s going to make you happy. And I want my kids to realize that. That’s one of the things that I try to press on them.
So you could stand in the line at the store and we could buy every single Lego, whatever. We can clean out the shelf at Wal-Mart. And that’s really just going to be Legos to step on. It’s not going to actually change it. It’s not going to make you happy. And it’s probably not a good use of money. And they don’t have a path of income stream and they don’t have an active income stream where they’re going to generate that kind of money.
So one of the things I want to make sure that they pick up is what are these underlying principles? Yes, my background’s a little different than my folks was, but how can I get the same attitude of life to pass through? So growing up, we didn’t talk about the actual dollars and cents that much. Like, I didn’t know what my dad made. I didn’t know what a mortgage costs. My folks paid off their house and I didn’t even know it.
Like, it didn’t even come up in conversation. Maybe they said it but it wasn’t—they had those deed or mortgage burning parties now or whatever. But like I didn’t even know that they did that. So that’s one of those things. I try to be way more upfront with those details and be like, this is what it costs. This is what a tenant pays every single month and this is what it costs us to have that asset sitting there, you know. And you can see the little difference there.
But I want them to start picking up on the stuff that I just go through daily as a responsible grownup. I guess you don’t even think about all the things that come in and out. So they understand bills aren’t just mail. Bills are different than just mail. Do you want a lot of bills or do you want a little pile of bills?
So that’s one of the things that we try to make sure they’re picking up because I mean, society is even different and there’s a lot more things going on and you can spend a lot of money. I really hate those monthly subscriptions. They get you. It’s $9 bucks. Who cares, $9 bucks. Well, it’s $9 every month and then once you open that floodgate, $9 turns into $90 and who knows what’s going on after that.
Cut your cable. Get rid of that. That’s the first thing. Because it’s wasting your time. You’re stuck at home. You’re not making money watching TV. I’ve never heard of anybody saying they’re making money watching TV. You find me that guy.
Scott: If you can cut all of that stuff, then you can buy a backhoe, which does buy happiness.
Jordan: You can buy a backhoe. I don’t know if it buys happiness, but it’s fun. But you can smash stuff. The smashing stuff, you can’t overrate smashing stuff.
Scott: Do you let the kids smash stuff?
Jordan: I have let the kids smash stuff.
Scott: That’s awesome.
Mindy: I think that a backhoe equals happiness so I will—
Jordan: Put that on a t-shirt, Mindy. I bet you could sell a lot of those t-shirts.
Mindy: A backhoe equals happiness? Okay. What’s your address? I’ll send you one. With royalties. Okay, it is now time for our Famous Four. These are the same four questions and one demand that we ask of all of our guests.
Jordan, what is your favorite finance book?
Jordan: So I love a lot of the books that are talked about all of the time, so I think Millionaire Next Door really changed my mindset a lot. Thou Shall Prosper was a great one. All the Kiyosaki one kind of stuff. Those are all great. That’s not the one I want to talk about. Here’s the one I want to talk about. It’s called Leadership and Self-Deceptions. It might not sound like a business book or a finance book. And then it’s a super easy read.
You’re going to breathe right through it and it’s not going to make you comfortable. You’re going to squirm. So if you want a book that’s going to make you squirm a little bit and you’re going to realize that you’ve been doing some stuff wrong. But I think on my point is it’s going to change the outlook on your family, your job, your kids, your marriage. All those things. There’s a chance that you could affect all of those.
And that’s like the underlying foundation that you’re going to build your wealth on anyhow. So if you can make some adjustments to that part of your life, you’re going to be surprised as to how far you can go.
Scott: Wow, I’ll have to check that one out.
Mindy: Yeah, I’ve never even heard of that book before.
Jordan: I know. Nobody ever talks about it. So I went through a real tough patch four years ago and then this was like a thing and it opens up your mind. You’re like, I never even thought about this. But if you can change some of that, again, it’s that internal head perspective.
I think that’s really where you’re going to build all of these monetary decisions and you’re going to get a ball started rolling and everything like that. You’ve got to get it out of your head space so you’ve got to get some of that head space cleared up. This is going to help you. You’re going to like it.
Scott: Great. I’ll definitely check that one out.
Jordan: It’s written by like Anne Binger Institute or Arbinger Institute, something like that. I would tell you the author’s name but it doesn’t have an author.
Mindy: Okay. We’ll check that out.
Scott: Number two here. What was your biggest money mistake?
