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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 94
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of the best interest podcast my name is
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Jesse Kramer got an interesting one
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today it's going to be a bit of a
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monologue and I want to share with you a
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different things I want to share with
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you some of my unconventional personal
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finance opinions I think there's some
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interesting stuff there to talk about
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and then I want to share how I've
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changed my mind over time some topics
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that I used to think one thing and now I
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think another thing going over topics
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like this is really helpful because even
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if you don't always agree with me I
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think it's going to be helpful to see
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how other people out there think and and
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maybe it will shape some of your
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opinions in a new way but first as
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always let's do a review of the week uh
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as always this review comes from
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podcasts and man from tondo Manila left
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a festar review and it says American
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Dream found thank you Jesse as an
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immigrant from a third world country my
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American dream is to work and work and
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buy things to make me look so successful
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your podcast changes that view now I
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have a great vision for my finance well
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I'm glad to hear that man from tond
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Manila because I I do think you know
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hard work is important and it is fun to
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buy things but just working and making
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money and buying things isn't
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necessarily what I would call a view of
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success and I'm glad that the best
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interest podcast has helped you you know
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shift your mindset there so man from
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tond Manila if you hear this shoot me an
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email Jesse at best. blog and we will
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get you set up with a super soft bestest
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t-shirt let's dive into it we're going
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to talk about yeah two types of ideas
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today the first one are my
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unconventional personal finance opinions
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contrarianism at least I think
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contrarianism is always interesting not
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only because it's disagreeable but
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because it begs the question why why
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does someone think the things they think
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why do they disagree with what I think
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while opinions like that grab the
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headlines the explanations behind the
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opinions that's what contains the real
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knowledge that's the cool part and I
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hope to dive into some of that today and
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then I'm going to share how I've changed
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my mind over time December of 2023 this
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past December was the five-year
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anniversary of the best interest and
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I've changed my mind a lot over that
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time I've changed my mind on budgeting
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on spending habits on investing topics
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and more and again understanding why
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someone changes their mind provides
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interesting perspective on long- held
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beliefs I'm not asking you guys to
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change your minds today too but if you
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do end up asking yourself even one good
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question about your current personal
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beliefs at some point during today's
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episodes I think it'll be time well
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spent let's dive into some of my
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unconventional personal finance opinions
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the first one the fire movements
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obsession with 100% vtsax or similar
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thoughts is stupid okay if you don't
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know what I'm talking about here some
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people in the financial Independence
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Movement preach that an Investment
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Portfolio should be 100% vtsax which is
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the vanguard's total us stock market
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index fund 100% now the reason why this
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is stupid is there there's a few reasons
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why one reason is because it flies in
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the face of any sort of asset liability
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matching or goals-based investing or
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bucketing your money it flies in the
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face of those kind of topics because
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your portfolio is 100% invested in the
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US Stock Market it means that the
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spending that you're planning on this
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year and next year and then year after
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that that near-term spending you're
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depending on stocks for that and and
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that's a really big risk because we know
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that the stock market can and has before
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dropped 20 or 30 or 40% in a given year
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and in that scenario this early retiree
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is going to have to pull on their stocks
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when their stocks are down and that's
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something that isn't ideal for portfolio
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construction the thought process that
