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welcome to the best interest podcast where we believe Benjamin Franklin's advice that an investment in knowledge
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pays the best interest both in finances and in your life every episode teaches you personal finance and investing in
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simple terms now here's your host Jesse Kramer hello everybody and welcome to
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episode 75 of the best interest podcast my name is Jesse Kramer today I'll be
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joined by Paula pant Paula is the host of the afford anything podcast we have a really fun conversation not only talking
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about some of Paula's personal finance background and and how she started afford anything and built it into the
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empire for lack of a better term that it is today but also we talk about some of
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Paula's real estate investing because she owns seven real estate properties as
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we'll get into or seven doors I should say and she has a lot of cool things to
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say about real estate and we also talk a little bit about mindset in in a couple
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interesting ways growth mindset or just you know the willingness to take on challenge in the world and go through
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some struggle and build something new and unique for yourself which Paula has done an amazing job with first we're
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going to start with a little review of the week Dennis in Vermont wrote in last week and said an easy listen for any
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audience I have spent my entire career working in the financial services industry Like Jesse I'm a fiduciary
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investment professional with a real passion to deliver Financial guidance and education to not only clients but to
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friends family and anyone who will listen in today's day and age there is no shortage of easy to access financial
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information most of which is heavily jargon and filibuster I discovered the best interest podcast while searching
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for content to share with retirement plan participants who I regularly consult with what I like most about the
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best interest podcast is that the information is relevant to everyone and can be easily comprehended by everyone
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for this reason I highly recommend subscribing to the Pod if you're looking to improve your financial well-being or
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if you're an investment professional like me who need to help communicating complex Concepts in simple terms I
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appreciate what you do Jesse keep up the good work well I appreciate you Dennis thank you for those very kind words
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thank you for listening and for sharing the best interest podcast with some folks who you work with Dennis if you're
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listening now I hope you are shoot me an email Jesse bestin interest. blog and we'll get you hooked up with some cool
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bestest gear okay before Paula today we're going to talk a little bit about some Minds ideas I'm not talking like
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Guru woo woo uh you know kind of fanciful ideas but just kind of helpful thoughts at least some things that have
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helped me along the way and I'm going to start with a classic friend of the blog
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friend of the podcast Tyler Tyler you know who you are I hope you're listening
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right now this story starts in August of 2021 when Tyler broke his hand on his birthday no less H what a bummer sorry
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Ty I know that was a tough time for you because sure there was the the physical pain of a broken bone B and and that's
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certainly not fun but I know Tyler also felt the mental frustration of knowing that I slipped I fell I took the wrong
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step this wasn't some unavoidable external mistake this was a self-inflicted wound self-inflicted
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wounds are a double bummer and and bummer one is the wound itself but that physical pain is compounded by the
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knowledge that you did it to yourself and that really is bummer number two it's the knowledge that the injury was
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avoidable and the knowledge that your own mistake WIll Cascade into weeks or months or years of negative consequences
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but I want to convince you that bummer number two has very little utility in our lives you can't go back in time to
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undo the mistake Tyler can't Unbreak his hand so what is the real use of feeling
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that ongoing regret I think the smart emotional response is not prolonged but brief it's to realize your mistake to
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learn the lesson to commit to changing diffus your behavior which I think is very important and then to move on
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because in finances there are a lot of self-inflicted financial flaws for example we spend money on stupid stuff
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that we later regret or we borrow too much money we go into too much debt for our houses for our cars or maybe for our
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college education or we invest too little money early in life we start investing a little too late in life now
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the obvious consequences appear on our balance sheets and in our bank accounts we don't have as much money as we hoped
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we would the secondary consequence though it haunts our thoughts right if only I bought Bitcoin in 2012 I could
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buy four jet skis like the Jones family down the street but just like with Tyler's broken hand those if only
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regrets they really don't have much use in our lives they're only worthwhile if
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they help you learn for next time and that's great if they do help you learn
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for next time that's a wonderful reason to have a regret but beyond that it's
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uselessly crying over spilled milk so my go-to overspending story as an example is that I bought a hot tub in 2017 I
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overspent and then I underutilized it but it helped me learn some amazing lessons so the first one I have a
