00:00:01
welcome to the best interest podcast where we believe Benjamin Franklin's advice that an investment in knowledge
00:00:08
pays the best interest both in finances and in your life every episode teaches you personal finance and investing in
00:00:16
simple terms now here's your host Jesse Kramer hello and welcome to episode 67
00:00:24
of the best interest podcast my name is Jesse Kramer later in the episode Andrew
00:00:30
Gian Cola will be joining me Andrew is the host of the personal finance podcast which I think is a terrific name and
00:00:37
we'll give Andrew a little bit better of an introduction later on but first let's
00:00:41
do a quick review of the week what reviews wrote in and said smart podcast I just listened to my first podcast
00:00:49
episode I'm already learning a lot thank you for the efforts Jesse what reviews
00:00:55
you are welcome and thank you for listening if you're listening to this right now shoot shoot me an email at
00:01:00
Jesse bestin interest. blog I'll get you hooked up with a gift from the best
00:01:05
interest now before Andrew G andca joins us I wanted to share a couple stories about humble beginnings it's something
00:01:11
that Andrew and I will talk about later in the episode about the beginning of personal finance Journeys where we came
00:01:17
from and I just thought of a couple interesting anecdotes that I wanted to share with you guys cuz there's some
00:01:22
interesting lessons there so the first one one of my money Beginnings it was either 2001 or 2002 so I would have been
00:01:28
11 or 12 years old and that summer I really wanted to play the game called Age of Empires 2 now it's a computer
00:01:38
game where you start out controlling a small village and you collect some resources you grow The Village larger
00:01:44
eventually you start raising up an army and if you're good you conquer your enemies now to this day Age of Empires 2
00:01:52
is considered one of the best computer games of all time in fact people still play it despite it being 20 years old
00:01:59
and having kind of out-of-date Graphics the gameplay is just that much fun and you can go check it out on YouTube right
00:02:05
now just type in Age of Empires 2 and you'll see what I'm talking about now I
00:02:09
don't think it's coincidental that the game I really wanted to play was a
00:02:13
strategic Resource Management game I think the same brain that loves those kind of games also might love economics
00:02:20
and personal finance and investing I do think there's a connection there but my
00:02:25
problem when I was 11 or 12 years old was the game cost $50 and I didn't have
00:02:31
$50 and my parents great as they are they weren't going to Simply gift me $50
00:02:37
for a computer game I had to earn the money and I'm sure I probably could have
00:02:41
done chores around the house and earned an allowance something like that but I had a different idea it was the birth of
00:02:47
a little bit of an entrepreneurial Spirit my older brother was uh playing summer baseball in in a league that
00:02:54
summer and my idea was to open up a small concession stand and to sell food or drinks or whatever it was to the fans
00:03:02
my dad thankfully he agreed to lend me some money to go out to Sam's Club if
00:03:06
you're not familiar with Sam's Club it's kind of like a Costco or a BJ's it's a
00:03:10
bulk store and my dad L me some money to buy some inventory and I remember buying
00:03:14
Waters bottled water and soda cans candy bars and I think also those small bags of chips before every game i' I'd load
00:03:22
up a cooler with some ice throw the drinks in there and then I'd sit behind home plate with my little sign
00:03:28
thankfully it worked over the course of the summer my Revenue ended up being over $100 so even after paying back my
00:03:34
dad that initial loan I had more than enough to buy Age of Empires 2 I think the fact that I had to earn the money
00:03:41
made it even sweeter the game was awesome no regrets in doing so I had hours and hours of fun playing that game
00:03:48
in in my you know 12 to teenage years but that said when I sit here today and I think back on that entrepreneurial
00:03:57
experiment I made some really silly mistakes that in retrospect I would have changed and I think it's just fun to
00:04:03
think about those and share them with you so the first one pricing now I remember having this this logic in my
00:04:10
head when I was a stubborn 12-year-old that I was going to take the the unit price of my inventory I was going to
00:04:18
double it and then round up to like the nearest five or 10 cents in order to set
00:04:23
the price of the goods that I sold so as an example if a bottle of water cost 21
00:04:29
cents to buy at Sam's Club on a on a per unit basis I was going to double it to
00:04:33
42 cents and then round it up to 45 and that was going to be the price of the water that I sold so my my menu of
00:04:41
options had all these kind of random pricings on them you know 45 cents for water 65 cents for soda 85 cents for
00:04:49
chips 95 cents for candy and of course people would come and pay and they're
00:04:55
doing math in their head you know can I have two waters and a soda and a candy bar and I'm out there with with a
00:05:00
calculator and the reason why is cuz in my 12-year-old mind like am I being cheap or you know I don't want I don't
00:05:06
want a price scouch people I just I think this is a fair and equal way of doing things and of course by far the
00:05:14
easier way is just round to the 50 cents maybe round to the quarter round to the
00:05:19
nearest Dollar make it so that customers can very easily do math make it so that
00:05:24