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many people in the fire movement have is
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they say listen I I understand Market
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history uh I've back tested this this
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strategy it's not going to bother me
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when my market drops 40 or 50% in a year
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I can handle it that might be true and I
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think for some people it is true however
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investing and bare markets it's one of
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those things that until you live through
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it it's really hard to understand how
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you'll react I think a lot of people out
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there can say yeah whatever 40% it's
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just a number right who cares but when
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you're living through it and your
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million dooll portfolio is now
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$600,000 when you've lost $400,000 on
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paper and now you're early retired and
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now you have to pull on those assets so
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you're withdrawing after that 40% draw
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down in practice a lot of people that I
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talk to realize that their feelings
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about that 100% stock portfolio change
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it's like that Mike Tyson quote right
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Everybody's Got A Plan until they get
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punched in the face that plan of 100%
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stock index fund it sounds good on paper
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and for some people it is right on paper
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but for some people it's only right on
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paper because when the stock market does
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punch them in the face they realize that
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they've been caught off sides they
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realize that they're in a position that
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they never wanted to be in and that at
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least some sort of safer allocation
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bonds would be a traditional example
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even cash can be a good example there's
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a well-known portfolio out there that's
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75% stocks 25 % cash and that cash is
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meant as a short-term buffer it's where
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you're going to pull money from in the
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next few years just in case your stocks
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do drop and they need time to recover so
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beaten that one enough that's my first
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unconventional opinion that the fire
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movements obsession with 100% US Stock
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Market portfolios is stupid the second
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one you're going to pay taxes and most
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tax hacks are either wrong or illegal
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one example being the child Roth IRA
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hack
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or another one being that the business
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owners pay no taxes hacks a third one
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being that everything can be written off
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all of these are stupid hacks and the
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fact of the matter is that you would do
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much better if you simply accepted the
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fact that you are going to pay taxes
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there are certainly some things you can
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do to try to minimize taxes over time
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but if something feels like a hack you
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should always sort of question it now
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let me go into some of those examples
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child Roth IRA hack what this hack says
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is that if you're a business owner even
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if you're not a business owner you can
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start a business is what they say so
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that's step one is you have to start a
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business and step two is that you employ
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your child even if your child is like
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two years old they become an employee
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you pay them a salary of it doesn't have
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to be much but the child has earned
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income ideally the earned income is at
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least as much as what the Roth IRA
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limits are so this year the Roth IR
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limits are $77,000 so let's say you you
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pay your child $10,000 in income and
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then because the child has earned income
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they can contribute money into a Roth
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IRA so you can set up a Roth IRA for
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your kid and put $7,000 in it even
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though they're two years old and you're
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setting them off on an amazing start for
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their long-term investing career then
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you as the business owner you paid them
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$10,000 so that payroll is a write off
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for you as a business owner so it saves
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you taxes it's like a win-win win okay
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that's what the hack is but the reason
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why you really need to be careful here
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is because you need to justify to the IR
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r s that your child did $10,000 worth of
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work and provided $10,000 worth of value
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to your company now if the child's two
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you're going to have a hard time
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defending that if the child's 12 right
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and they're out there you're paying them
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$20 an hour and they're out there for
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500 hours over the course of the Year
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sweeping the shop and stapling papers
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and licking envelopes I mean yeah
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they're they're definitely are some ways
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that you can use this quote unquote hack