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psychological weak spot for a good sales pitch and you might too I think most of
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us think that we're immune to sales or we think no no I'm I'm not going to fall
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for that sales pitch but until you understand the way that sales people work the fact of the matter is you might
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fall for a sales pitch and for example I found the book influence by Robert calini I'm looking at it right now in my
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book it was extremely helpful because it allowed me to recognize sales pitches more readily another thing when it came
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to the hot tub I learned a lesson that it's important to find the root of your
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desire so it turns out I thought hot tubs were so much fun because in my limited experience with them it always
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involved groups of friends it involved you know that fun weekend getaway in the atar around deck mountains with a kind
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of a cabin in the woods and a hot tub see it it wasn't the hot tub itself that
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was so fun it was the friends it was the weekend getaway and you don't necessarily need a hot tub just to hang
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out with friends and I also learned that good deals are always out there I bought
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what ended up being called it the Mercedes of hot tubs and I probably should have just gone with a used Honda
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maybe a new Honda but either way a Honda over a Mercedes I don't regret necessarily buying the hot tub but I
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learned some valuable lessons from that experience now another self-inflicted wound that many of us have suffered is
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over borrowing if only I knew at age 18 what I now know at age 24 or 28 or 32 I never would have borrowed that $100,000
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for college I see this sentiment a lot it's a really tough pill to swallow a
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lot of the millennial generation are dealing with these thoughts and now I suppose what gen Z they're after
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Millennials they're starting to deal with it too the desire to change past decisions is so strong but the ability
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to change those past decisions is non-existent and if you let it that kind of frustration can consume you so what
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can you do about it a few ideas well the first one obviously hopefully is to never make that same mistake again right
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we have to learn from our mistakes the first time the second one is to help others avoid the same mistake in the
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future I think that's a powerful way of of learning from our stakes and then the
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third is to find an optimal path out of the woods so if you find yourself in debt maybe you don't take joy and you
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know or you just don't want to put yourself out there and help others avoid the same mistake I totally get that I
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think it behooves you to find an optimal path Out of the Woods for you right you
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you can't change the paths but you can find the quickest way to to get out of
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the mess that you find yourself in so we learn from the past and we lean into the
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future the last one too little too late the regret of an action so now that we are what we are 14 years into an amazing
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bull market stock run okay maybe we had a little blip there in 2022 that's fine
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but either way the last 15 years overall since the great financial crisis have been a wonderful time to be a stock
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investor and I read a lot of comments like bam I missed my chance to invest and that means either one I'll never get
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another chance to invest again or two I should wait for the market to fall before pulling the trigger and investing
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now this thought process is very easy to empathize with but thankfully it's also
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easy to refute for evidence I highly recommend you read two articles that I've written on the blog the first one
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is called are we in the best stock market period ever and the second one is called should you keep investing at
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all-time highs the current stock market is not a reason to feel like you shouldn't be investing and again those
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two articles are in the show notes now the last thing I want to leave you with from this first kind of stanza of the
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monologue is self-inflicted growth because I want to leave you with this question what are all the things you've
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done right in your life it's easy to focus on the negatives in life many of us are maybe perfectionists or at the
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very least we we seek growth we seek Improvement our mistakes those are loow hanging fruit right for the fixing right
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it's easy to see the broken hand and say I messed up stop I want to improve that
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does it do us good to focus on the bad stuff a 100 times more than we focus on the good stuff I doubt it so next time
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you're wallowing in self-inflicted guilt remind yourself of the amazing contributions that you've made to your
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world to your financial life etc etc etc and take heart in the fact that you're
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making strides to be ever better okay let's transition to Travis Scott's
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important investing reminder now Travis Scott I'm told is a a rapper I used to
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be into full disclosure when I was maybe 12 13 14 High School age I enjoyed rap there was some Jay-Z fabulous I still
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know the lyrics to a lot of rap songs Eminem all all fine good artists talented people Travis Scott and some of
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the new age hip-hop and rap stars I I don't really know them I don't really
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know their music but anyway Travis Scott is a a more modern rapper and he has an
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important investing reminder for us and this story starts uh November 5th 2021 where sadly there was a crowd surge at a
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Travis Scott concert in Houston that I think in retrospect a lot of people ended up blaming Travis Scott for and it
