How “Regular” People Can Achieve FIRE (Early Retirement) by 40!

Summary

Podcast Summary: BiggerPockets Money Podcast - "How 'Regular' People Can Achieve FIRE (Early Retirement) by 40!"

Introduction

In the August 1, 2025 episode of the BiggerPockets Money Podcast, hosts Mindy Jensen and Scott Trench welcome Cody Garrett, a musician-turned-financial planner, to discuss his journey toward achieving Financial Independence, Retire Early (FIRE) by the age of 40. The episode delves into Cody's strategies, mindset shifts, and practical steps that have propelled him closer to early retirement, offering valuable insights for listeners aspiring to secure their financial future.

Guest Background: Cody Garrett's Journey

Cody Garrett has been an active member of the FIRE community for seven years and is now just four years away from achieving his FIRE goals. Transitioning from a professional musician to a financial planner, Cody brings a unique perspective to wealth-building and financial independence.

Transition from Musician to Financial Planner

Cody’s career shift from music to financial planning was not merely a pursuit of higher income but a deliberate effort to design a life that allowed him to prioritize personal time and maintain a desired lifestyle. Reflecting on his transition, Cody shares:

“The number one catalyst was how can I create a life where I get to eat dinner with my wife every day.”
—Cody Garrett [04:52]

He navigated this career change by investing heavily in education, enrolling in the Certified Financial Planner (CFP) program, and immersing himself in personal finance podcasts to accelerate his learning.

Strategies for Achieving FIRE

Cody outlines several key strategies that have aided his progress toward FIRE:

1. Education and Knowledge:

   • Prioritizing financial education through formal training and continuous learning via podcasts and community engagement.
   • Accelerating his experience by immersing himself in financial planning resources and networking within the FIRE community.

2. Avoiding Lifestyle Creep:

   • Notable Quote:

     “We are avoiding unintentional lifestyle creep.”
     —Cody Garrett [07:23]

   • Implementing an intentional spending strategy to maintain financial discipline, such as limiting dining out to once a week and opting for affordable meal options.

3. Investment Strategies:

   • Focusing on broad, diversified, low-cost index funds.
   • Notable Quote:

     “We're still investing in low-cost index funds only, earning quote unquote like ten percent annualized.”
     —Cody Garrett [32:18]

   • Building a substantial taxable brokerage account to maintain liquidity and flexibility, essential for entrepreneurial ventures and unexpected expenses.

4. Entrepreneurship:

   • Launching and owning multiple businesses to drive additional income and financial growth.
   • Notable Insight: Cody emphasizes the importance of building businesses that offer long-term growth rather than short-term gains, providing stability and financial independence.

Mindset Shifts and Core Values

Cody emphasizes aligning financial goals with personal values, notably transparency and generosity. He redefines FIRE as "Financial Independence Recreational Employment," focusing on the freedom to engage in meaningful and enjoyable activities without the constraints of traditional employment.

“Financial independence recreational employment… gives me permission to do more things without expecting anything in return.”
—Cody Garrett [19:04]

Portfolio Theory and Investment Allocation

Cody shares his investment philosophy, which centers around simplicity and global diversification:

• Current Allocation: Primarily invested in worldwide diversified equity index funds (e.g., VTI and VXUS), maintaining a 100% equity portfolio given his short timeline until FIRE.

“If I were four years in the future at one point two five million fire number, I would still be one hundred percent equity.”
—Cody Garrett [35:27]

• Fixed Income Strategy: Allocates funds intended for spending within seven years to fixed income assets, such as total bond index ETFs and bond ladder ETFs, to ensure liquidity and reduce risk for near-term needs.
• Asset Location: Strategically places international equities in tax-deferred accounts and U.S. equities in taxable accounts to optimize tax efficiency.

Redefining FIRE

Cody introduces a personal twist to the FIRE concept by focusing on recreational employment rather than traditional retirement. This approach emphasizes continued engagement in work or entrepreneurial activities that are fulfilling and align with his values, rather than complete cessation of professional endeavors.