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it it will benefit you in the way that
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it's described but the way that I've
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seen it described way too often is this
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idea that basically your kid doesn't
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have to do anything for you all you have
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to do is put them on payroll pay them
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money and then boom magically you win
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the game and that's just not true the
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other one that I mentioned before the
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idea that business owners pay no taxes I
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mean there is a little bit of truth that
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business expenses are written off
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against business Revenue But ultimately
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if a business owner finds himself in a
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place where they pay no taxes the reason
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why is because they had no Revenue they
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had no profit from that year and that's
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not exactly a place where you want to be
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if you're running a business there might
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be exceptions you can think about some
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of these giant corporations like Amazon
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or apple that move their operations to
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places like Ireland that have minimum or
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zero corporate taxes and therefore those
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businesses get away with having very
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very small tax bills but for the average
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mom and pop kind of business owner
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running the local restaurant or garage
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or something like that if you pay no
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taxes that's a sign that your business
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is not doing well that's my second
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unconventional person personal finance
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opinion it applies to business owners it
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applies to individuals you are going to
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pay taxes and most tax hacks are either
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wrong or legal number three pertains to
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529 College savings plans I think people
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should use the 50% rule when it comes to
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their 529 College savings plans I'm
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going to explain what that rule is and I
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I even think that's true with the new
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Roth IRA conversion rule which I'll
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explain that as well so if you're saving
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for your kids college step number one is
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to determine as a family or with your
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partner how much money you want to set
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aside for your kids so for this easy
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hypothetical let's say that you have two
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kids you want to set aside $100,000 for
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each of them for their future college so
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you can figure out what their timeline
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is to college you can assume some sort
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of conservative rate of return on your
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Investments and with a pretty simple
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spreadsheet or with the help of some
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sort of financial professional can put a
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plan together how much money you need to
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set aside right now or how much money
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you need to set aside each year from now
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until they go to college to reach that
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$100,000 goal for each kid but now the
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question is where does that $100,000 or
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where does that investing money go does
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it go into a 529 plan and now this is
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where the 50% rule comes in I believe
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that 50% of the money should go into a
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529 plan the other 50% of the money
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should go into a taxable brokerage
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account that at least in your mind using
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mental accounting you have set that
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taxable brokerage account aside for
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College funding there's a few reasons
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why 529 plans are famously illiquid and
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they are very rigid and that's not good
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for you as the owner of the 529 plan the
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IL liquidity means that if you need to
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pull money out of the 529 plan say in a
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couple years because of some sort of
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emergency you're going to have to pay
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income tax on all the gains and you're
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going to have to pay a 10% penalty if
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you use that money for something that
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isn't education spending and the other
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problem is you don't want to end up in a
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situation where you have overfunded your
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529 plans we talked about that a few
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episodes ago I think it was
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episode 69 I want to say was Shawn meany
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we talked about the idea of overfunding
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529s and that's another place where you
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don't want to be as an investor you
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don't want to be in a place where you
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have put more money than you expected or
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more money than you wanted to or more
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money than you could use into a 529 plan
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because the only way to get it out or at
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least one the most common way that
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you're going to be forced to get that
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money out
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is by paying taxes and paying a penalty
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you're better off intentionally
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underfunding your 529 plans hence only