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sounds like he was probably guilty that's neither here nor there I'll let
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you guys do your own research if you want but the sad thing is the crowd got out of control and people panicked and
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some people died and it's a terrible terrible way to die and more importantly
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for the the topic today is that it's a preventable way to die and I say it's
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preventable because this has happened before crowds surges have happened before not once not twice but hundreds
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of times for example the Romans and the Jews infamously suffered a deadly crowd trampling incident that killed hundreds
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of people and do do you know when that was I mean the hint is it was the Romans and the Jews it was thousands of years
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ago humans have known this for a very long time that crowds cannot control themselves left to their own devices
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they will over crowd they'll Panic Stampede and Riot and that leads to death Humanity knows this or at least we
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should know it right we should have learned this important lesson Millennia before Travis Scott was a glimmer in his
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papy's eye but we need reminders and without those reminders we repeat our past mistakes it gets worse you know
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it's the same for nightclub fires or or structure fires and I know this is a
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morbid topic but but stick with me for a minute and we will get to the investing
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content I swear for example the station fire the station was a nightclub in Rhode Island the station fire killed 100
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people and injured 230 more people you might ask yourself wow that that's tragedy when did that happen was it in
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the 1800s maybe the early 1900s or I don't know maybe it was in like the 1950s before fire alarms that kind no it
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was in 2003 the station fire was far from the first awful club or structure fire in the United States too we've had
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fires kill more than 500 people from one building but at the station in 2003 they
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forgot or ignored or never even contemplated the lessons we've compiled from generations of fire safety again
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people need reminders without them we repeat our past mistakes now both Travis Scott's concert and the station fire
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both the scenarios making me want to grab someone by the shirt collar and shake them and ask them how did you not
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know better but we already know the answer people need reminders it's that simple if we don't actively choose to
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remember then we forget entropy kicks in we get lazy we cut Corners our safe systems lose their Edge and it's a
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slippery slope downwards and then tragedy strikes that tragedy jolts us and we suddenly remember oh this is why
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we had those safety measures in place this is the bad outcome that can occur tragedy or if we're lucky a mere close
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call it's a highly effective reminder of rationality but of course it's a tragedy
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too right we don't want to have to suffer a tragedy every time we need a reminder of how to be rational the
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Preferred Choice is to maintain rationality before the painful reminder okay so let's talk
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investing there's a direct analogy between the Panic of a crowd and the Panic of an investing Market every
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investing bubble in history is marked by the fact that rationality was forgotten
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Common Sense became uncommon and past lessons were ignored in fact the language of Market irrationality is the
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same language of crowd irrationality what's a synonym for a market crash it's a panic well how do you describe a
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panic selling event it's like a large movie theater with a small door that sounds like a fire trap to me and in
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fact the most famous book about investing bubbles is called extraordinary popular delusions and The
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Madness of crowds That's right The Madness of crowds the psychology of markets is eerily analogous to that of
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physical crowds the highs can be similarly euphoric right we're all One Soul Man the music is flowing through me
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but the lows can be similarly destructive and just like a fire or crowd surge a market crash helps us
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remember that people need reminders and without them we'll repeat our past mistakes so when I wrote this article it
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brought me to Charlie Munger you know the Bitcoin Grinch himself love Charlie Munger more rationality more often that
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is the best preventative for avoiding crashes of all sorts and if I had to guess that's exactly why Charlie Munger
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says that cryptocurrency is disgusting and contrary to the interests of civilization those are exact quotes one
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of my favorites ones right there contrary to the interests of civilization it's because Charlie Munger
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saw crypto as a bubble and a bubble is kind of equivalent to Travis Scott's concert before the tragedy struck it's a
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powder keg waiting for a spark and Munger saw that and he didn't want to wait for what he thought would be a
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future Bitcoin Panet he wanted to call attention to it now in other words Charlie remembers he remembers the many
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bubbles that he's read about before and the few that he's seen firsthand and he
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doesn't want to forget or repeat past mistakes now is Charlie right was he right about Bitcoin about cryptocurrency
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I'm not wise enough to know myself but I listen hard I listen hard when a smart
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rational person says we've made mistakes like this before and I see one again
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Charlie was acting like a fire marshal right he's seen the charred remains of