“Financial Independence Recreational Employment… allows me to help others without expecting something in return.”
—Cody Garrett [19:04]

Advice on Financial Planning Services

Cody provides practical advice for listeners seeking financial planning services:

1. Types of Services:

   • Hourly Basis: Paying for advice as needed.
   • Project-Based: Engaging in comprehensive financial planning over a set period.
   • Ongoing Support: Monthly or continuous accountability and planning.

2. Cost Expectations:

   • Comprehensive financial planning can range from $2,500 to $5,000 for a full engagement.
   • Hourly consultations typically cost between $250 to $450 per hour, depending on expertise.

3. Choosing a CFP:

   • Identify the specific financial services you require and select a planner who aligns with those needs without unnecessary add-ons.

Conclusion

Cody Garrett’s journey from a professional musician to a sought-after financial planner exemplifies the practical steps and mindset shifts necessary to achieve FIRE by 40. His emphasis on education, disciplined spending, strategic investing, and entrepreneurship provides a comprehensive roadmap for listeners aiming to attain financial independence early. By redefining FIRE to include recreational employment, Cody underscores the importance of aligning financial goals with personal fulfillment and flexibility.

Final Thoughts from the Hosts

Mindy and Scott commend Cody for his passionate approach to personal finance and his dedication to helping others achieve their financial goals. They highlight the importance of aligning career choices with financial aspirations and express excitement for Cody’s upcoming ventures, including his educational content and forthcoming book on tax planning for early retirement.

“I love your redefinition of FIRE because recreational employment… has the flexibility to do what you love.”
—Mindy Jensen [19:30]

Notable Quotes

• Cody Garrett [04:52]:
  “The number one catalyst was how can I create a life where I get to eat dinner with my wife every day.”

• Cody Garrett [07:23]:
  “We are avoiding unintentional lifestyle creep.”

• Cody Garrett [19:04]:
  “Financial independence recreational employment… allows me to help others without expecting something in return.”

• Cody Garrett [35:27]:
  “If I were four years in the future at one point two five million fire number, I would still be one hundred percent equity.”

• Cody Garrett [32:18]:
  “We're still investing in low-cost index funds only, earning quote unquote like ten percent annualized.”

This episode serves as an inspiring guide for individuals seeking to align their careers and financial strategies to achieve early retirement, offering actionable insights and a fresh perspective on what it means to be financially independent.

Transcript

[Mindy Jensen]

Today'S guest discovered the fire movement seven years ago and has been methodically building towards financial independence and is now just four years away cody is going to break down the strategies mindset shifts and practical steps that have kept him on track towards early retirement hello hello hello and welcome to the biggerpockets money podcast my name is mindy jensen and with me as always is my advice only co host scott trench thanks manny great.

[Scott Trench]

To be here dispensing free only financial advice for entertainment purposes only of course we are so excited to be joined by cody garrett today you may recognize his name because he is very active in our bigger pockets money facebook group community he is a frequent guest on choose fi and in the choose fi facebook group he's a musician turned financial planner at measure twice financial and we're going to hear his fi story today and then end our conversation talking about portfolio theory which you'll definitely want to stick around for cody welcome to biggerpockets.

[Cody Garrett]

Money thanks thank you thank you so glad to be here it's always fun talking with my fellow nerds in the fi community so mindy and scott you might not know this but you are one of the first podcasts i ever listened to in this space as a professional musician it was you it was joshua sheets from radical personal finance choose fi you mad fientist you are in the core you were in the core four back in twenty eighteen when i first started listening to podcasts at two times speed well thank you for listening.

[Scott Trench]

And thank you for making it come full circle and coming on the show.

[Mindy Jensen]

Today in terms of musician turned financial planner that's like left brain and right brain sort of thing so are you.

[Cody Garrett]

Like whole brained yes i call it left brain creative which means i'm an analytical data oriented person but i'm always working in creative fields right which have variants and like you know which adds the fun right so it's not just the black and white spreadsheets but like how can we add i literally have a trademark keep finance personal even now it's a financial planner where it's all about hey how can i take all this cool quantitative stuff but actually like put in the qualitative side so i love being a left brain creative what and a lot of people say oh moving from music to money that must have been that must have been very difficult but it was actually something that i felt like a natural transition for.