Jordan: So I kind of went back and forth on this one. But here’s the one I’m going to talk about for sure. In 2010, so recession—we’ve got to remember recession. Working at a manufacturing shop, engineer, great job. They say, we’re moving the plant down to North Carolina. I was like, well, I’m not moving to North Carolina. They said, there’s nine months’ runway on this move.
And I’m like well, perfect. There’s nine months—in nine months, I’ll be able to find a job, even in the recession, I’ll be able to find a job, right? Engineer, no problem. They’re like, and because you’ve been here so long, you get a severance. And it was like a six months’ severance. So I’m like, this will be great. So I’ll just roll right into this other W-2 job. I’ll take my nine month severance. I’ll double income myself for six months, or whatever it was, and this will be fabulous, right?
And that’s exactly how it played out. Which just sounds super boring, right? But here’s the thing. If I had been a little bit aware they were going to pay me for six months to do something else, right? Which was what they did. They paid me to go work at a different place for six months. They could have paid me to actually start something and I didn’t really use that as an opportunity to kick my own self in the butt, but I could have rolled, probably at that time it would have been more of a construction company or something like that.
But if you have a six months’ head start where you’re getting your full old paycheck for six months, that really is going to transition you well into that next thing. So I do think about probably, I mean again, it didn’t cost me money. But that was one of those things, you never get another chance like, I’ve never had another shot where somebody pays me for six months to do nothing.
Scott: That’s the best mistake I’ve heard on all of the money shows. That’s the best mistake.
Jordan: I didn’t want it to sound like that. That’s just something that, it just sucks that you don’t really think about it in the right sense. I thought I was doing the safe thing. I thought I was being responsible or whatever but that might not have been the best thing to do. And we know a ton of builders got ate up in the recession. So again, if you could have called people back, you could have started a company in 2010, probably. It’s all it takes.
Scott: Hey, six months, huge opportunity, and I missed it. I think that’s just great perspective that we don’t get very often from folks about hey, I missed a shot, an opportunity that I could have taken right here, that might have played out. I could have reached my goal faster.
Jordan: I know they talk about engineering and layoffs to do that—there’s that book, right? One of those guys, I don’t remember who it was, but he wants you to like set it up where they let you off and give you this severance so you can go do your next thing. And I had it and it was all laid out and I just didn’t even think about it.
Mindy: That is Sam from Financial Samurai who has that engineering layout. He engineered his own layoff and that’s great, but you also need to look at, okay, I got double salary for six months. And who knows, I’m sure you’re awesome at building but who knows that you would have been able to make this.
Jordan: Totally. I used that six months, I actually bought a house and it was horrible and I fixed it and I still have that house and it’s beautiful. So that’s what I did with it instead. But it’s one of those things like, if I had to go back and I did that like ten times over again and you gave me ten more chances, I’d probably try the other thing ten times straight.
Mindy: What is your best piece of advice for people who are just starting out?
Jordan: So my best piece of advice is right along the lines that we talked about a little bit earlier but there’s this interview question—I’ve done a lot of technical interviewing, which technical interviewing is you see the resume, the resume is going to work but then you’ve got to figure out who this actual person is and if they’re going to mesh with your culture and things like that.
So one of the questions I always ask in my technical interviews is I ask them how they would rate themselves. A scale of 1 to 10, how would you rate yourself? Scott, how would you rate yourself overall? Life, relationships, work, finances—how would you rate yourself right now?
Scott: Oh, man. Maybe like a 6 or 7. 8?
Jordan: 6, 7, 8. Those are the answers I always get. It’s like a ton of 6, 7, 8. And like I say, I didn’t care what their answers are. I don’t tell them that. They stress about the number so bad because they don’t want to sound too good and they don’t want to sound too bad. So they don’t want to stress about it. So I didn’t even care about what they say. As long as they didn’t say 10.
That’s the only thing. I don’t want them to say 10. So, I’m giving away my interview questions now, too. But then I say, what are you going to do a year from now—what are you going to change in your life so you can come back a year from now and tell me, instead of being a 6 or a 7, you’re a 7 or an 8? What are the things you’re going to do?
I sit there and I listen. What I’m trying to pick up is, are they able to identify some weakness in themselves, something that they are causing or a way to look at an opportunity as a roadblock or whatever and are they going to be able to turn that into something else?
What I hate hearing is, I need to get a job where I make more. Or, my boss sucks or something like that. Don’t ever tell somebody in an interview your boss sucks. Don’t ever tell a landlord when you’re looking at a new place that your landlord sucks. Don’t ever say any of that stuff because like—
Mindy: Preach. Totally.