I can very easily do math make it so that customers have the exact change ready because they're probably working
00:05:30
mostly in dollar bills and quarters as a 12-year-old you don't really think of
00:05:33
those things now as an adult you do uh and speaking of the products themselves again in retrospect the big sellers were
00:05:42
the soda and the Water by far most adults they don't want a candy bar they don't want bags of chips some of the
00:05:49
kids maybe did but again in retrospect it's like who are my clients what do they really want make sure that my
00:05:56
products work for them I think part of this lesson might have to do with the fact that I was maybe a little bit on
00:06:01
the shy side or certainly I was uneasy about going up to groups of strangers so what I would do is I would simply sit
00:06:08
behind home plate behind my cooler I had a sign I think that said that I was selling something and usually over the
00:06:14
course of the game people would see other customers coming up buying something for me and they'd realize oh
00:06:21
that kid back there is is selling water but at least for the first few Innings and and potentially even for the whole
00:06:26
game I'm sure there were fans who would have bought water for me except they had
00:06:32
no idea that there was a kid behind home plate behind the fence selling water from a cooler of course what I should
00:06:38
have done is simply walk down first baseline or the third Baseline especially where the opposing fans are
00:06:45
you know the home fans they might be familiar with me but just hey go down both lines and just say bottled water
00:06:50
cans of soda behind home plate bottled water cans of soda behind home plate you have to advertise and maybe even you
00:06:57
have to make it easy for people to purchase something for you maybe I should have taken some things down the
00:07:02
line and just collected money right then and there I am sure my sales would have
00:07:07
done so much better if I had the nerve to go to those strangers and do it and maybe some of it's the nerve maybe some
00:07:12
of it is simply the lack of awareness and uh I think that happens actually a lot in this world where we we think
00:07:19
other people are thinking the same thing we are I was sitting there at 12 years old and I thought oh all these people
00:07:25
they can probably look back here and they know what I'm doing and obviously in retrospect most of them had no idea I
00:07:31
was back there selling Waters and sodas but either way the experiment ended up working out I got what I wanted out of
00:07:37
it and now I get to share some of those lessons with you guys the next quick story was about my first real job I'll
00:07:44
say I was 16 and I worked at Fair Haven Beach State Park beautiful state park near where I grew up and for that first
00:07:51
summer I was hired as a cleaner I cleaned toilets I cleaned sinks and urinals when uh camper was done using
00:08:00
their cabin I would sweep out the cabin and and clean the bed itself clean the fridge at times it was not the nicest
00:08:09
cleanest job of the world I think you can probably understand why uh at that time minimum wage was
00:08:15
$725 an hour I remember I was earning closer to 760 an hour we got paid a premium because we were doing such uh a
00:08:23
nasty job that other people didn't want to do but still you're only making 760
00:08:28
an hour and I remember doing the math and thinking to myself okay 760 pennies per hour and there's 3600 seconds in an
00:08:37
hour so I'm earning roughly a penny every 5 seconds and I also remember sitting there probably with my head in a
00:08:45
toilet you know with with a Johnny brush cleaning a toilet and thinking to myself
00:08:50
okay another penny in the bank one 2 3 4 okay another penny in the bank I mean literally counting down the days during
00:09:01
some of the slow periods just wishing I was doing something else obviously but trying to remind myself that yes I'm
00:09:07
getting paid for this I'm earning money but the lesson I take away from that is
00:09:11
that if you're thinking something along those lines you got to find something
00:09:15
else to do but I stuck with it for that first summer I earned my checks and I still remember that first you know
00:09:21
roughly $450 check which was 2 weeks of pay with taxes removed 450 bucks felt amazing to earn that much money one time
00:09:30
going into my second summer at the park they rehired me as a cleaner but I did not want to do it in fact I was dreading
00:09:38
the idea of spending another summer cleaning toilets I I knew I couldn't quit per se I needed a job that was kind
00:09:45
of this a mandate in my house you got to go you got to work you got to earn some
00:09:49
money learn what it means to have a job so I knew I I had to do something I just
00:09:54
didn't want to clean toilets thankfully in retrospect very thankfully in the first week there I was
00:10:00
I was out somewhere you know at a bathroom complex going through all the urals and one of the three main managers
00:10:06
at the park he stopped by just to to say hi and welcome me back for the summer and I remember this conversation crystal
00:10:12
clear I remember saying Tom grateful to be a cleaner thanks for hiring me back but if an opportunity opens up on your
00:10:21
maintenance team I'd love to be considered for it you know I don't want to clean toilets for life and he he made
00:10:26
a joke he totally understood where I was coming from I was so thankful he did and
00:10:30
he said you know there's nothing right now Jesse but you never know that might
00:10:34
change by the end of the week who knows and sure enough someone quit that week and the guy who quit he quit a a