[Mindy Jensen]

Me and what kind of musician were.

[Cody Garrett]

You the one who tried to get paid no it was the one who actually charged money i was a professional musician from two thousand eight to twenty eighteen so give an example of like a date you know like a week week in the life of cody back in let's say you know before i became a financial planner i was a full time contemporary music director at a church like in one month i was working full time as a music director at a church i played thirty one broadway shows in one month on stage with full wig and all that crazy stuff i also did wedding gigs music camps being a church director also a contract arranger so i worked for motown gospel back in the day so i love anything with a good bass line and a beat i'm down to write music for so i mean as you know as a musician you you usually can't just do one thing and be financially secure so you know wearing multiple hats i effectively did everything but one on one teaching so you know you usually have your performers and your teachers i was a performer arranger a music director i would wear whatever hat was necessary to play the gig when you.

[Scott Trench]

Performed what what instrument did you play.

[Cody Garrett]

Oh i played keyboards so keyboards and by the way some people ask what's the difference between a keyboard and a piano so a piano you play sitting down and a keyboard you play standing up so i play keyboard and what.

[Mindy Jensen]

Kind of salary were you making what kind of annual income were we seeing as this musician who is getting paid because i have a lot of musician friends who don't have the same resume.

[Cody Garrett]

You know down in the south down here in texas the most stable form of income for a musician is being a church musician so as a music director keyboardist i was making about forty thousand dollars as a w two employee at a church and then i made about twenty to twenty five thousand per year and ten ninety nine gigs the wedding gigs the broadway performances all that kind of stuff you know kind of that on call and along the way i actually it's funny i pulled up i'm a nerd here i pulled up all of my tax forms i went to the irs website and pulled up all my old tax forms from like twenty sixteen twenty seventeen and saw that effectively i made about sixty thousand dollars as a musician i got married in twenty fifteen my wife has always been a stay at home spouse you know kind of i guess another way to say that is she's never worked outside the home but but she works a lot inside the home so we've we've been in that like sixty to eighty thousand dollars range before i became a.

[Mindy Jensen]

Financial planner okay so not destitute but not rolling in it either what was your financial position when you made the switch from musician to financial planner so.

[Cody Garrett]

Back in twenty eighteen so i was a professional musician wednesday night and a financial planner thursday morning i can see here looking back there it's funny you know we talked about the income there my four hundred and three balance for the church was five thousand dollars i started my first roth ira at five thousand five hundred and that was my only source of investments outside of about ten or twenty thousand in a savings account back in twenty eighteen i didn't know what an ira was or anything like that at that point so what.

[Scott Trench]

Prompted the switch to much more aggressively pursuing wealth creation what was that trigger.

[Cody Garrett]

Point the biggest catalyst for me from going from music to money actually wasn't to make more money it was actually i was working eight to five five to eight and eight to twelve almost every day and the number one catalyst was how can i create a life where i get to eat dinner with my wife every day that was like the simplest way of saying it is how can i design a life where we can maintain our desired lifestyle which by the way like was only spending you know about four four thousand to five thousand a month at that point how can we maintain that lifestyle but still be able to eat dinner with my wife every day you know that was kind of the seed that grew into like okay maybe i go into the direction that i naturally enjoy which is personal finance and after listening to your podcast and others awesome so what.

[Scott Trench]

Changed about your situation from that point how did you begin shifting towards this.

[Cody Garrett]