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too many buildings and he's now walking into the Bitcoin nightclub as it were
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and calmly stating this is a fire hazard and a death trap period it's hard to
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know if Charlie Munger was right we might not know this week this month this year this decade it might take a long
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time to know if Charlie Munger was right or wrong but if he was correct and the risk was present then the law of large
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numbers mandates that tragedy will eventually strike Charlie to his credit is famously a student of psychology he
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knew how people tick both individually and in crowds and he knew that people need reminders and without them we
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repeat our past mistakes here's a quick ad and then we'll get back to the show
00:16:04
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attached subscription bestter interest. blog well let's go from one wise person
00:17:02
in Charlie Monger to another wise person in Paula pant Paula pant is a podcast host a writer speaker and media
00:17:09
commentator on financial Independence real estate investing money management and financial literacy she is the
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Creator and the host of the afford anything podcast which has more than 30 million downloads and is ranked by Apple
00:17:22
podcasts as one of the top 50 business podcasts she is the founder of afford anything.com person finance and
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financial Independence website that draws more than 2.5 million annual page views and holds more than 78,000 email
00:17:36
subscribers and you might have seen Paula starring in the Netflix documentary get smart with money on
00:17:42
which she also served as a Consulting [Music] producer Paula thanks for stopping by
00:17:56
the best interest podcast I thought we could start with the afford anything Credo I think anyone who has listened to
00:18:02
you has heard the idea that you can afford anything but you can't afford everything so I wanted to start with
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that statement because I think it's just such a fundamental but probably underrated pillar of personal finance so
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where did the statement come from why has it really become one of your personal mantras sure well first uh to
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explain that Credo a little bit to anybody who's new to it the notion that you can afford any anything but not
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everything is fundamentally one of opportunity cost every time you say yes to something you are implicitly saying
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no to something else and the problem is a lot of people don't consciously recognize that I came up with afford
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anything when I was in my 20s my my mid 20s I quit my job I was making the highest income that I ever made working
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for somebody else was $31,000 a year so I I quit a job at which I was earning a full-time salary of $31,000 a year and I
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lived out of a backpack and for the next 27 months I backpacked around the globe
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I flew to Egypt on a one-way ticket and spent six weeks in Egypt and then I went
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to to Israel to India to Nepal to Thailand Lao Cambodia Vietnam Malaysia Singapore Indonesia and then I finished
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it off with 10 months in Australia plus like three weeks in New Zealand during that time my friend kept saying I would
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love to do that but I can't afford it I kept hearing that over and over and over
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I would love to travel like that but I can't afford it but the thing is I know
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that those friends were making substantially more than 31,000 a year many of them were making double or more
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than double that right but they were also living in apartments with stainless steel appliances they would go to bars
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on the weekends and buy $14 cocktails right they would buy $50 or $100 concert tickets and that's fine if you sit down
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and you make the conscious choice that hey I could either travel or I could have stainless steel appliances and $14
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cocktails right which one do I prefer if you sit down and you think about it and
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you make the deliberate conscious decision that you prefer the stainless steel appliances and the $15 and the
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expensive cocktail that's great I fully support that because that is a deliberate conscious
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choice but then the statement is not I can't afford to travel the statement is
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I choose not to travel I have decided that travel is not a priority for me right so it isn't that you can't it's
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that you choose not to to say that you can't is simply disempowering and also
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false and so that's why I started to afford anything is I wanted to eradicate
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the phrase I can't afford it from people's mouths when it comes to all reasonable purchases now of course there
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are like nitpicky nerds out there who are like can you afford a rocket ship you know and so afford anything is not
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an abdication of common sense right afford anything means that anything that a reasonable middle class American can
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do is something that is within your reach as well I I think to myself I think it's Jesse meechum and the wab you
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need a budget app they part of their fun Al rules is you know a dollar can only be spent once and that's that's a very
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similar thought process which is like you know right if you want the spend a dollar on that cocktail go for it but
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that dollar can no longer be allocated to your future trip it can no longer be allocated to your retirement savings and
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on the opposite end of that Spectrum you know we're big Savers and and the FI and
00:21:49
personal finance Community are big on saving if you allocate dollars to your savings you can't then spend those
00:21:55
dollars on having fun today and it really is about striking some sort of balance there and I should also add you
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know it's this applies not just to money it applies to any limited resource so it
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applies to time it applies to energy attention focus all of those are limited and that's something especially in the
00:22:13
FI the financial Independence Community many people become obsessed with the numbers they often I think this is one