00:10:41
relatively unique role at the park most of Tom's maintenance team they worked
00:10:46
the dayshift Monday through Friday so they worked 8 to 4 Monday through Friday and they did things like they mowed
00:10:52
lawns they replaced window screens they split wood you know they did Manual Labor from 8:00 a.m. to 400 p.m. during
00:10:58
the week my role the one that I ended up getting hired for was more of like the night
00:11:03
shift it started at 10:00 a.m. but it went all the way to 8:00 p.m. and I worked Thursday through Sunday I was
00:11:08
also the weekend shift and it was this hybrid of some of the physical labor that the maintenance team did but also
00:11:15
some in the- field customer service for example when a camper called to complain
00:11:20
that the previous tenants at their campsite left a mess I would get called from the main office to drive down to
00:11:26
that campsite you know apologize try to patch things over calm them down clean up the mess and make it all better so
00:11:33
once the rest of the maintenance team left at 400 p.m. I was one of the only people left and on weekends I was one of
00:11:39
the only people around and I had the autonomy to work on whatever happened to need to be worked on right then and I
00:11:45
also had the autonomy to chat with Park goers or just people in the park who needed to speak with someone and I loved
00:11:52
that job so much more than being a cleaner it was a perfect job for me I spent some time on my feet I was outside
00:11:58
a lot sometimes I was driving the trucks around the park visiting different campsites I did some manual labor that
00:12:04
was fun and I was always talking to people solving their problems having a chat it was a little bit of everything I
00:12:11
know that I was never counting the pennies as they dribbled into my imaginary piggy bank if I hadn't gone
00:12:17
out of my way to ask Tom for other opportunities other than cleaning I probably would have cleaned toilets
00:12:23
until I quit in frustration and that right there is another really powerful lesson no matter what you're doing out
00:12:30
there no matter what your job is I think you have the power to at least start planting the seeds if you want to make
00:12:36
changes you can start planting the seeds for me my most recent career change came
00:12:42
from planting the seeds that I I started with the best interest I was working as
00:12:45
an engineer I loved talking about and writing about personal finance and investing I started the best interest
00:12:51
blog I then started the best interest podcast this acted as my resume to a large extent and when push came came to
00:12:59
shove and eventually I said you know what I think I might want to change careers and I want to change careers in
00:13:03
a direction further into personal finance and investing the best interest was my resume that said I'm really
00:13:09
serious about this and I think you should take me seriously and I think I'd do a good job working for you here I am
00:13:15
working at a a fiduciary wealth management firm no regrets at all only looking forward not looking back and I
00:13:22
can tie some of those connections back to these interesting stories from early in my finan life here's a quick ad and
00:13:31
then we'll get back to the show every week I send a quick free email to thousands of readers that shares three
00:13:37
Simple Things One my new articles and podcasts two the best financial content of the week from all over the Internet
00:13:44
and three a financial chart that explains some important Concept in the news that week it's a great primer to
00:13:51
boost your financial noow but Jesse I don't want another email well this might
00:13:57
not be for you but I do do hear you which is why I make it very short sweet and full of only the essentials while
00:14:04
18% of people who sign up eventually unsubscribe and 133% of people who are signed up haven't opened it in the past
00:14:10
3 months a whopping 66% of subscribers read my email at least once a month they're enjoying it and maybe you will
00:14:18
too you can subscribe for free on the homepage at bestter interest. blog again that's a free no strings attached
00:14:25
subscription at bestin interest. blog so with that let's bring on Andrew Gian
00:14:31
Cola Andrew is the host of the personal finance podcast which is a pretty awesome name for a personal finance
00:14:39
podcast right over the last three and a half years Andrew has published hundreds
00:14:43
of podcast episodes covering personal finance investing business strategies income sources the stock market and real
00:14:50
estate investing 8 million downloads later Andrew is now here joining us on the best interest
00:14:57
podcast all right Andrew thanks for coming on the best interest podcast how you doing
00:15:09
thank you Jesse so much for having me I am so excited to be here awesome man well let's let's Jump Right In I know a
00:15:15
little bit about your backstory and I want to share your backstory I think it's really important for listeners to
00:15:21
know your backstory so tell us a story if you would from your days of living paycheck to paycheck absolutely so I
00:15:29
graduated from college and when I graduated from college I had a job where I only made $30,000 per year and I very
00:15:36
quickly realized that I had a problem I had an income problem and so I started to live paycheck to paycheck now this is
00:15:42
not a person who did not understand personal finance for me I used to love personal finance I would read different
00:15:47
personal finance books I was super interested in it even as a teenager so I understood what I needed to do but I did
00:15:53