Present lifestyle so the big levers for me was prioritizing education again i already had a degree in music but that wasn't necessarily gonna help me moving into personal finance so i went into the cfp education program which is kind of like drinking out of a fire hose right in terms of education it's like just go super deep super fast so prioritizing education accelerating my experience so as you can imagine in twenty eighteen you know i was about thirty years old at this point i felt like i was ten years behind i had a ten year career in music and now i feel like oh wow like i'm quote unquote competing in this world of personal finance with people who've been doing it since they graduated ten years ago so rather than getting you know ten years of experience in ten years i felt like i had to get ten years of experience in like one to two years with the education and also developing expanding my network and really talking to a lot of people every time i drove even to my church job i listened to podcasts at two times speed on the way there and back so i was probably listening to you know at least two to three hours of podcast a day during my breaks during my lunch hour you mentioned the different ways to grow you know grow your wealth mine was definitely like the create right so like i started creating really early on with like a go giver approach you know kind of trying to give to others without expecting something in return which as you know kind of like comes back to you a big part of it was avoiding unintentional lifestyle creepy so most of the things that my wife and i enjoy thankfully are free or low cost so you know even if we eat out we eat out once a week that's kind of like a rule for ourselves we eat out once a week and since being married about ten years ago now i think we've only eaten out for over dollar thirty maybe like a handful of times so when we do eat out it's typically like the dollar twenty to dollar thirty meal the last one was simplifying and automating index fund investing and then a big part is paying myself like an employee regardless of my income sources i paid myself a base salary from my you know from my taxable brokerage to my checking account each month regardless of how much i was making from my various jobs i love.

[Mindy Jensen]

A phrase you said we are avoiding unintentional lifestyle creep this is where i am starting to embrace intentional lifestyle creep but i'm struggling with like what's the difference between lifestyle inflation and intentional lifestyle inflation and i think it was that word intentional that you just used i love that so so much and you said paying yourself like an employee if you have a company if you're self employed you should be making money and if you're not making money why are you doing it so one thing i.

[Cody Garrett]

Want to mention about the lifestyle creep one question i ask people when i first you know learn about them and their money is i ask do you earn more than you spend or do you spend less than you earn you know both of those assume that you're spending less than you earn but one of them is out earning your spending and the other is underspending you're earning the intentional part is that i'm intentionally spending less than i make rather than just trying to over earn what i'm spending so that's where the intention really.

[Mindy Jensen]

Comes in curious to hear how cody is investing to achieve fi in four years we'll be breaking down his portfolio allocations right after this for our last.

[D]

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[Cody Garrett]

Is back you brought it back ranch snack wrap spicy snack wrap you broke the internet for a snack snack wrap.

[Scott Trench]

Is back.

[Cody Garrett]

Close your eyes exhale feel your body relax and let go of.

[Mindy Jensen]

Whatever you're carrying today well i'm letting go of the worry that i wouldn't get my new contacts in time for this class i got them delivered free from one eight hundred contacts oh my.

[Cody Garrett]

Gosh they're so fast and breathe oh.

[Mindy Jensen]

Sorry i almost couldn't breathe when i saw the discount they gave me on my first order oh sorry namaste visit one eight hundred contacts com today to save on your first order one eight.

[Cody Garrett]

Hundred contacts.

[Scott Trench]

All right on that note let's jump in with cody what i thought was awesome about what you said you know a few moments ago is you listed like five or six different very powerful frameworks and then and then you know it's very clear we can go into the specifics in each one of those kind of think through them and that's what i think perhaps those podcasts or that self education component did for you even more perhaps than the cfp training i would imagine is these frameworks which is clear to me you have a very crystallized philosophy around wealth building and what good looks like for you for money so first did i get that right and then second could i go into a couple of the frameworks if so by the way you.

[Cody Garrett]

Might be wondering hey did cody learn all this in the cfp curriculum i would say that the cfp education program is primarily created to serve people who are retiring just right at sixty five they're claiming social security they're getting onto medicare yeah all of those big levers that i pulled those seven big levers were all things i learned from the fi community i didn't learn that through my academic education let's start with the.

[Scott Trench]

First one you listed which is probably out of order here but you said you created without any intention of necessarily understanding how that would come back what does that mean specifically in your case.

[Cody Garrett]

Yeah so in my case it's this term when you teach you learn twice kind of tagging along with that idea of accelerating your experience anytime i learned something about personal finance whether qualitative or quantitative i'd say who can i teach this to and as you know teaching others like as you do on the podcast every day you know helping you know millions of future millionaires when you teach not only are you serving and helping others but you also tighten your own knowledge along the way so if you can teach something that means you truly understand it at the very beginning even just going into the cfp education program i surrounded myself with people they weren't even necessarily interested but they at least allowed me to teach me what i was learning so my wife for example she is not the spreadsheet spouse in our family but she understood how valuable it was to me to be able to teach her what i was learning to tighten my own knowledge she'd sit back and let me teach her a concept about let's say oh backdoor roth ira this thing's so cool and these are the types of things that i kind of get excited about she's not necessarily excited about it but she knows it's valuable to allow me to teach that to her because she knows hey cody's learning twice again i'm learning at two x speed not just listening at two x speed when i surround myself with others that i can educate through a blog or a podcast or even my wife in the living room after my long day at work framework.