00:22:21
of the pendulum swinging too far in the opposite direction can devalue their time in exchange for a rounding error
00:22:30
and when that happens you are trading your most valuable asset which is your time your energy your attention that is
00:22:37
a non-renewable asset money is a renewable asset and so afford anything applies to time as well it applies to
00:22:43
all limited resources that that's so cool and and only out of curiosity do you have a background in in economics at
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all because the whole opportunity cost is a very you know very economic uh thought yeah I have a masters in
00:22:55
economic journalism Economic and Business journalism M from Columbia University very cool very cool well
00:23:02
let's segue a little bit because I'm I'm kind of interested so you're you're
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greatest earning year $331,000 you used it to afford not everything but anything in the in the
00:23:12
form of this amazing world trip so I'd like to learn a little bit more about
00:23:17
your personal fi or fire or just your personal finance Journey Paula you know we love good examples good stories
00:23:24
everybody likes a good story so where did you find yourself in life before discovering the world of personal
00:23:30
finance and what's your journey and growth been like so straight out of college I was a newspaper reporter and
00:23:38
my starting salary was $21,000 a year now this is in 2005 so you've got to adjust that for inflation so actually
00:23:45
you know what let's do that really quickly right now let's do it live yeah
00:23:48
let's do it live all right so 21,000 in 2005 is what today okay okay ooh 32752 got it got it so my starting
00:24:02
salary was today's equivalent of earning 32,000 a year and I worked that job for
00:24:09
three years and so at the time that I quit that job which was in 2008 my ending salary was 31,000 so let's see
00:24:16
$31,000 in $208 so $ 43,800 okay okay so modern dollars 44,000 is 434 4,000 was your top end
00:24:29
salary exactly exactly so uh during that time I lived on my full-time income I I
00:24:37
still contributed 15% to a 401k but other than that I lived on and I didn't know unfortunately I didn't know about
00:24:43
the Roth IRA um which was dumb but I contributed 15% to a traditional 401K the rest of it uh I lived on and then
00:24:52
during the evenings and weekends I freelanced and my freelance income was at at an hourly rate was substantially
00:24:59
higher than what I was making in my full-time job I would write these articles where I would make the
00:25:04
equivalent of $75 an hour which when you're making a full-time salary of the
00:25:10
today's equivalent of 44,000 a year and on the side you're making $75 an hour I
00:25:16
mean huge it's huge the shortcut for anyone listening is you you work about 2,000 hours a year in a standard job so
00:25:22
take your salary divide it by 2,000 you are earning about $22 an hour in your salary so 22 an hour versus 75
00:25:30
on the freelance side right exactly exactly I mean it's just like what 4ex difference yeah it's huge it's huge
00:25:38
every penny that I made from freelancing after taxes I saved and so I ended up over the span of three years I saved on
00:25:47
average about $800 a month and so after three years that totaled up to $25,000 now that for me was the
00:25:55
equivalent of about onee salary cuz you remember during this three-year time span I was earning 21 on the low end 31
00:26:01
on the high end so on average during those three years I was earning 25 Grand and after three years that was what I
00:26:07
saved I had the equivalent of a year salary in the bank and so when that happened a couple of things so it was
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2008 it was I quit my job kind of right before the Great Recession really kicked
00:26:19
in like there were signs that the economy was not doing well but we weren't really in the the throws of it
00:26:26
quite yet but was very clear that print journalism was not doing well and it was
00:26:32
very clear that if you just stated a newspaper hoping for promotions you gonna go nowhere fast so you saw the
00:26:38
writing on the wall yes exactly exactly but yeah so it was clear that the future
00:26:44
of Journalism was going to be online and it was going to be independent and so I
00:26:48
did in 2008 the thing that no one ever does which is I voluntarily quit a job at a print newspaper which no one does
00:26:57
because those jobs are so few and far between everyone was like you're committing career suicide you're never
00:27:02
going to get a job again and sure enough I never have gotten a job again that that was the last job I ever
00:27:10
had so I guess they were right you know I I never got a job again and so for the
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next 27 months I just backpacked you know I I was not trying to build a full-time freelance career I was just
00:27:23
freelancing Moonlighting here and there writing an article or two but mostly I was in countries where the dollar
00:27:29
exchange rate really worked in my favor you know I was in LA I was in Cambodia like I was in places where the US dollar
00:27:36
just went a lot further so I was living on about ,000 dollar a month a lot of people think that traveling is like oh
00:27:43
I'm in transit all the time like which is what you do if you've got 10 days of
00:27:47
holiday right right when you're backpacking you go to one location and you park your butt there for five weeks
00:27:54
which means you're not spending money on bus tickets you're not spending money on
00:27:57
Transit you're like renting a guest house for $5 a night and you're eating
00:28:03
local food you're eating pad tie for 25s and so travel becomes a lot cheaper
00:28:09
when you think of it not as a holiday but rather as essentially just living your life in a different location right
00:28:18
that's how it becomes so cheap you're just living your life elsewhere like I
00:28:23
just sat there in like read Harry Potter books did you take any inspiration from
00:28:27
uh vagabonding but the book oh by R po yeah that's that's an oldie that's an oldie
00:28:33
but goody indirectly because that's that's what he talks a lot about is just
00:28:36
travel somewhere and then Park yourself preferably travel somewhere cheap and then Park yourself and just live life in
00:28:43
this new city and and see how the locals live and it's a very cool way of approaching not only travel but just
00:28:48
kind of being a global citizen exactly I'm a huge fan of that like long-term
00:28:53
slow travel because that's the that's the way that you sink in cool how did
00:28:58
that then so now you're probably by then what in your late 20s maybe when the 27
00:29:03
months is up yeah exactly I was 20 with no job yeah exactly you're you're in
00:29:09
Australia or New Zealand and and then what so then I came back to the US I moved to Atlanta because that's where my
00:29:18
parents live I found uh on Craigslist it was five roommates sharing a three-bedroom so my personal share of
00:29:26
the red was $200 per month but only because we were cramming so many people into such a small space I had a car that
00:29:35
was worth probably around like three grand you know just a super old beater and you know I basically ate from Costco
00:29:44
and those those were my bills that in health insurance right health insurance is probably my biggest bill but based
00:29:51
with like a extremely extremely cheap cheap cheap cost of living I started eeking out at at the time a career as a
00:29:59
freelance writer and eventually that escalated two things happened simultaneously one was that as my
00:30:07
freelance writing clients grew and grew and grew and grew I came to realize that
00:30:12