not Implement what I needed to do and there was a moment in time where I went to a gas pump and I went to go fill up
00:15:58
my gas tank and I realized at that moment in time I did not have enough money to fill up my entire gas tank now
00:16:04
to be fair this is a Chevy suburb and it was a big car but at the at the same principle I didn't have the $100 I
00:16:09
needed to fill up this gas tank and so at that point in time I was so frustrated and I was so mad at myself
00:16:14
that this has happened that I decided to make a complete change so probably for the first six months of being in the
00:16:21
real world the corporate world I was living that paycheck to paycheck and I made a bunch of different drastic
00:16:25
changes which is what I teach a lot of people now in order to get out of that paycheck to paycheck cycle and some of
00:16:31
the things that I did was first creating a cash buffer just so I had some cash on
00:16:35
hand to be able to take care of any small emergencies that came up I made sure that I you know got rid of any debt
00:16:40
that I had so I had a couple thousand dollars on credit card I got rid of that as fast as I possibly could eliminated
00:16:45
that debt I tried to then actually fully fund an emergency fund so I had three to
00:16:49
six months in my emergency fund and ended up having six months and then from there started to invest my dollars but
00:16:54
these were kind of the steps that I take and I think wealth building is a step-by-step process
00:16:59
and there are tactical things that you can absolutely do in order to get yourself out of that paycheck to
00:17:03
paycheck cycle but the other side of the coin is the income side and so I realized very early that I had a major
00:17:09
income problem so I focused on different ways to increase my income which we can
00:17:13
talk about more here but I think those two sides of the equation figuring out what are the steps I need to take in
00:17:18
order to kind of reduce my expenses and increase my income are the two drastic changes when it comes to money I love
00:17:24
that and it's funny as you're telling that story I thought of the heroes
00:17:28
Journey the hero's journey for those not familiar I mean I might butcher the
00:17:31
definition a little bit but it's kind of this classic story the story that's old
00:17:35
as Humanity you know Luke Skywalker in Star Wars Harry Potter all these famous stories have the hero's journey and part
00:17:42
of the hero's journey is basically hitting rock bottom and picking yourself up from there so I have to imagine that
00:17:47
experience that that gas pump might have been pretty close to the Rock Bottom in
00:17:52
your financial Heroes Journey that is absolutely right and one of the main things that I did very early on is I
00:17:58
realized that I need to shift my money psychology and this was the biggest factor for me in making sure that I
00:18:05
could actually figure out what to do with my money so I think money is honestly 90% psychology and I think it's
00:18:10
10% of like the knowhow and what you know and I read a book called The Millionaire Next store which probably a
00:18:14
lot of your listeners have already read and what that is is it kind of teaches you hey this is actually how
00:18:19
millionaires act day-to-day where I used to think you know they were buying the fancy houses or the Lamborghinis but
00:18:24
instead what was really happening was I needed to actually save and accumulate my wealth over time and build that
00:18:30
wealth for the long term so I made a those small changes but the psychology shift was probably the biggest thing for
00:18:36
me was learning how to master my money psychology I love that I recently Andrew I changed some of the wording on my
00:18:43
homepage inspired by fincon where we met and uh I wanted to kind of hone in on who I am providing this content for who
00:18:52
my ideal listeners and readers are and and one thing I focused on is it's you
00:18:58
know hard ideas with simple explanations people who know the basics they want to
00:19:02
learn more and they want to become The Millionaire Next Door that exact verbage because I think it is it is a it's not
00:19:09
necessarily rocket science but it's about getting these simple habits right changing your mindset to make sure that
00:19:14
you're thinking about money the right way not in the Lamborghini Ferrari way
00:19:19
but in the way that people can slowly and surely become millionaires over time one thing you mentioned I think maybe in
00:19:25
your previous answer was that you're now uh work you're you're coaching some
00:19:29
people you do some one-on-one assistance to help people figure out the path that
00:19:33
you successfully have gone down what kind of questions are you asking your clients or what kind of information is
00:19:40
important for you to gather so that you understand where they are and where they
00:19:44
should be going this is a great question and I think it is one for us that we are
00:19:48
very very systematic on how we do this because what we want to do is we want to figure out what is the biggest problem
00:19:54
that each individual is struggling with and we do this on a very limited basis for a number of reasons one of which is
00:20:00
we want it to be something that we can really put all of our attention into this but at the same time we want to
00:20:05
make sure that we can solve these problems in the right way so we are really really focusing on what people's
00:20:09
problems are and it turns out a lot of people have very similar problems when it comes to money they may have very
00:20:15
different specifics but they have similar problems when it comes to what they want to figure out especially when