[Scott Trench]

Eight is patient spouse i'm very lucky.

[Mindy Jensen]

In that way as well same same.

[Scott Trench]

Okay great walk us through you know on the income side what did this change from being a full time musician look like from an income perspective to the financial planning world were you able to retain any of the i guess bonus income from some of the extracurriculars that were driving income as a musician and and did that help you realize this goal of dinner with your family.

[Cody Garrett]

Yeah so thankfully it wasn't too big of a change i did have w two income i wasn't just a gig musician so i have some w two so i was used to that i became a financial planner in september of twenty eighteen and i played my last professional paid music gig in september of twenty nineteen so i kind of allowed myself to not have this like really hard cold turkey like i'm no longer a musician now i'm a financial planner i had kind of like a year of transition that really helped me kind of go through that you know financially and emotionally one of the hardest things for me is as a new financial planner i had somebody tell me hey well now that you're no longer a musician and i was like ooh that hurts it's like telling like a marine that they're no longer a marine right so you know going from music to money like i very much had my identity as a musician so it actually took a year for me to like gently transition into saying hey like i'm still a musician but that doesn't mean it has to like be my identity and i can only surround myself with other people like that when you're a career changer you're going to realize kind of that a lot of the people that you thought were your friends were really just your professional colleagues so i went from having you know five hundred musicians on my phone to a year later like really talking to maybe like one or two of them part of that's not being really intentional about developing you know keeping that network strong but i also realized in a good way that a lot of times like who you surround yourself with like that's going to change as your life transitions whether career moving into retirement as well yeah.

[Scott Trench]

I feel like that's true in a lot of different fields right sports jobs as life progresses the few best people a few closest people stick with you but that community is surprisingly malleable thankfully.

[Cody Garrett]

The fi community is like one of those that potentially could be with you you know through the end of life it's like the you know playing golf you can play golf forever so cody.

[Mindy Jensen]

What was your income transition you were making around sixty sixty five as a musician what what does a cfp make.

[Cody Garrett]

So yeah cfp is definitely all over the place because you know cfp is just a designation so there's some who only work in the you know commission insurance space some don't do financial planning at all even though it's in their you know in their designation name i would say on average you should expect to make within your first three years as an employee kind of in that like fifty to one hundred thousand dollars range once you become a cfp professional start becoming a lead advisor lead lead financial planner i think you're in like again i'm just kind of ballparking here one hundred one hundred fifty thousand the accelerant or compounding really comes in terms of either staying as an employee but being in the more in like production like a whim like building up you know really gathering assets is kind of maybe a colloquial way of saying that or you become an entrepreneur which i felt a lot more comfortable being really a financial planner rather than trying to get people to roll over their four hundred one ks maybe we can talk about that in a future conversation is you know the different models out there and which might be best for different phases of life at this point i own three businesses but my financial planning business the first year i i launched it made around like one hundred twenty five one hundred fifty thousand by this point i'm at two hundred and fifty to three hundred gross income like kind of take home net pay is one hundred forty thousand a year so my net pay really went from like forty to sixty now to you know one hundred forty but we're still in that way we're still spending about sixty five thousand a year in terms of personal.

[Mindy Jensen]

Expenses so where's all that extra money.