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putting 50% of the goal money into the
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529 plan you're intentionally
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underfunding you're essentially
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guaranteeing that you're going to use
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that entire 529 money for the kids
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college and then the other 50% goes into
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a taxable brokerage account it's more
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flexible in case you need it early and
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in case it goes unused you're going to
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get access to it penalty-free
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of course the downside there is that you
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don't get the tax advantages of the 529
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plan if the money's in a taxable
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brokerage but in the long run that's not
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that big of a deal that's another thing
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we talked about with Shawn meany is that
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the tax benefits of the 529 they're
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certainly nice but they're not out of
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this world so you're securing some of
00:12:19
those tax benefits by using the 50% rule
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but you're also ensuring you don't face
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any of the downsides of the 529 at the
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same time that's take number three that
00:12:28
for 529 you should use the 50% rule
00:12:31
here's a quick ad and then we'll get
00:12:33
back to the show every week I send a
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quick free email to thousands of readers
00:12:37
that shares three Simple Things One my
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new articles and podcasts two the best
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financial content of the week from all
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over the Internet and three a financial
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chart that explains some important
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Concept in the news that week it's a
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great primer to boost your financial
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knowhow but Jesse I don't want another
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email well this might not for you but I
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do hear you which is why I make it very
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short sweet and full of only the
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essentials a whopping 66% of subscribers
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read my email at least once a month
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they're enjoying it and maybe you will
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homepage at bestter interest. blog again
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that's a free no strings attached
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subscription at bestin interest. blog
00:13:22
take number four your primary home is
00:13:25
not an investment this is something I've
00:13:26
talked about before I've written about
00:13:28
before I've I wrote about it at length
00:13:30
because last summer Kelly and I we
00:13:32
bought what I hope at least is our
00:13:33
forever own here in in Suburban
00:13:36
Rochester at the time mortgage rates
00:13:38
were 6.5% which did not feel good
00:13:42
especially because the year before they
00:13:43
were 3% or something like that but
00:13:45
ultimately the one of the main reasons
00:13:48
why we bought the home is because of the
00:13:49
thinking that your primary home is not
00:13:52
an investment your primary home is a
00:13:54
place to meet your family's needs first
00:13:57
and foremost it's a place to live if it
00:14:00
happens to be a good investment in the
00:14:02
long run that'll just be a cherry on top
00:14:04
if it happens to be a terrible
00:14:06
investment in the long run that won't
00:14:07
feel great if the value goes down in the
00:14:09
long run it's certainly a very expensive
00:14:12
asset and because it's expensive and
00:14:13
because it's it costs money to keep up a
00:14:16
house or to fix a house that kind of
00:14:17
thing we plan on taking great care of it
00:14:20
it it certainly is an an asset from that
00:14:22
point of you but an asset is not the
00:14:24
same as an investment Investments
00:14:26
produce cash flow stocks bonds they
00:14:29
produce cash flow real estate produces
00:14:31
cash flow when someone else is living in
00:14:33
it and paying you rent that's true but
00:14:35
your primary home doesn't produce any
00:14:37
cash flow for you and so for that reason
00:14:40
I don't think you should think of your
00:14:41
primary home as an investment and when
00:14:43
you're shopping for a primary home I
00:14:46
don't think it's smart or it certainly
00:14:47
shouldn't be a primary concern to try to
00:14:50
do any sort of investment calculations
00:14:52
and have that way into whether or not
00:14:54
the home that you you think you want is
00:14:56
is right for you ultimately it's what
00:14:59
neighborhood do you want to live in what
00:15:00
school district do you want to live in
00:15:01
how many bedrooms and bathrooms do you
00:15:02
need that you and your family are
00:15:04
comfortable those are the primary
00:15:06
questions that you should be asking
00:15:08
yourself not what's the 20-year irr of
00:15:11
this house going to be that's take
00:15:13
number four your primary home is not an
00:15:15
investment controversial take number
00:15:17
five side hustles are usually a waste of
00:15:20
time I think if you scoped around the
00:15:22
personal finance space you're very
00:15:24
frequently going to see people say
00:15:25
things like oh increase your income pick
00:15:27
up a side hustle do a few side hustles
00:15:29
there's so many great ways to do side
00:15:31
hustles and make side income some people
00:15:32
call this financial pornography you know
00:15:34
stuff you see on like MSN or CNBC with
00:15:37
these really outrageous headlines of
00:15:39
this 24 yearold Works five hours per
00:15:42
month and her income is
00:15:44
$300,000 and you're like well what does
00:15:45
she do and the answer is like she sells
00:15:48
callar By Number books to four-year-olds
00:15:50
on Etsy and she's like yeah it was just
00:15:52
a side hustle and and now I'm a
00:15:54
billionaire I sell color by number books
00:15:57
you buy crayons color and I'm the queen
00:15:59
of that and you're just like man can I
00:16:01
do something like that too of course
00:16:03
that is the exception not the rule those
00:16:05
articles are perfect example of what's
00:16:07
called survivorship bias where we hear
00:16:10
stories about survivors and we often
00:16:12
don't hear the stories about the
00:16:13
failures and I think most people who try
00:16:16
to do color by number books on Etsy end
00:16:19
up failing but even there's just more
00:16:21
mundane examples like uber driving if
00:16:23
you were to run the math on Uber driving
00:16:26
you would realize that it's a really
00:16:28
hard way to to make any sort of money
00:16:30
and odds are the average Uber driver is
00:16:33
making somewhere around minimum wage if
00:16:35
they're lucky the side hustle in that
00:16:37
case isn't really good that person would
00:16:39
probably be better off just spending
00:16:41
more time on their primary job now there
00:16:44
are of course exceptions a good friend
00:16:46
of mine and a friend of the blog I'm
00:16:48
going to leave him anonymous just
00:16:50
because I didn't run this by him
00:16:51
beforehand he's a good friend of the
00:16:53
best interest and he started a side
00:16:55
hustle probably about 10 years ago and
00:16:57
it involved AIC specific group of
00:16:59
products that he was selling in a little
00:17:02
online store through Amazon so he's like
00:17:04
all right yep this little niche and I'm
00:17:05
just going to try to make really high
00:17:07
quality products and differentiate
00:17:09
myself and I'm just going to have better
00:17:11
products than my competitors on Amazon
00:17:14
and he was successful at that and
00:17:16
eventually that side hustle he he was
00:17:18
able to double and triple down on it he
00:17:20
quit his main job his full-time job and
00:17:23
he recently sold that side hustle
00:17:25
business which grew into like a 20
00:17:27
employee business or something like that
00:17:29
and he sold it for a very large sum of
00:17:32