00:20:20
they are starting their hero's journey for example so for a lot of them what
00:20:24
they're looking for is hey how much money do I need to actually have in order to be able to tire that is one big
00:20:29
key and it's obviously an easy calculation for you and I Jesse to kind of come up with but we can then figure
00:20:33
out hey what is a step-by-step plan for them that kind of allows them to get to that point another big one is maybe
00:20:39
they're just at the beginning of their journey and they're trying to figure out
00:20:41
hey how do I get out of debt what are some of the steps I need to take in order to conquer this debt as fast as
00:20:46
possible and so the questions that we ask are hey what is your dream life what is the life that you want to live and
00:20:52
how can we use money as a tool in order to achieve that dream life how can you do more of the things that you love and
00:20:58
cut back on the things that you don't really love spending but you spend money
00:21:02
on anyway so there's a lot of really cool things that you can do there but we
00:21:05
try to start with the end in mind and figure out what is their dream life and how can we achieve that together that's
00:21:12
awesome starting with goals in mind I think that goals-based investing framework is a great place to start even
00:21:18
before Gathering some of the nitty-gritty info whether it's assets and debts income expenses those kind of
00:21:25
things who am I working with who is this person this unique individual sitting across from me and how can I help them
00:21:31
on their unique journey and speaking of unique Journeys I know from talking to you offline Andrew you're quite the
00:21:39
entrepreneur and Christmas tree stands have some sort of place in that entrepreneurial story something close to
00:21:45
your heart maybe close to your wallet as well so tell us more about Christmas tree stance so one of the things that I
00:21:51
did when I was living paycheck paycheck is I started to try to figure out hey what are some side hustles that I could
00:21:56
start doing so I started to sell sell things on Amazon for example I would sell things on eBay I would try to do
00:22:01
different little side hustles and one of the things that I landed on was we started a Christmas tree stand and yes
00:22:06
I'm talking about the side of the road Christmas tree stands that you drive by
00:22:10
during Christmas time and so we started this thing out because my wife has um a relative a distant relative who has two
00:22:16
Christmas tree stands and they make about $100,000 per year between those two Christmas tree stands and they work
00:22:21
one month out of the year in order to be able make their living and their income
00:22:24
they live in a low cost of living area and so they kind of showed us hey here's
00:22:28
the step-by-step exactly what we did and here's how you can do it too so we went
00:22:32
out there we spent about $7,000 ordering Christmas trees had them shipped in put
00:22:36
out the tent all that different things and then tried to find ways to make revenue and so we had one of these side
00:22:42
of the road Christmas tree stands and I think in the end of it the first year we
00:22:44
made about $10,000 but what we quickly realized was your location is so incredibly important when it comes to
00:22:50
these year-over-year we we kind of did this for a couple of years and then ended up not doing it anymore but it was
00:22:55
something that was definitely profitable but once we had kids and things like that it became more difficult to do but
00:23:00
it was definitely a really really fun experience and then obviously we do a lot of other things now but it was
00:23:04
probably my first entrepreneurship physical location that we had that we were able to kind of figure out how that
00:23:10
kind of stuff works try new things see what works see what doesn't work and if
00:23:15
things aren't working don't be afraid to abandon them try something new one thing
00:23:20
you pointed out there Andrew is that when you started having kids it sounded like the the cost of running this
00:23:27
Christmas tree and the cost was higher than the benefit and that brings me to the phrase opportunity costs which is a
00:23:33
phrase I've heard you say a lot before so when I say opportunity costs I mean
00:23:37
what kind of stories or thoughts come to your mind so I think evaluating opportunity costs is one of the most
00:23:45
important things when it comes to learning how to build wealth and I think it is one of the most powerful things
00:23:49
that you can really truly think about when you start to manage your money so there's a bunch of different things when
00:23:54
it comes to opportunity costs first of all it's time so how much time and how
00:23:58
much return on hassle as my friend Nick muli says does something take in order for you to take advantage of it so for
00:24:04
example the Christmas tree stands was not worth the return on hassle based on having young kids and having a bunch of
00:24:10
different things happen in life and other opportunities coming up so that's the first question is how much time is
00:24:15
this going to take me the second question is how much money is this going to cost me now but also in the future
00:24:21
and you got to evaluate what those numbers are so there are a bunch of million dooll money decisions that I
00:24:26
think a lot of people need to think about some of which are things like your mortgage interest for example so you can
00:24:32
think about your mortgage interest in 2020 when mortgage rates were low now we're talking where mortgage rates are
00:24:36