Scott: That’s good advice.
Jordan: It’s one of those things, like, let’s limit these obstacles and identify it in yourself and let’s make a change because you can make these changes and I’d love to be part of the one helping you make them or somebody else can help you. But if you can identify that in yourself, you are prepared to actually go out and nail this.
Scott: I love it. I actually, just to share a little tangent here—every year, I have this little journal that I work in and I basically rank myself. How’s my fitness? How’s my profession, my business going? How’s my personal financial situation going? How’s my relationship going? How’s my lifestyle? How’s my spirituality? How’s my mental segment? And there’s probably one more in there I’m forgetting.
And then I rank myself on those and I go okay, where’s my biggest weakness? And that frames my goals for the following year. Kind of along the same lines. I think that’s a very good exercise. And for a while, it was finance. But then after you probably reached some of your financial goals, the weaknesses in your other area becomes glaring and you go after that.
Jordan: That brings up one more thing. You guys can put it here or you can stick it somewhere else. In that first year that we were semi-retired or whatever, between my wife and I, we really kind of did a health focus and we changed a little bit of the structure on how we were living our lives on that side. Because when you’re just going and going and going, it’s so easy to—I deserve this or that, or I want a whole cake, not just a piece of cake. I’m going to get a whole cake.
Things like that. So we actually lost a ton of weight. Between the two of us, I think we actually lost like 90 pounds. And that was pretty awesome. So we had gotten a little bit lax on looking at that, and that wasn’t something we had even considered. So that’s another opportunity. Quit your job, go down part-time, and then lose some weight.
Scott: Well, then. So now that you’re retired, you attend a lot more parties because you have Wednesday-Friday, Thursday-Friday, Friday-Friday, Saturday and Sunday, right?
Jordan: No parties. I don’t go to any parties. And even the ones you have to go to now, because what are they going to do?
Mindy: We’re breaking stereotypes here. Now, you’re a party animal.
Scott: Well, when you do go to parties, what kind of jokes do you tell? Do you have a favorite joke you tell at parties?
Jordan: So I do have a joke and it’s pretty good. But I also have a landlord story. I don’t know if I can say a landlord story in my jokes section?
Scott: Let’s do both.
Jordan: Okay. So here’s the joke. We’ll get that one first. How can you tell if you’re talking to an extroverted engineer?
Scott: Because you’re talking to them.
Jordan: No. They look at your shoes instead of their own. It really is true.
Scott: All right, so what’s the landlord story?
Jordan: So that’s my joke. My landlord story—this is my best landlord story. I do tell this one a lot. So I got a house, there’s a lady living there, a young lady. She says, can she have a roommate move in, and I’m like yeah, yeah. We’ll work it out. This is before I knew you probably should get your lease change when you let a roommate move in and all those kinds of things. Maybe there was a party or two or a few.
It had a clay tile for the drain. I don’t know if you guys are familiar with clay tile. The thing that happens with clay tile is it gets little holes in it and the roots get in and yadda yadda yadda. So this was a house that had that problem and we’d get it rooted out every once in a while. It wasn’t that big of a deal—
Mindy: I already know where this story is going.
Jordan: They had a party. Yeah, this is—I don’t know what the term I’m supposed to use for the family show, right? So they call me up and say, the toilet is not flushing. Okay. So I do all my own calls at this point. I show up there, get it out, start roller-rooting, pull it out. There’s—I don’t know what I’m supposed to say here—a condom. You get a condom. That’s a word.
I send it back in. I get like five more. Send it back in. I get a lot more than five. I have like a five-gallon bucket and there’s a ton of them in here. I have no idea—like, what am I supposed to say now? Because these are two younger ladies and I don’t want to say anything exactly. So in my best passive landlord way, I left the bucket there. I left it there for like three days and then came back a few days later to pick it up. I’m like, I think that they’ll get the message about it.
Because I didn’t know how to have that conversation and maybe that makes me a bad landlord or whatever. But I wasn’t quite sure how to deal with that. But very honestly, I left the bucket, came back a few days later and picked it up. Didn’t have anymore problems related to those kind of things.
Mindy: Oh, my goodness. Yes, only flush human waste and toilet paper down a toilet.
Jordan: I did eventually, we dug it up and we got the PVC put in. So it’s great now, whoever the prospective tenant will be next. Don’t worry about it.
Mindy: Yuck! Yes—I’m listening to your story and I’m like, that’s me. That’s my life. That’s my husband. That’s my experiences. Those people are the people that—the ladies that have the party. They live down the street from me. I have a house down the street from me and they have adult parties where people can come over and do adult things together.