money more than single digit Millions
00:17:34
I'll say that and so he's an exception
00:17:36
where that side hustle turned into life
00:17:39
something that was life-changing but the
00:17:41
question that I think we should all ask
00:17:42
ourselves and the differentiating
00:17:45
question between this friend of the blog
00:17:47
and podcast and the average Uber driver
00:17:50
the question to ask is what's the upper
00:17:52
limit of this and then how much time
00:17:55
will I give myself to reach that upper
00:17:57
limit now when you're really starting a
00:18:00
a true side business there's a pretty
00:18:03
high upper limit and if you're seeing
00:18:05
success there I think it's reasonable to
00:18:07
give yourself quite a bit of time to to
00:18:09
reach those goals ultimately maybe I'm
00:18:11
being hypocritical here the best
00:18:13
interest you can think of that as a side
00:18:14
hustle I've been running it for five
00:18:16
years if it's been profitable it's
00:18:18
barely been profitable as its own entity
00:18:22
but over the last two years now the best
00:18:25
interest has been going kind of side by
00:18:28
side with what doing in my day job right
00:18:30
I work for a wealth management firm
00:18:32
educating meeting clients talking to
00:18:34
clients working with clients by day and
00:18:36
then I come here by night and educate
00:18:40
and and bring cool knowledge to everyone
00:18:41
here who's a fan of the best interest
00:18:43
and a lot of that is swimming in the
00:18:45
same direction so it's like okay my side
00:18:46
hustle if you will has a really strong
00:18:49
overlap with my day job at this point
00:18:51
and I feel like the upper limit of the
00:18:53
best interest is is reasonably high and
00:18:55
can bring me success professionally and
00:18:57
I'm willing to put in a lot of time also
00:18:59
I'm just having a lot of fun ultimately
00:19:01
guys I might have talked about this
00:19:02
before and since this is a bit of a
00:19:03
monologue episode I can go down this
00:19:05
little Rabbit Trail here I have so much
00:19:07
fun writing and podcasting meeting
00:19:10
really cool people bringing guests onto
00:19:12
the podcast answering your questions via
00:19:14
email reading your reviews like the
00:19:16
interaction that we have here it's so
00:19:18
much fun for me so for that reason alone
00:19:21
I'm going to continue doing it but then
00:19:22
when I think about the upper limit it's
00:19:24
like yeah this is a great side hustle
00:19:25
for me personally if you want to pursue
00:19:28
side hustles in your own life I would
00:19:29
ask yourself those questions what's the
00:19:31
upper limit of this side hustle and how
00:19:33
much time will I give myself to get
00:19:35
there because most of the time side
00:19:38
hustles are a waste of time and that was
00:19:40
number five okay number six rent versus
00:19:43
buy my opinion neither one is great okay
00:19:47
the fundamental questions are numbers
00:19:49
and landlord those are the two questions
00:19:51
you have to ask when it comes to the
00:19:52
rent versus by question so the first one
00:19:54
of course is just what is the math what
00:19:56
are the numbers when it comes to what
00:19:58
you might want to go rent what are the
00:20:00
numbers of any sort of house where you
00:20:02
might want to buy there are some numbers
00:20:04
involved and one of the most fundamental
00:20:06
questions actually if you go look and
00:20:07
there's some great online calculators
00:20:09
some rent versus bu calculators I I use
00:20:11
the one on nerd wallet I think it's a
00:20:13
great one I'll throw the link in the
00:20:15
show notes one of the biggest
00:20:17
differentiators between renting versus
00:20:18
buying in those calculators is quite
00:20:21
simply how many years you plan on
00:20:23
staying in that residence if your plan
00:20:26
is to stay somewhere you know if living
00:20:29
in your Forever City if it's where you
00:20:31
grew up and wh your family is and you're
00:20:33
never going to move in that case buying
00:20:35
makes a lot of sense because the major
00:20:38
expense of buying a house the frictional
00:20:41
costs that you never get back that feels
00:20:43
like wasted money the interest payments
00:20:45
on your mortgage that all occurs at the
00:20:48
front end buying a house is a super
00:20:51
front-loaded expense and if you're
00:20:53
planning on being there for long enough
00:20:55
to get past those front-loaded expenses
00:20:58
that that's when buying really becomes
00:21:00
the Smart Choice that's when you start
00:21:02
building your Equity that's when you
00:21:04
start gaining on the renting idea I mean
00:21:07
the reason why renting exists in the
00:21:09
first place the reason why it's a a
00:21:11
reasonable business proposition for
00:21:12
renters for many of them at least is
00:21:15
because they might say well I don't know
00:21:17
how long I'm going to be here I don't
00:21:19
know how long I want to live in this
00:21:20
particular City or in this particular
00:21:22
neighborhood maybe I'm a young worker
00:21:25
coming to a new city for a first-time
00:21:26
job who knows if I'll stay here or not
00:21:29
maybe I just don't have the assets right
00:21:30
now to put a down payment on a house and
00:21:33
I I need some sort of temporary solution
00:21:35
renting makes a lot of sense there and
00:21:37
then earlier I mentioned the second big
00:21:39
question has to do with landlords I mean
00:21:40
ultimately you have to ask yourself do
00:21:42
the pros of having a landlord outweigh
00:21:44
the cons now for a lot of renters they
00:21:47
would say yes the fact that they have
00:21:48
someone who comes in and fixes the
00:21:50
leaking syn someone who plows the
00:21:52
driveway someone who takes care of
00:21:54
essentially running the household all
00:21:57
they have to do is live there and keep
00:21:58
their own space clean that's a that's a
00:22:00
really nice perk you know it's not great
00:22:03
that you aren't building any Equity but
00:22:05
there's pros and cons to that deal so
00:22:07
ultimately renting versus buying I mean
00:22:09
if if you look at the the return on
00:22:11
investment of residential real estate in
00:22:13
the past 100 years the US inflation
00:22:15
adjusted it is something like 05% per
00:22:19
year which suggests that buying is not
00:22:22
necessarily a great investment we
00:22:24
already covered that earlier and then
00:22:26
obviously we all know that renting is
00:22:28
strictly speaking throwing your money
00:22:31
away I'm using air quotes there because
00:22:32
we know there there's you're getting
00:22:34
something valuable by renting you're
00:22:35
getting a valuable service but just when
00:22:37
it comes to building your net worth over
00:22:40
time it's not ideal and so anyway that
00:22:42
leaves me just to summarize my opinion
00:22:44
that rent versus buy neither one is
00:22:46
great but you need to ask yourself some
00:22:49
fundamental questions about numbers math
00:22:51
and the landlord to figure out if which
00:22:53
one is right for you uh number seven
00:22:56
this is a fun one number seven most of
00:22:59
us are spoiled I'm reading a book right
00:23:01
now it's called factfulness and it's
00:23:04
really interesting highly recommend it
00:23:05
so far I'm only about halfway through so
00:23:07
maybe I'm prematurely recommending it to
00:23:09
you guys but so far I I really enjoy it
00:23:11
it's been eye opening and one of the
00:23:14
cool things that the book does is it
00:23:16
it's it divides the world's population
00:23:18
into four income quadrants group one
00:23:22
lives off of less than $2 per day group
00:23:26
two lives off of of between two and8 per
00:23:31
day group three lives off of between
00:23:34
eight and $32 a day and group four lives
00:23:37
off of more than $32 a day and just some
00:23:40
back of the envelope math here you could
00:23:42
be level four you could be group four
00:23:43
you could be living off of $40 a day and
00:23:47
that's about what
00:23:49
$14,500 a year I mean an American would
00:23:52
say $40 a day 14 Grand a year that is
00:23:55
poverty level but if you really zoom out
00:23:58
to the entire world you are in the
00:24:00
wealthiest group of people for those
00:24:03
keeping track at home there's about 1
00:24:05
billion people at level four about two
00:24:07
billion people in level three about
00:24:10
three billion people in level two and
00:24:12
then about 1 billion people in level one
00:24:15
so most Americans including Americans
00:24:17
who are living in American poverty which
00:24:21
is not good poverty is not good but even
00:24:23
those who are living off of say $20,000
00:24:25
a year here in America they are living
00:24:28
in the upper echelon of world citizens
00:24:32
and most of us listening to this podcast
00:24:33
though now most of us I know the people
00:24:36
who are listening to this podcast we are
00:24:38
all over the age Spectrum from 25 to
00:24:40
some of us are 55 plus we are all over
00:24:43
the income Spectrum but on average a lot
00:24:45
of us are middle class or upper middle
00:24:47
class and we truly are in the 1%
00:24:50
globally in in so many ways we spend
00:24:53
money in ways that the rest of the world
00:24:56