like around 8% at the time we're recording this but when your mortgage rate was say 2.5 3% for example you
00:24:42
could get a house say you bought a 400 $500,000 house that same exact house is going to cost you over a ,000 more per
00:24:49
month with that 78% interest rate so you think about this and you have $1,000 more per month that you are paying over
00:24:55
the course of 30 years if you invest invested those dollars at an8 n 10% rate of return that is well over a million
00:25:02
dollars just on that small money decision that you're making there you could think of things like investment
00:25:07
fees you can think of things like interest on car loans or buying cars appreciating assets things like that
00:25:13
there's so many different ways you can think of these opportunity costs negotiating your salary is another
00:25:17
massive one so we talk about negotiating our salary all the time and I think this
00:25:20
is the number one place if you need to increase your income look at negotiating your salary first at the place that you
00:25:26
spend most of your time and it is been shown during studies that even people who just get a 3% increase every single
00:25:32
year above other people who do not negotiate will make over a million dollars over the course of their career
00:25:37
so there's so many of these small money decisions that we really don't think
00:25:40
about a lot that are actually million-dollar money decisions that we truly truly need to keep in the back of
00:25:45
our mind and understand how they work I love that when you talk about opportunity cost there you use some
00:25:52
examples that that I've thought of before you know that phrase fear of missing out fall
00:25:58
fomo yes I think opportunity costs are you can essentially think of them as the cost of missing out or if you choose one
00:26:05
path you're missing out on all these other potential paths and all those other paths have their benefits they
00:26:11
might have other costs as well so it's whatever choice you make in life and and
00:26:15
really opportunity cost is kind of this economic term that because economists realize you have all these different
00:26:21
choices in life every single Choice has costs and benefits associated with it and when you have one choice when you
00:26:27
choose one particular path you are missing out on all these other paths and you ought to be evaluating them in some
00:26:33
way sometimes you can measure that in dollars and cents sometimes it's harder to measure I
00:26:39
mean the opportunity cost of running that Christmas tree stand and potentially you know I'm I'm spitballing
00:26:44
here maybe it means your wife would have had to take more responsibility with the
00:26:47
family maybe you would have missed out on some valuable holiday occasions maybe you can't measure those in dollars and
00:26:53
cents but they're still important to you so when it comes to those kind of opportunity costs do you have any any
00:26:59
tactics that you use Andrew to kind of think about those less monetary opportunity costs absolutely so one of
00:27:05
the most important things for me is I think about people who get to the end of their life and what are the things that
00:27:10
they regret most and the number one thing that they regret most always is they don't spend enough time with their
00:27:15
family or you know they work too much those types of things and I think that is one of those opportunity costs that
00:27:21
really I do not want to have to you know try to make more money in order to miss
00:27:25
out on those types of things so I try to focus my life and try to gear everything
00:27:30
towards making sure I can spend enough time with my family and be with them all the time and so that is one of those
00:27:34
opportunity costs for sure that a lot of people don't really weigh out because
00:27:37
it's not a monetary thing but it is one thing that you will absolutely regret at
00:27:41
the end of your life if you do not weigh these things out maybe you want to travel the world more maybe you don't
00:27:46
have a family yet you want to travel the world that's that's what your goal is
00:27:49
and you are going to regret that if you don't start traveling the world war now
00:27:52
so how can you kind of gear your life your business everything around these types of things so that you are able to
00:27:58
go out there and travel the world more so there just so many different ways that you can kind of think about this
00:28:02
but really really weighing out the cost like Paula pant says you can afford anything but you can't afford everything
00:28:07
so kind of weighing out those costs and kind of going through that process is really really important I think when you
00:28:12
go through your everyday life awesome lifestyled sign I I love talking about it and that's an incredible opportunity
00:28:18
cost topic here's a quick ad and then we'll get back to the show one of the
00:28:23
more common questions I hear is Jesse what do you like in you books blogs podcasts even Banks and brokerage firms
00:28:31
what are your recommendations so to answer that question I put together a web page you can check it out at bestin
00:28:38
interest. blogrecommended to check out how I'm improving my financial life let's switch gears back a
00:28:51
little bit to some money topics at least we can measure them in money now one thing I've heard you say before we have
00:28:56
the first $100,000 but that's a different story than the second the third the fourth
00:29:02
$100,000 how do you think about that specifically Andrew and and maybe even does your own money story have some
00:29:09
lessons when it comes to the first 100,000 versus all the subsequent $100,000 it absolutely does because when