Jordan: Maybe it had happened over a period of time, too. I don’t know. I didn’t ask. That was for sure.
Scott: You’re not joining any of these religious coops for health care.
Jordan: Yeah, I don’t know. Don’t ask.
Mindy: Well, that was a delightful story.
Jordan: Not a good joke, but a good story, yeah.
Mindy: Okay, Jordan Klint, where can people find out more about you?
Jordan: I’m on Facebook with my wife, Leah Jordan Klint. I’m also on Facebook. I’ve got a, I don’t know, a different page or whatever that I post some of my musings and interesting stuff. That’s called, It’s Not Just About Me and My Dream of Doing Nothing, which if you get the reference, points for you. But find me there. Probably Facebook’s the best way. On LinkedIn, too. You’ll see the giant red beard. You can try to track me down there.
Mindy: Awesome. We will link to all of these in the show notes for the show. It can be found at BiggerPockets.com/MoneyShow63. Jordan, this was awesome. Thank you so much for coming on the show today. Thank you for sharing that you can in fact have financial independence with children, with more than one children, with five children. Which is, as you said in your pre-interview, more than some people have.
Jordan: More than zero, yeah.
Mindy: That’s more than zero. That’s a lot more than zero. That’s five more than zero. Learning grade school math as my children are going through grade school math. I do not remember any of the sixth grade math that my sixth-grader is going through right now. But that’s another story for another time. Okay, Jordan. Thank you so much for taking time out of your vacation to chat with us today. I really appreciate it.
Jordan: It was a pleasure.
Scott: Yeah, thank you.
Mindy: Okay, we will talk to you again soon.
Scott: All right, that was Jordan Klint. Mindy, what do you think?
Mindy: I love his story. I love that he didn’t listen to conventional wisdom. Again, I said conventional wisdom. There is no conventional wisdom when it comes to financial independence, but I love that he listened to other people and he said, you know what? I don’t want to work there anymore. So I’m going to do what I want to do. I’m going to have five kids and I’m going to be retired and real estate plays a big part in his life because real estate is kind of a really great way to reach financial independence.
Scott: Yeah, I also love how he’s a bit competitive. He didn’t like that someone got promoted ahead of him at work and he said, I’m going to use that as fuel to leapfrog right into financial independence. I thought it was great that he started out the entire process without having a game plan handed to him. I had a game plan handed to me.
I had the fortune of reading Mr. Money Mustache and learning from Brandon Turner about the house-hacking strategy right out the gate for my career to kind of accelerate towards this. He didn’t have those things and he still was able to kind of go about this in a really intelligent way and build financial information for himself just by figuring it out.
Mindy: And do you know why? Because he had a plan and this whole thing is not that hard.
Scott: He had a goal. Right? He had a goal. And then that plan shaped together over the course of years, right? Four, five, six, seven years.
Mindy: Yes, he had a goal. He devised a plan to reach his goal. He got there eight years early and with five kids. And I don’t think that we stressed enough during the show that he has five kids. He has five kids. And that’s five mouths to feed—that’s seven mouths to feed because he’s got a wife, too, plus him. It’s a doable thing. You have to make a plan. What does your life look like? What do you want your life to look like? And then form your finances to help you reach that goal. It’s not rocket science.
Scott: I also like how he was pretty helpful in some cases as well where he’s like, yeah, I don’t know if I’ve won or not—he’s won. He’s won.
Mindy: He’s won. Yes. You win life when you get to retire when you’re 34. With five kids.
Scott: I’ve got a friend who brags about his finances all the time. He’ll tell me, my credit card company calls me almost every day to tell me that my balance is outstanding.
Mindy: Hahaha. That’s horrible, Scott.
Scott: The blame for that joke can fall on Garrett, who sent me that joke. Garrett is a listener from Woodbridge, Illinois.
Mindy: Garrett, that’s a terrible joke.
Scott: I’ve been waiting to use that one. I don’t know, I have to force it there but—I thought it was great. I chuckled.
Mindy: Well, I’m glad you chuckled. That makes one of us. No, I actually did laugh. That was kind of funny. I was just kidding, Garrett. That’s a lovely joke. Thank you for sharing with us. Okay, Scott, should we get out of here?
Scott: Let’s do it.
Mindy: From Episode 63 of the BiggerPockets Money podcast, this is Mindy Jensen and Scott Trench, saying sayonara.
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