finds luxurious we spend money in ways
00:24:58
that our own grandparents would find
00:25:00
Luxurious that put us in the top 1% of
00:25:03
all humans who ever lived but then we
00:25:05
turn around at the end of the month or
00:25:06
at the end of the year and we say things
00:25:08
like man life is expensive and money is
00:25:10
tight yeah but guess what that's what
00:25:13
you get if you spend money in ways that
00:25:17
no one else on Earth can afford to spend
00:25:18
money you are living a luxurious
00:25:20
lifestyle it might make you feel a
00:25:22
little bit tight at the end of the month
00:25:24
but you also have to realize the fact
00:25:26
that we're living it up we're living a
00:25:28
great life so just to point out exactly
00:25:30
what I'm saying I'm going to list some
00:25:32
items here and after each item ask
00:25:34
yourself is it a necessity or is it a
00:25:36
luxury the first one multiple bathrooms
00:25:39
inside a house specifically inside a
00:25:42
house okay multiple bathrooms inside a
00:25:44
house the second one Queen and king-size
00:25:47
beds the third item retirements that's
00:25:50
it that's it the idea that at some point
00:25:51
you won't need to work anymore the
00:25:53
fourth one grocery stores that are
00:25:55
absolutely teeming with food the fifth
00:25:57
one paved sidewalks six clean hot tap
00:26:02
water seven underground highquality
00:26:05
sewage and sanitation the eighth one
00:26:08
WiFi everywhere and the ninth one
00:26:11
multiple pairs of all clothes now those
00:26:14
nine items most people living at level
00:26:17
three in the world have few if any of
00:26:20
those nine items so if you have those
00:26:23
nine items you are living a life of
00:26:26
luxury compared to the rest of the world
00:26:28
maybe not compared to your neighbors and
00:26:30
that's why this whole keeping up with
00:26:31
the Joneses thing is so dangerous it
00:26:33
melts our brains when we compare to
00:26:36
ourselves to our neighbors and we forget
00:26:37
the fact that the rest of the world
00:26:39
isn't living like us that we are Kings
00:26:42
compared to the rest of the world so
00:26:44
anyway bit of a diet tribe but I just
00:26:46
think perspective is an amazing thing I
00:26:48
think having the perspective that we are
00:26:50
lucky or that we're spoiled or that we
00:26:52
should count our blessings how whatever
00:26:54
language you want to use that's a
00:26:55
perspective that will make you happier
00:26:57
because if you raise your expectations
00:26:59
above that and you start saying
00:27:01
something like I deserve this life I
00:27:03
earned this life that all those lists
00:27:05
that Jesse said that's just table stakes
00:27:08
and that should just go without saying
00:27:10
and if you were to take that away from
00:27:11
me I'd be pissed well you're setting
00:27:14
yourself up for disappointment there it
00:27:15
also flies in the face of how humans
00:27:18
lived for the 100,000 years before 1990
00:27:22
something like that so anyway that
00:27:24
that's a good one uh you guys might
00:27:26
disagree with me and that's okay but I
00:27:29
think that most of us are
00:27:30
spoiled going on to number eight this is
00:27:33
another one that's a little bit Saucy
00:27:34
here blaming billionaires for problems
00:27:37
does little to solve your problems now
00:27:39
some of you might be going like Jesse
00:27:41
what a repugnant thing to say now it's
00:27:44
not that you shouldn't care about
00:27:46
reforming a system where we have 500,000
00:27:49
homeless people in this country which we
00:27:51
do but we also have 4.5 trillion with a
00:27:55
t as in T-Rex $4.5 trillion dollar in
00:28:00
the hands of about 756 billionaires
00:28:04
because we also have that so just to go
00:28:05
over those two facts again 500,000
00:28:07
homeless people in the USA but we also
00:28:10
have $4.5 trillion dollar in the hands
00:28:12
of 750 billionaires I think it's okay to
00:28:16
think that that is a systemic problem
00:28:18
worth understanding worth thinking about
00:28:20
and worth solving in some way just
00:28:22
getting some semblance of income and
00:28:25
wealth equality so at least that guy not
00:28:28
living in the ditch while that guy has
00:28:30
10 billion like finding a little bit of
00:28:32
a way to balance that is worth thinking
00:28:34
about but blaming or hating billionaires
00:28:38
for where they are it's wasted energy it
00:28:41
does little to improve your personal
00:28:43
situation it does little to improve the
00:28:45
situation of the people living in the
00:28:46
ditch so anyway we I think we do need to
00:28:50
change that mindset or at least
00:28:51
personally I mean I try not to hate
00:28:53
billionaires simply for being
00:28:54
billionaires if they're pricks I can
00:28:56
hate them for being a prick but when I
00:28:58
look at Warren Buffett Charlie Munger
00:29:00
like they seem like pretty reasonable
00:29:01
dudes to me they're both billionaires I
00:29:04
worked for a billionaire in Wisconsin
00:29:06
epic medical records was my first job
00:29:07
out of college Madison Wisconsin the
00:29:10
founder and maybe even the second in
00:29:11
command now of Epic billionaires were
00:29:15
they quirky yeah they were quirky but
00:29:17
they were also really charitable people
00:29:19
by all measures on the outside seemed
00:29:21
like really nice people so anyway I
00:29:23
think blaming hating billionaires is
00:29:26
just a lot of wasted energy you're
00:29:28
better off actually trying to bring some
00:29:30
change to the world here's a quick ad
00:29:33
and then we'll get back to the show
00:29:35
serious question why do podcasters
00:29:37
constantly ask for ratings and reviews
00:29:40
yes they do help highlight our shows to
00:29:42
new listeners they help strangers find
00:29:44
us on Apple podcast and Spotify it's
00:29:46
totally true and a good reason to ask
00:29:48
for ratings and reviews but I have
00:29:50
something more important at least more
00:29:52
important to me I want to know if you
00:29:54
like this stuff I want to know if you
00:29:56
like my podcast episodes my monologues
00:29:58
my guests the information I share with
00:30:00
you and the stories I tell I want to
00:30:02
improve and make your listening more
00:30:04
enjoyable in the process so yeah I would
00:30:06
love to read your reviews and sure if
00:30:08
you throw a rating in there too that's
00:30:10
great if you like what I'm doing please
00:30:13
share it with me it's such a great
00:30:14
feeling to read your feedback I'd love
00:30:17
to read your review or see a rating on
00:30:19
Apple podcasts or Spotify thank you okay
00:30:23
let's go into chapter 2 here some things
00:30:26
that I've changed my mind on in the
00:30:28
personal finance and investing space now
00:30:29
when I got started on the best interest
00:30:32
at that time I followed a bunch of
00:30:33
financial independent stuff on Reddit
00:30:35
and for what it's worth I mean I think
00:30:36
the financial Independence Movement is
00:30:38
wonderful I think so many great lessons
00:30:41
are taught there I still consider myself
00:30:43
part of it even though I don't talk
00:30:45
about it or write about it that much I
00:30:47
don't consider myself a fire blogger or
00:30:49
a fire podcaster but I still consider
00:30:51
myself part of the movement but you know
00:30:54
as I talked about earlier in this very
00:30:55
episode too many people in the fire
00:30:58
movement believe that 100% stock
00:30:59
portfolios are the right solution they
00:31:02
can be an okay solution if you're
00:31:04
building your wealth right if you're 22
00:31:06
now you want to retire at 40 and if
00:31:09
you're in 100% stock portfolio right now
00:31:11
I I I can be convinced of that totally
00:31:13
convinced that even that being said I
00:31:15
mean my retirement I still think is
00:31:17
going to be more than two decades away
00:31:19
I'm not 100% stocks right I have asset
00:31:21
class diversification bonds Alternatives
00:31:24
real estate I don't think you should be
00:31:26
going after the biggest possible pile of
00:31:29
gold and essentially that's what 100%
00:31:31
Stock Investing does it says I just want
00:31:33
the biggest possible pile of gold
00:31:35
instead you should think about having
00:31:37
the highest probability that you reach
00:31:39
your goals and what that can mean is
00:31:41
preventing situations where you fall off
00:31:43
the wagon because you got punched in the
00:31:45
face that's another you know we talked
00:31:47
about that earlier the stock market
00:31:48
drops by a significant amount and your
00:31:50
portfolio gets punched in the face and
00:31:51
you fall off the investing wagon because
00:31:53
you say this really sucks that's
00:31:55
something you want to avoid you also
00:31:57
just want to have more near-term
00:31:58
liquidity you want to have the ability
00:32:00
to rebalance so I've changed my mind
00:32:03
over the years on asset class
00:32:04
diversification I think it's a great
00:32:06
thing I invest that way myself number
00:32:09
two detailed budgeting now for a long
00:32:11
long time probably from before I started
00:32:14
the best interest so we'll call it like
00:32:18
2017 until about a year ago I was a very