00:29:15
I was starting to invest my money I realized very quickly and early on that hey I'm investing these dollars and this
00:29:21
money doesn't seem like it's growing very quickly and so I started to run the
00:29:25
numbers and I started to do the math and what eventually happened was when you look at the math your first 100K is one
00:29:32
of the hardest Milestones you will ever hit when it comes to your personal finances and the reason for this is
00:29:38
because over time what's happening is your 100K is actually propelled by your
00:29:42
savings rate instead of you know your return on investment so the key here is and I've got examples that we could talk
00:29:48
about too but the key here is understanding that your savings rate is what is going to propel you to your
00:29:53
first 100K then after you get to your first 100K then compound interest is going to start to come into play more
00:29:58
you're going to see your accounts grow a little more and it's going to flip-flop
00:30:01
from what it is early on so say for example that you start to try to save $5,000 per year at an 8% interest rate
00:30:08
so if you do something like that where you're saving $5,000 per year that means
00:30:12
about 75% of your first 100K is going to be your savings rate and about 25% is actually going to be your return on
00:30:19
investment so you can look at this over time and it's going to be even very similar even if you save $15,000 per
00:30:24
year the difference between those two things is massive but it's not that much
00:30:28
when it comes to your first 100K so your first 100K is really really difficult to
00:30:32
get to but then once you hit that number it's not some magical number but it's a
00:30:35
it's a great milestone to hit where you can start to see some rate of return
00:30:39
when it comes to your investment so if you are a new investor if you've just
00:30:42
started investing I have this question all the time and you don't see your accounts moving very much you don't see
00:30:48
you know a huge return on investment what's happening here is your savings rate needs to propel that so it's so
00:30:52
important to start to save early and often and then over time you're going to
00:30:55
see a massive difference at as time goes on yeah I mean even you just use some rough numbers you use 5% earlier so
00:31:02
let's continue using that I mean by the time we retire most of us listening to
00:31:07
this hopefully we have some goal maybe it's maybe it's a million dollars let's
00:31:10
just use a nice round number there a 5% return on a million dollars $50,000 in one year that gets you halfway to your
00:31:18
next 100K whereas when you're starting out putting in that $500 a month or something like that it's going to take
00:31:24
you a long time to get to that first 100k so it is interesting I see it with some of my clients Andrew compound
00:31:31
interest is magical by the time you get to that millionaire status you're that
00:31:35
Millionaire Next story like we were talking about before five eight 10% returns in a single year that might get
00:31:41
you more than your next 100K and it it feels amazing compared to the how hard it was how much of the struggle was when
00:31:49
you were a young adult like you and I and really you were the one who had to save and push for that first 100K
00:31:56
exactly I almost think of it as as someone who is out there and you're really just doing all the work you can
00:32:00
think of an entrepreneur at the very beginning they're doing all the work trying to build out this business and
00:32:04
then all the sudden they think about hey I'm going to hire employees you can
00:32:07
think of your dollars as little employees that are going to start to work for you over time and over time
00:32:11
it's just going to grow more and more and more but that first 100K is so incredibly hard to hit and I think even
00:32:16
Charlie Munger has a bunch of different quotes on how difficult your first 100K is and so I think it's a really really
00:32:21
interesting way for new investors to really make sure that you understand how this works stay patient it's going to
00:32:26
take you seven eight years to get to your first 100K and that's okay that is
00:32:31
something that is okay it is going to accelerate over time you just have to be patient I love that because I think
00:32:37
there are people listening right now who haven't hit their first 100K yet that's
00:32:41
totally fine and we're here to tell you it's the hardest one it it truly is so
00:32:46
Andrew going back a few months I I know you're a big real estate guy my wife and
00:32:51
I we recently moved you mentioned 8% mortgages earlier we secured a 6 and a half% mortgage which listen
00:32:57
it doesn't float my boat I don't love it but it is better than 8% but that said I
00:33:01
know you have some some cool thoughts on the buy versus rent debate so can we dive into that absolutely so I think for
00:33:09
a lot of people they need to understand how to run the numbers when they buy their own personal residence so we talk
00:33:14
about this a lot when we buy rental properties things like that you need to run the numbers and make sure that
00:33:18
you're running the numbers so you can see if your property is Cash flowing but
00:33:21
when it comes to buying your own personal investment I also think you need to run tcco or total cost of
00:33:27
ownership because understanding this number is incredibly one of the most powerful things that you can do because
00:33:34
buying a house is a million-- dooll money decision when it comes to opportunity cost so you got to make sure
00:33:38
that you understand hey in my specific location is it better for me to rent and or is it better for me to buy and what