I was getting more work than I could individually handle myself and so I formed a Content agency and so I started
00:30:20
hiring freelance writers who worked under me and then I managed those writers and I would pass the projects on
00:30:26
to those writers and then my agency my content management agency would handle you know the assignments and then I
00:30:34
began to realize that you could make a little bit of money if all you did was like submit an assignment but you could
00:30:40
make a lot more money if you did all of the management of the editorial calendars and so I was serving clients
00:30:47
these were mostly small business clients small businesses paid much better than Publications so I started working for
00:30:55
these two to three person certified financial planner firms or these two to three person accountant firms these
00:31:03
small businesses that needed content they needed real estate content in order to be competitive on Google to Corner
00:31:10
SEO you know they wanted to to Really Corner the SEO market for like Kansas City accountant but they don't have the
00:31:16
time to do all of that writing themselves nor do they have the time to even just broadly like if you're
00:31:22
assigning it to writers somebody still has to manage that you've got to manage
00:31:26
the editorial calendar you've got to study keyword optimization right somebody needs to manage
00:31:31
editorially manage the project and so that's what my agency ended up doing we
00:31:36
became content editors and managers we became a Content editing and management agency so that ended up being fairly
00:31:44
lucrative and so that was how I that was the first time that I began earning six
00:31:48
figures and you know as somebody who used to make 31,000 a year to be self-employed and earning six figures
00:31:54
was huge and so I was doing that that was my full-time work and then in parallel with that I was running a Ford
00:32:02
anything I started a Ford anything in 2011 and for the first five years or so it was making some money but not a ton
00:32:11
but I knew the audience was growing right the readership was growing after five years I knew that if I were to give
00:32:18
it my full-time attention then this could really be something and so in 2016 I faced this Crossroads where I was like
00:32:26
man do I continue running this six-figure business that I built or do I kill the business like it it it didn't
00:32:35
seem viable enough to sell you know do I kill this business that I painstakingly
00:32:40
grew and instead Focus all of my effort on building out my own platform right afford anything and it was terrifying
00:32:52
but my thinking was a Content management agency is a service-based agency model business and the gross
00:33:00
margins on that tend to be rather limited I felt like that could be a six-figure business but I would I
00:33:07
personally would have a hard time growing that to a seven fig business by contrast if you're building a platform
00:33:14
if you're building a brand that's a very different business model entirely that
00:33:21
can be a seven or eight figure business that was around 2016 so since 2016 or or
00:33:25
so aord that thing has been 100% of your time and energy maybe even 110% of your
00:33:32
time and energy exactly and you don't have to share personal details with us
00:33:36
but as far as your own Financial Independence journey goes I mean how has afford anything helped you in that
00:33:43
regard oh I mean it's the overwhelming I mean it it's my sole source of income
00:33:50
right okay and so the money that I've made through first through the content
00:33:55
marketing agency that that was really key and then later through afford anything the money that I've made
00:34:00
through being an entrepreneur and through running businesses that has allowed me to aggressively invest and by
00:34:09
virtue of a increasing my income and then B using that increased income to aggressively make investments that's
00:34:17
what's allowed me to build my net worth here's a quick ad and then we'll get
00:34:21
back to the show one of the more common questions I hear is Jesse what do you like in you books blogs podcasts even
00:34:29
Banks and brokerage firms what are your recommendations so to answer that question I put together a web page you
00:34:36
can check it out at bestter interest. blog reccommendations again that's bestin interest. blog SL recommendations
00:34:45
to check out how I'm improving my financial life let's transition a little
00:34:49
bit into the investing Paula I know that you have done and continue to do a lot of real estate investing real estate
00:34:56
investing is a a regular topic on a for anything and you even you have some courses related to real estate investing
00:35:04
just one just one I'm sorry so one course we haven't talked about real estate investing a lot here before on
00:35:09
the best interest podcast so what's some of your background or experience or just
00:35:14
you know where are you in the real estate investing world so I have seven uh rental units all paid free and clear
00:35:21
one Triplex one duplex and two single family homes so yeah that's portion of
00:35:27
my portfolio do you manage them yourself as like are you the the landlord who someone's going to call at 10 at night
00:35:33
if the toilet's overflowing only with one of them for the rest they've got
00:35:36
property managers got it what's the thought process on that well number one they're all out of state right I live in
00:35:43
New York City and so these and the Seven units that I have are spread across three different states they're spread
00:35:49
across Georgia Indiana and Nevada you know I live in Manhattan Manhattan is a terrible place to invest in uh rental
00:35:56
real estate so I'm a big proponent of if you live in a high cost of living area don't buy
00:36:01
real estate there not as an investment I mean if you want to have something for yourself personally I think that's still
00:36:07
a really terrible use of money but if for emotional reasons you want to then you know people buy things for emotional
00:36:13
reasons all the time but specifically as an investment Buy in lowc cost of living
00:36:19
areas you know that's where the good investment deals are because you're
00:36:22
going to be looking for properties that have a healthy cap rate right and a cap rate is simply a measure of the
00:36:29
unleveraged dividend or income stream that a property produces so if you think of it all assets whether it's index
00:36:36
funds or income properties all assets make money in two ways right there is appreciation which is the value of the
00:36:43
asset rising and then there's the dividend or income stream that it pays so a share of Coca-Cola ideally will
00:36:50
rise over time that's the appreciation and that share of Coca-Cola will also
00:36:54
pay a dividend same thing with a rental property that rental property will ideally rise in value over time that's
00:37:02
great but that's also market-based appreciation which is largely out of your control I like to conservatively
00:37:08
estimate that it'll just keep Pace with inflation nothing more historically it's
00:37:12
actually been around 5% so if you want to say inflation plus two if you imagine around 3 to 5% uh over the long term
00:37:20
that's ballpark what you can estimate there now the real money comes from the
00:37:26
dividend or the income stream that that property pays and so that income stream is rent minus operating expenses is your
00:37:35
net operating income and then that net operating income divided by the purchase price or acquisition price of the
00:37:40
property that's your cap rate you know what I look for is properties with healthy cap rates and you're likely to
00:37:47
find a really healthy cap rate in a location that has a low cost of living so Paula what what is an example of an
00:37:54