00:32:21
very detailed budgeter I did my best I
00:32:25
was never perfect but I did my best to
00:32:27
literally track every single penny I
00:32:29
spent when I bought a pack of chewing
00:32:32
gum for 79 cents with cash I would make
00:32:35
a note of it in my app and say gum 79
00:32:38
cents cash so that at the end of the
00:32:40
month if I did my job right I could
00:32:43
reconcile and say my budget tells me I
00:32:46
should have $47 cash in my wallet right
00:32:49
now do I my budget tells me I should
00:32:51
have
00:32:52
$779 in checking right now do I I was
00:32:55
doing that and on the one hand it was
00:32:57
terrific because when it comes to
00:33:00
monthly cash flow I knew exactly where
00:33:02
my money was going all the time I could
00:33:05
plan and track money so well and it was
00:33:08
one of the big game changers in my
00:33:10
personal finance story but it was a bit
00:33:13
overdone and when I married Kelly
00:33:16
September of 2022 so it's been what 16
00:33:19
17 months now Kelly wasn't into
00:33:21
budgeting like that Kelly's got great
00:33:23
personal finance habits but she just
00:33:24
wasn't into budgeting like that so
00:33:26
instead what we did we finally kind of
00:33:28
sat down and really combined our
00:33:30
finances in a meaningful way this past
00:33:32
summer we have now started tracking our
00:33:34
net worth on a monthly basis we update
00:33:37
our account numbers into a spreadsheet
00:33:39
that we share like a Google spreadsheet
00:33:41
so we can see each other's bank account
00:33:43
numbers and and credit card debts and
00:33:45
investment account numbers y y yada but
00:33:48
from that alone I can go month over
00:33:50
month and I can see how our cash flow
00:33:52
has been over the past month and it
00:33:55
basically provides the same information
00:33:56
that my budgeting did before right I can
00:33:59
say well this month our total bank
00:34:01
accounts have
00:34:03
$40,000 and last month our total bank
00:34:05
accounts had
00:34:06
$38,000 so we were plus 2,000 for the
00:34:09
month in terms of cash flow great that's
00:34:12
that's about all you need or at the very
00:34:13
least that's where you need to start if
00:34:15
you start there and sometimes you
00:34:16
realize that you have a a
00:34:17
month-over-month trend that you're
00:34:19
losing cash that you're spending more
00:34:21
than you're earning okay in that case
00:34:23
you might have to break out the credit
00:34:24
card statements and try to understand
00:34:26
why are we overspending but you don't
00:34:28
need a highly detailed budget to do this
00:34:32
right and and that's something that I've
00:34:34
changed my mind on over time because
00:34:35
Kelly and I are now we're we're not
00:34:37
doing the highly detailed budgeting
00:34:38
anymore but we are still measuring our
00:34:40
money we're still tracking our money and
00:34:42
we're doing just fine we're just doing
00:34:44
it in a more coarse way as opposed to
00:34:46
the Fine way that I was doing it before
00:34:48
what I've changed my mind on number
00:34:50
three college now I went to college I
00:34:52
have two degrees from college and I
00:34:54
totally think it was the right move but
00:34:56
there was a time when I thought to
00:34:58
myself I'm sitting there at whatever age
00:35:00
21 or 22 or 23 and I'm thinking to
00:35:03
myself man sure I'm glad that I have a
00:35:05
good GPA because For the Rest of time my
00:35:08
employers are going to look at that as a
00:35:10
positive thing and the simple truth is
00:35:12
that's not true GPA is a signal it's a
00:35:15
useful signal it's a signal that says
00:35:17
this person has a good combination of
00:35:20
being smart and working hard right if
00:35:23
you come out of college with a 39 GPA
00:35:26
employers are going to look at you and
00:35:27
say great this person is smart and they
00:35:28
worked hard and that's a good signal a
00:35:31
positive signal that gives them
00:35:33
confidence when they hire you but then
00:35:35
once they hire you well now you have to
00:35:37
be smart and work hard at your job and
00:35:40
if six months down the line you're not
00:35:41
smart and not working hard at your job
00:35:44
and they think about firing you you're
00:35:46
not going to be able to go to them and
00:35:47
say but I have a 3.9 GPA they don't care
00:35:50
right the real world doesn't really care
00:35:52
about the number what they care about is
00:35:54
if you're smart and if you work hard
00:35:56
there's a great video that I found of a
00:35:58
gentleman who talks about the 11
00:36:00
Essentials of client service and one of
00:36:02
them is your clients don't care if
00:36:04
you're good-looking your clients don't
00:36:06
care if you're a scratch golfer they
00:36:09
don't care if you're a member of the the
00:36:10
exclusive Club what they really care
00:36:13
about is this person smart and are they
00:36:15
going to work hard for me are they going
00:36:17
to apply the smart thinking and their
00:36:19
hard work ethic to benefit my situation
00:36:22
so that's what I think about at work and
00:36:23
it's it's served me well so far when it
00:36:25
comes to my clients I don't I'm I'm at
00:36:27
am I the smoothest talker I don't know I
00:36:30
don't know I try to be a helpful person
00:36:32
I try to be a good teacher and more than
00:36:34
anything else I just try to be smart and
00:36:37
I try to work hard to benefit their
00:36:38
situation that's what the world that's
00:36:40
what the real world wants so college gpa
00:36:44
it's not all it's cracked up to be what
00:36:46
is really important is being able to
00:36:48
prove to the real world that you're
00:36:49
smart and that you're GNA you're going
00:36:51
to work hard all right number four
00:36:53
something I've changed my mind on
00:36:55
advisers okay we're going to dive into
00:36:57
this because this is a juicy one when I
00:36:59
peruse the world of LinkedIn and I see
00:37:02
coaches I see agencies I see stuff like
00:37:05
that executive coaches and I'm an agent
00:37:08
I'm not sure what I'm an agent of but
00:37:09
I'm running an agency what I found is
00:37:12
that there's such a wide spectrum of
00:37:14
coaches and agencies out there and it's
00:37:17
really hard to discern at times the
00:37:20
difference between someone who's been a
00:37:22
quote unquote coach maybe like a career
00:37:24
coach or or an executive coach and
00:37:26
they've got a 35 year career and they've
00:37:29
got actual experience as a CEO they have
00:37:31
actual experience as a teacher maybe in
00:37:33
their prior life and so they have these
00:37:35
bonafides that make them an amazing
00:37:37
coach and they've had amazing clients
00:37:39
and their amazing clients have been
00:37:41
really happy with them and you say wow
00:37:43
that is a coach and that coach is great
00:37:46
but then you also might have a quote
00:37:47
unquote executive coach or a life coach
00:37:49
or something like that and it's some
00:37:51
29-year-old dude who just got fired from
00:37:54
his temp job at the accounting firm and
00:37:57
he doesn't know what else to do so he's
00:37:59
going to become a life coach because
00:38:00
he's he can talk the talk and maybe
00:38:02
convince a few poor Schmucks to pay him
00:38:04
money and you realize I mean they have
00:38:06
the same title life coach executive
00:38:08
coach the vast Valley the canyon between
00:38:12
these two people is huge the spectrum is
00:38:16
wide and advisers are similar there's an
00:38:19
extremely wide spectrum when it comes to
00:38:21
financial advisers financial planners
00:38:23
wealth planners money coaches so many
00:38:26
titles for us ostensibly the same thing
00:38:29
on one end of the spectrum you have
00:38:31
experienced intelligent professionals
00:38:33
offering deep knowledge deep expertise
00:38:36
for fair prices and on the other hand
00:38:39
you have unn knowledgeable hacks with
00:38:41
two weeks of shady corporate training
00:38:44
Shilling some sort of overpriced product
00:38:46
to anyone with a pulse both these people
00:38:49
can and often are called financial
00:38:52
advisers and it's really hard for the
00:38:54
average person to look at that and say
00:38:56
well to me they're are they both crooks
00:38:58
are they both good I don't know and one
00:39:01
problem is that the negative end of the
00:39:03
spectrum because they are so negative
00:39:05
often times and often do Cloud the
00:39:08
positive end of the spectrum and casts a
00:39:10
bit of a shadow over the whole industry
00:39:12
so I wrote an article last year we'll
00:39:14
throw it in the show notes it's the 12
00:39:15
questions you should ask your financial
00:39:17
adviser and the whole reason why is it's
00:39:20
to help you fend for yourself and try to
00:39:22
sit through the many different advisers
00:39:24
out there there are some fantastic
00:39:27
questions that you can and should ask
00:39:29
the adviser you're already working with
00:39:30
or potentially the adviser that you're
00:39:32
thinking about working with to help you
00:39:34
better understand who is this person
00:39:37
what end of the spectrum do they lie on
00:39:39
I there was a time when I was just
00:39:41
starting out and again very involved in
00:39:43
