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