attractive cap rate to you oh okay okay so in the way that you want returns to be commensurate with risk right you want
00:38:01
low risk low low risk you accept low returns higher risk you demand higher returns in order to justify the higher
00:38:06
risk that's the same way that I look at cap rates so when you think of properties are class A B C or D A Class
00:38:13
A property is a property that is relatively lowrisk it tends to be uh newer property either new construction
00:38:21
or newly renovated it tends to be in the you know what I call the the Lulu Lemon
00:38:26
Panera Bread neighborhoods the soul cycle neighborhoods right yeah yeah right so if you're if you're drawing the
00:38:33
Lululemon crowd right that's those are the class A rental properties and generally in those properties you tend
00:38:40
to have high occupancy low levels of repairs maintenance Capital expenditures because they are tend to be newer or
00:38:48
more newly renovated properties you tend to have like I said High occupancy low tenant turnover high demand so your
00:38:54
vacancy rate tends to be quite small there tend to not be a whole lot of problems or issues that you have to deal
00:39:00
with in those properties and so for a class a property I mean if it's super CL
00:39:06
if it's class like A+ man I'll take a three cap for that even or you know if
00:39:11
it's like class A++ plus by contrast if you've got a property that is Class B
00:39:18
which is I would say where Homer Simpson lives like if you think of Homer and Marge Simpson that would be like a Class
00:39:24
B neighborhood I grew up in a like a class I'd say B minus C+ neighborhood this is not what you should do but this
00:39:30
is just what I personally do personally I would look for maybe a five cap in a place like that and then if you're going
00:39:38
Class C I would look for maybe at least a six seven cap there because they are worse grade real estate you're demanding
00:39:46
a higher percentage of rental income like so for a seven cap that would be what that the operating income of the
00:39:52
property pays you back 7% of what your initial invest investment was on an annual basis the net operating income of
00:40:00
the property would be 7% got it net operating income okay and and and these are riskier properties and therefore as
00:40:08
the investor you are saying that you need more reward for them yeah exactly exactly and and the reason for that is
00:40:15
because there's going to be a lot more with the riskier properties there's
00:40:17
going to be a lot more volatility in what you're actually making right with riskier properties you are likely to
00:40:23
have much higher repair costs much higher m cost much higher levels of capital expenditure more turnovers more
00:40:30
vacancy vacancy is a huge huge cost right massive cost because of that there's likely going to be a lot of
00:40:39
variability there might be some years where you are just negative right where you're in the hole with a Class C
00:40:45
property and you you're bleeding money you're losing money and then there are
00:40:49
other years where you need a really good return in order to compensate for the years where you were just bleeding by
00:40:56
contrast with a Class A property you tend to have more stability right you tend to have more predictable returns so
00:41:03
the returns aren't going to be as high you're not going to make as much money
00:41:07
but it's going to just be a lot more generally going to be a lot more predictable over time and actually I I
00:41:13
do want to come back to the fact that you have properties in such a diverse different geographies but are your
00:41:19
properties that you own would you classify them as Class A Class B Class C I used to have C Properties I no longer
00:41:26
do so they range Class A and B got but there's even within that there's a
00:41:30
spectrum of like you know you've got the B minus and you've got the B+ they're
00:41:34
all I would say within the ab sphere like this this this one there is a Panera close by but the bread is kind of
00:41:42
stale usually so that's not really an a it's kind of like a B+ but you you
00:41:47
mentioned properties in Georgia your parents are in Georgia yeah exactly but I I moved to Atlanta I liveed there for
00:41:52
five years gotcha and and is that the Georgia connection which is why you you have properties there exactly what about
00:41:58
the Nevada and was it Indiana was that the other place yeah Nevada I also lived in for five years and then Indiana that
00:42:07
one I had never I'd never set foot in Indiana prior to going there to look for
00:42:13
rental real estate I actually in my course uh the course that I teach which is called your first rental property
00:42:19
it's for beers I documented the entire process of having never set foot in the
00:42:26
state of Indiana I documented all right from the internet you know from afar from New York here's how I'm doing my
00:42:34
preliminary research here's how I'm narrowing it down here's how I'm looking
00:42:38
at different neighborhoods and here's my preliminary research from that I've done
00:42:42
from Manhattan and then I actually videoed myself like all right here's me boarding the plane here's me getting off
00:42:49
the flight and realizing I forgot my toothbrush right and and then just documented like a 48h hour trip it was a
00:42:56
weekend literally a weekend trip where I was just like zipped across all these different neighborhoods got like a a
00:43:04
sense of the terrain and 48 Hours on the ground and then boom back home right it
00:43:09
was a weekend trip and then from home I started just making offers on properties
00:43:15
with you know the knowledge of the neighborhoods that I had from those 48 hours and then I went under contract on
00:43:20
a handful of properties before I closed on uh the duplex that I have there have you been back to in Indiana since cuz I
00:43:27
know you're you you're managing it remotely right I've been there one more
00:43:30
time since then actually it was I went under contract on another property because I was going to buy a different
00:43:36
duple like a second duplex there and so I went under contract on it and then during the inspection a bunch of stuff
00:43:43
came to light and so I canceled the contract got it that was the other time that I went back that's so cool though
00:43:48
just because it shows the power of you know much like in the way that Index Fund investing gives you access to these
00:43:55
cash flows and access to these companies you don't have to sit on the board and
00:43:58
you're not the CEO you're not the employee but you get to invest in them
00:44:01
from afar and I think the average person probably thinks of rental real estate investing as like oh that's very
00:44:08
Hands-On and it's it's very intense and you better know how to replace a shingle
00:44:13
and and fix a toilet but you're kind of showing and and others have shown that
00:44:17
no it's very possible to do from a remote location you can hire out a lot of the help and and I'm sure there are
00:44:23
some costs involved in all of that obviously that might affect your all return but if you pick the right
00:44:28
property with a good cap rate and a good neighborhood those kind of things it's
00:44:31
it's a great investment yeah exactly exactly you could say it's a 10x investment which is a perfect segue one
00:44:38
of my next questions Paula it's it's one of my favorite articles on afford
00:44:42
anything it's about 10x thinking what exactly is 10x thinking so this is something that I wrote Because I myself
00:44:50
was struggling with thinking bigger and I I think that that's something particularly those of us who are
00:44:56
naturally Frugal we're inclined to save maybe people especially people in the
00:45:00
financial Independence space there's a bit of a mindset of hey what I earn is
00:45:06