00:33:45
most people don't factor in is some of the ongoing maintenance costs and the
00:33:49
additional costs that are associated with home ownership now I've been a homeowner for over 10 years I absolutely
00:33:54
love owning a home Jesse you said you're a homeowner now as well and there are a
00:33:57
number of really really good reasons to buy a house especially when it comes to Lifestyle design if you have kids having
00:34:03
being in that school district there's a bunch of other great reasons to own a
00:34:06
house but it's not always the best financial choice and the reason for that is if you look at the historic rate of
00:34:12
return on personal residence if you factor in total cost of ownership it is like three to four% over time well you
00:34:17
can make a lot more money in the market if you do that so running total cost of ownership is really important I'm
00:34:21
talking about things like insurance or ongoing maintenance Landscaping those types of things and making sure you run
00:34:27
all those numbers and we have a spreadsheet that we always uh talk about where it runs total cost of ownership
00:34:32
for you and then you can put in your local uh rental rates as well and you could say hey is it cheaper for me over
00:34:38
time to buy vers rent and what I want a lot of people to understand is it is okay to rent if homes are not affordable
00:34:44
in your area some high cost of living areas have lower rent rates but you got to run the numbers just to understand
00:34:50
sometimes it makes more sense to buy the house so it just kind of really depends
00:34:53
on what your specific location is and and what type typ of factor is going to play so that's why I always talk about
00:34:59
running numbers when it comes to buying a house because I think it's incredible
00:35:02
one of the most important things that you can do I agree completely I think let the math guide you that's something
00:35:08
I definitely believe in and I think we talk about a lot on the best interest and another important thing to point out
00:35:13
there that you said Andrew is there might be scenarios where listeners out there they do run the numbers home
00:35:19
ownership ends up making sense for them but despite that it still doesn't mean
00:35:25
that home ownership is a great in investment home ownership is expensive and personally I advise people don't
00:35:33
think of your home as an investment your home is a roof over your family's head
00:35:38
it's it's a family decision if it happens to be a good investment when you
00:35:42
look back 30 years from now awesome that's gravy on top that's fantastic
00:35:47
your Investments should be something other than your primary home again this is my opinion this isn't necessarily an
00:35:52
objective fact the one objective part of it though is what you alluded to which is historical rates of return on
00:36:01
residential real estate they're not that great especially when you account for
00:36:05
inflation just the the total cost of home ownership it's not really a good investment so you shouldn't go into Home
00:36:12
Ownership expecting it to be one exactly and you hit the nail on the head it is a family decision it is a
00:36:18
decision that you really need to make for your family but it should not be the majority of your net worth and the worst
00:36:23
thing that you can see for a lot of people especially now in the baby boomer generation I'm Jesse I'm sure you see a
00:36:28
lot of clients this way is that a lot of them have the majority of their net worth in their home and it is really
00:36:34
really hard to become wealthy or build wealth if the majority of your net worth is only in your home and it's not in
00:36:39
other assets and income producing assets like stocks bonds index funds those types of things so that is one of the
00:36:45
keys really to to making sure that you are Building Wealth in the correct way is not having all of your net worth in
00:36:50
your home and because it's not that great of investment like you said it is more so a family decision and there's a
00:36:55
bunch of other reasons why you should own home but as a financial investment it should not be the number one priority
00:37:00
totally agree Andrew if people want to check you out and hear more of your cool takes your your great thoughts how can
00:37:08
people get a hold of you how can people find the personal finance podcast so you
00:37:12
can find the personal finance podcast on any podcast player uh whatever one you're listening to right now you can
00:37:17
find it there and then we are also at Master money.co is our newsletter so we put out a newsletter every single
00:37:22
Thursday uh so if you want to check that out it's mastermoney doco newsletter
00:37:26
awesome we'll throw it all in the show notes Andrew G and cola of the personal
00:37:31
finance podcast thanks for stopping by the best interest podcast thank you so much for having me this is
00:37:37
[Music] amazing thanks for tuning in to this episode of the bestest podcast if you
00:37:44
have a question for Jesse to answer on a future episode send him an email at Jesse bestin interest. blog again that's
00:37:51
Jesse at bestin interest. blog did you enjoy the show subscribe great and review the podcast wherever you listen
00:37:59
this helps others find the show and invest in knowledge themselves and we really appreciate it we'll catch you on
00:38:05
the next episode of the best interest [Music] podcast the best interest podcast is a
00:38:13
personal podcast meant for education and entertainment it should not be taken as
00:38:18
Financial advice and is not prescriptive of your financial situation