the fire movement and I said all
00:39:45
financial advisers are bad but then I
00:39:47
met many financial advisers through the
00:39:49
best interest and I realized yes some of
00:39:52
them are bad some of them are extremely
00:39:54
helpful and some of them provide a
00:39:57
service and a level of expertise to
00:39:59
their clients at a reasonable price that
00:40:01
their clients would be completely lost
00:40:03
without them a Ethel who has no idea
00:40:06
what she's doing and it just makes her
00:40:08
nervous to log on to Fidelity in the
00:40:10
first place she wants help she needs
00:40:12
help and she needs someone to do it in a
00:40:14
fair reasonable way at a fair price
00:40:16
there are good advisers there are bad
00:40:18
advisers I think that we all owe
00:40:20
ourselves not everybody needs an advisor
00:40:23
that's really important to understand
00:40:24
right if I had change careers if I'm not
00:40:26
working here at well management firm I
00:40:28
mean I was a DIY investor and I loved
00:40:31
this stuff enough I was a nerd for this
00:40:33
tax stuff and some of these planning
00:40:35
topics that I was also a DIY planner I
00:40:37
mean I did my own financial plan I did
00:40:39
my own investment allocation I didn't
00:40:42
need to hire someone but the reason why
00:40:44
it's because I I spent a lot of time
00:40:46
learning this stuff and a lot of you
00:40:48
listening the reason why you're here I
00:40:50
get it like you're diyers I'm helping
00:40:52
you learn a little bit more some of you
00:40:53
are helping me learn it's awesome and
00:40:56
you might not need advice too and and I
00:40:58
think that's really important to
00:40:59
understand but there are some people out
00:41:01
there who greatly benefit from the help
00:41:04
of advisers and something I've changed
00:41:05
my mind about over recent years there
00:41:07
are different fee models as you guys
00:41:08
know some fee models are right for some
00:41:11
people I think if you're a if you're an
00:41:13
Uber DIY person and you need someone to
00:41:15
double check your numbers right you
00:41:16
should probably hire like an hourly or a
00:41:18
Project based adviser if you're someone
00:41:20
whose life is pretty complicated you
00:41:21
want to offload everything in your life
00:41:23
to someone else in that case the hourly
00:41:26
adviser I mean they'll tell they they
00:41:27
don't really want to be completely
00:41:29
offloaded on to you still want to make
00:41:30
sure they're a fee only fiduciary but
00:41:32
you might need a an a adviser in that
00:41:34
case so anyway Different Strokes for
00:41:37
different folks the last thing I've
00:41:39
changed my mind on I'm sure it's not
00:41:40
really the last thing it's just the last
00:41:42
thing on my list is the concept of
00:41:44
paying yourself first everybody calm
00:41:46
down yes you should definitely pay
00:41:49
yourself first I'm not saying that the
00:41:51
idea is wrong but I do think you should
00:41:53
only pay yourself so much for a while I
00:41:56
paid myself first so much that the rest
00:41:59
of my life became a financial burden and
00:42:02
so depending on your income I do
00:42:04
recommend that you get your full 401K
00:42:06
match first you should pay yourself
00:42:08
first there and ideally if you can
00:42:10
afford to you should max out your Roth
00:42:12
IRA first you should pay yourself first
00:42:14
there or you know if you need a backdoor
00:42:16
Roth IRA execute that but then after
00:42:19
those two things I think you should live
00:42:20
your life a little bit you should use
00:42:22
some of your money to do fun things you
00:42:24
should prioritize living life right now
00:42:27
and then after you do a little bit of
00:42:29
living life right now then you can pay
00:42:31
yourself more after that and then you
00:42:33
can start to go back and forth allocate
00:42:34
some dollars to the present moment to
00:42:37
near-term fund savings then allocate
00:42:40
some dollars to the long-term you know
00:42:43
retirement style savings back and forth
00:42:44
back and forth you should pay yourself
00:42:46
first you just want to make sure that
00:42:48
you're also able to live a fun life
00:42:50
right now and I suppose I should also
00:42:52
talk about some things that I still
00:42:54
think are essential to True wealth some
00:42:57
things I haven't changed my opinion on I
00:42:59
promise you this one will be short but
00:43:01
this will be very beneficial I've got
00:43:03
six thoughts here and I think each and
00:43:05
every one of you should probably be
00:43:06
applying these six thoughts into your
00:43:08
financial life the first one
00:43:11
understanding your monthly cash flow is
00:43:13
the basic personal finance building
00:43:15
block from which all other success flows
00:43:19
if you don't know your cash flow you are
00:43:21
lost I highly recommend each and every
00:43:24
one of you understands what your monthly
00:43:26
cash flow that is the money coming in
00:43:28
and the money going out of your life
00:43:30
what your monthly cash flow looks like
00:43:32
number two wealth is what you don't see
00:43:35
true wealth is the sports car
00:43:37
unpurchased the boring meals at home you
00:43:40
know it's that kind of stuff I recently
00:43:41
saw a young guy this is true story he's
00:43:43
Pro I'm guessing he was 25 he was
00:43:45
driving a $150,000 car a $150,000 car
00:43:49
and I honestly thought to myself said
00:43:51
well like 2% of me thinks good for you
00:43:54
and the other 98% feels really bad for
00:43:57
you now I don't know the guy right so
00:44:00
maybe he's in a financial position where
00:44:02
the car fits in perfectly for his
00:44:03
long-term plans that's the 2% but for
00:44:06
98% of the population of 25y old men
00:44:09
that car is a terrible financial
00:44:12
decision and is the exact opposite of
00:44:14
true wealth so wealth is what you don't
00:44:17
see number three automate automate as
00:44:20
much of your finances as you can if you
00:44:23
don't automate I would bet against your
00:44:26
long-term success I know some people are
00:44:28
successful without automating but if
00:44:30
you're not automating I would not bet
00:44:33
for you I would bet against you I think
00:44:36
you need to automate as much as you can
00:44:38
in your financial life number four
00:44:40
diversify you should diversify between
00:44:42
asset classes you know stocks bonds real
00:44:44
estate Etc and within asset classes
00:44:47
meaning large stocks small stocks US
00:44:49
Stocks International stocks
00:44:51
diversification is the only free lunch
00:44:53
now there's one exception to this rule
00:44:55
if your personal goal is to die at top
00:44:58
the biggest pile of money possible you
00:45:00
should not diversify you should
00:45:02
concentrate into a few positions as few
00:45:05
positions as possible actually and then
00:45:07
you could pray but if your goal is to
00:45:09
live your current lifestyle comfortably
00:45:12
to retire securely to sit back and relax
00:45:16
and let your portfolio do your thing you
00:45:18
should diversify number five Buy and
00:45:20
Hold investing is a long-term game and
00:45:23
your portfolio is like a bar of soap the
00:45:25
more you touch it the quicker it
00:45:26
disappears
00:45:27
and number six hanging around people who
00:45:29
have mastered their finances is a life
00:45:31
hack just watch what they do and take
00:45:34
inspiration from it so that's what I
00:45:36
like to do that's why I read and listen
00:45:37
to so many podcasts that's why I like
00:45:39
talking to not only my colleagues here
00:45:41
at work I like talking to other advisers
00:45:43
who I respect in the community because I
00:45:45
think hanging around people who have
00:45:46
done well in their finances is a great
00:45:48
way to learn and I hope that you guys
00:45:50
continue to hang out here and take a
00:45:52
little bit of wisdom from me because I'm
00:45:54
I'm happy to share it I enjoy sharing it
00:45:56
maybe you can take a little bit of
00:45:57
inspiration from it what do they say
00:45:58
what do I say a rising tide lifts All
00:46:02
Ships all right guys that's all I've got
00:46:04
today as always thank you for tuning in
00:46:06
to the best interest podcast you know
00:46:08
how to reach me Jesse bestin interest.
00:46:11
blog some useful stuff in the show notes
00:46:13
that we talked about today and until
00:46:15
next time over and
00:46:17
out thanks for tuning in to this episode
00:46:20
of the best interest podcast if you have
00:46:22
a question for Jesse to answer on a
00:46:23
future episode send him an email at
00:46:26
Jesse bestin interest. blog again that's
00:46:29
Jesse at bestter interest. blog did you
00:46:33
enjoy the show subscribe rate and review
00:46:35
the podcast wherever you listen this
00:46:37
helps others find the show and invest in
00:46:40
knowledge themselves and we really
00:46:42
appreciate it we'll catch you on the
00:46:43
next episode of the best interest
00:46:46
[Music]
00:46:48
podcast the best interest podcast is a
00:46:51
personal podcast meant for education and
00:46:53
entertainment it should not be taken as
00:46:56
Financial advice and is not prescriptive
00:46:58
of your financial situation