fixed or what I earn is you know X and so my job is to save more of what I make and 10x thinking flips that on its head
00:45:17
and says you know what no you're you can't shrink your R greatness if you are
00:45:22
entirely focused on pinching pennies then you're never going to get very far
00:45:27
you're going to be overlooking opportunities for dollars for the sake of clutching onto dimes let's flip the
00:45:34
script and let's focus on the earning side the income side the growth side let's focus on what are the things that
00:45:41
you can be doing that would 10x your income I remember going back to what we were talking about earlier I when I was
00:45:48
making $331,000 in 2008 which is the equivalent of with inflation I was making the equivalent of $44,000 000 a
00:45:56
year as a full-time salary in today's dollars right which is the equivalent of
00:46:01
$22 per hour but as a freelancer I was making let's see let's actually do the
00:46:07
math because $75 per hour in 2008 what would that be in today's dollars so 75 that'd be
00:46:16
$106 per hour today that was 5x right that was 5x I I in my day job was making the equivalent of $22 an hour but as a
00:46:26
freelancer I was making the equivalent of $100 an hour right so I was making 5x as a freelancer over what I was making
00:46:33
in my day job and those are the types of opportunities that allow you to move the
00:46:38
needle I mean how making 31,000 a year I never would have been able to save to aass a savings of 25,000 there's just no
00:46:47
way right but freelancing I could back then I didn't realize that there was a
00:46:51
distinction between being self-employed versus being an entrepreneur at the time
00:46:55
I thought that one was equal to the other it took me a couple of years to figure out that even being self-employed
00:47:01
you're trading time for money versus as an entrepreneur you're building a
00:47:05
platform and a brand and systems and processes and you're building something
00:47:09
that can outlive you right the goal of a business is build something that outlives you and outlasts you so that
00:47:15
you are not the bottleneck and it is not dependent on on you and only you what do
00:47:20
you think is the thing that is holding you know Average Joe or average Jane who who may or may not listening to this
00:47:26
podcast it's actually um we've done science we've hired the Einstein of the
00:47:30
world and listeners of the best interest podcast are not Average Joe's and James
00:47:35
they are far above average we thank you for listening but for those who are listening who are like H how do I
00:47:41
Implement 10x thinking into my life what is your thought process on that there are a few things so number one and I
00:47:49
think each person listening needs to do an internal check of whether or not they
00:47:52
have a tendency for this I see this a lot on on social media anytime that there's an article about
00:47:59
somebody's success you inevitably read this long string of comments where people will attribute somebody else's
00:48:06
success to some imagined advantage that they just assume the other person has right so there will be an article on
00:48:15
like so and so bought a house and people are like bet their parents bought it for
00:48:20
them but if you actually stop and do the math okay so and so bought a $300,000 house using an fa loan putting
00:48:31
5% down so like 5% of$ 300,000 that's what $155,000 so how do you save $155,000 you save $500 a month for 30
00:48:41
months can you save $500 a month yeah I think you can very few people will stop and actually do the math and ask how is
00:48:50
this possible instead they'll have this knee-jerk reaction of like I bet it's
00:48:54
not possible and so you see that and it's really toxic thinking and that's the type of
00:48:59
thinking that makes people people hold themselves back right because if you're
00:49:04
just always assuming that everybody who has done something great has done it through mechanisms that you cannot
00:49:11
access if that's the assumption that you use to walk through life you are guaranteed to be stuck where you are
00:49:18
right so that is not a success mindset it's not a growth mindset and it's not a
00:49:23
mindset that's serving you it's a fact it's a mindset that's holding you back
00:49:27
so if you want to move forward then you got to get rid of that thinking I I really like that and I I like the idea
00:49:32
of just open-mindedness and curiosity wonderful traits to have and then some something that's helped me and I'm not
00:49:39
sure if I'm at 10x yet maybe I'm at four or six or 8X and working my way up but I
00:49:43
kind of zoomed out on the world and said to myself you know what there are some people who are the Einstein and they
00:49:49
were born with a really high IQ and and maybe I'll never be there there are other people who are the Shaquille
00:49:53
O'Neal of the world and you know what I'm never going to be 7 foot one and
00:49:56
weigh 300 pounds and and be as strong as he is so maybe that's not my future but
00:50:01
for 99% of people and 99% of jobs and 99% of the paths that are available before us it's kind of just average
00:50:09
people like you and me but who who dedicated themselves in a big way or were open to try something new and then
00:50:15
they they went after that thing and it worked out for them and you realize it's
00:50:20
not that someone's born with this amazing trait that you and I aren't privy to the Einstein or the Sha type
00:50:27
trait they just have a little bit of gumption and maybe a little bit of luck and and a little bit and a lot of hard
00:50:33
work and all these things kind of mix together in a pot and some magic ensues but it's possible for me and you I mean
00:50:39
that's the big takeaway I think yeah exactly so 10x thinking I like it a lot
00:50:44
and we are I really like I was saying I love that article a lot it'll be in the
00:50:47
show notes a lot of afford anything will be in the show notes but just in case Paula someone isn't sure how to find you
00:50:54
how to reach out to you how to I don't know follow you on social media where
00:50:58
can you direct our listeners well the the number one place to find me is through the podcast the afford anything
00:51:04
podcast so the same way that you're listening to this podcast whether it's
00:51:08
Spotify or apple podcast whatever it is that you're using go there find the afford anything podcast hit the follow
00:51:14
button and that's how you'll get all of our upcoming episodes so number one go
00:51:20
to the afford anything podcast on your favorite podcast player number two we have if you want to subscribe we have
00:51:27
our own show notes that have a synopsis of every episode and all the things that
00:51:31
we're talking about plus we have a newsletter that we send out occasionally and that newsletter goes to everyone who
00:51:37
subscribes to the show notes and that's much much more in-depth so that is if
00:51:41
you go to afford anything.com show notes that's where you can subscribe to that
00:51:45
very cool so whether you're listening to this from Lululemon or Panera thank you
00:51:50
for listening and Paula pant thank you for stopping by the best interest podcast oh thank you you thanks for
00:51:57
tuning in to this episode of the best interest podcast if you have a question for Jesse to answer on a future episode
00:52:03
send him an email at Jesse bestin interest. blog again that's Jesse ATB bestter interest. blog did you enjoy the
00:52:11
show subscribe rate and review the podcast wherever you listen this helps others find the show and invest in
00:52:18
knowledge themselves and we really appreciate it we'll catch you on the next episode of the best interest
00:52:24
podcast the best interest podcast is a personal podcast me for education and entertainment it should not be taken as
00:52:34
Financial advice and is not prescriptive of your financial situation