[Cody Garrett]

Going my funny kind of ballpark goal is to at least save one hundred thousand a year and to long term investments so for us that's just we don't have any rental real estate it's really just putting money into really broad diversified low cost index funds yeah so looking back january twenty twenty which was kind of when i got my roots in as a new financial planner and now it's july twenty twenty five now as an entrepreneur my total investments which by the way is all low cost passive index funds went from about seventy seven thousand to four hundred eighty six thousand in about five and a half years annualized money weighted rate of return is like a twenty five twenty six percent annualized return which scott as you mentioned on your podcast many times and mindy as well that creation is one of those things like if you want to go beyond kind of like the eight to ten percent annualized return you've got to do something like create right or you know develop your income somewhere else so you know rental real estate leverage other things so really entrepreneurship launching three different businesses was the way most of that compounding wasn't really from the investments right the first ten years of investing is really going to come from your income and your ability to save and invest and certainly i'm going to i'm definitely going to hopefully continue writing that compounding in decades moving forward but we feel really good at this place kind of coast fi like we could we could kind of start we could stop invest saving and investing and still retire at the typical you know fifty five sixty five but we really want to push back that fi date to around forty to forty five you've mentioned.

[Scott Trench]

This you started three businesses now a couple of times and i'm missing two of them we have the financial planning business what are the other two businesses.

[Cody Garrett]

That you started the other two businesses are measure twice money which is actually a consumer facing business that's teaching you know non advisors how to become effectively become their own financial planner you learn how to create their own financial plan that's a you know i have a video course a five hour video course on how to create your own financial plan as a family without having to hire anybody i'm no longer accepting new clients as a financial advisor so anybody here looking for an advisor it won't be me i'm also writing a book with sean mulaney right now on tax planning to and through early retirement that's definitely on the consumer side you know the measure twice money side i also have a measure twice planners which is a community of about five hundred financial advisors who really want to go deeper in their financial planning experience and education what i wish i had in twenty eighteen i'm building that now to help really give new and aspiring financial planners that clarity and confidence the ones who feel behind like i did back in the day so i've created a video course and actually over one hundred hours of on demand educational content so that people can feel that really being able to ten x their their accelerated experience in those first few years what is your fire number i'm one of those who actually consider social security in my fire number because i like to be more realistic so my fire number right now i'd say is about one point two five million i expect to be there by forty which is about four or five years from now expecting kind of like a six to eight percent annualized inflation adjusted return so i've got again i've got all my own calculators for this stuff but i'm looking about like one point two five i actually created this little meme of drake which is kind of i redefine fire for myself instead of financial independence retire early it's going to be financial independence recreational employment like even when we reach our fi number that fi number just gives me permission to do more things without expecting anything in return so like my core values are transparency and generosity and the closer i get to fire you know my version of fi the more i can give to others without expecting something in return which is like again i love the feeling of helping people and and as i've as i've realized like the more that you help people like first of all you're aligning with your core values but it also accelerates your upside even financially which is kind of the irony of all this stuff is i'll probably be financially independent and still be able to save you know a hundred thousand dollars a year at.

[Mindy Jensen]

That point but i like your redefinition of fire because recreational employment i think there's a lot of people who think that it would be really great to be retired but in fact just don't like their current job i hear from a lot of people as i'm sure you do oh well i would never want to do that because i don't i like to work okay great have you ever gotten new boss at that job that you used to like to work at and then all of a sudden you're like maybe that fire thing sounds great so i love this recreational.

[Cody Garrett]

Employment i've started about one hundred fifty households to and through early retirement at this point you know you see the books with like the hammock on the beach everybody has i mean even marketing in the financial advisor spaces like you know like two you know like a married couple walking down the beach you do that for like a few hours you're like okay now i gotta do something with my life right so again it's okay if you're gonna sit in a hammock lay in a hammock for forty years but most people who retire early they still want to use those skills their network and i guess the biggest part is they still want to help others but they want to help others in their own capacity and their own again with their own command over their their time energy and their financial.

[Scott Trench]

Resources all right when we're back from this final break we're going to talk all about cody's hot takes on fi portfolios and how you could simplify yours.

[Mindy Jensen]

We'Re dropping our daughter off at college for the first time and we'll be there a couple of days before she moves in we chose to stay in an airbnb over a hotel because we really want the flexibility that an actual home offer we love having a kitchen available to cook in not just that tiny refrigerator we also really like that everyone has their own bedroom you know that got me to thinking about hosting our own home on airbnb the next time we're away so someone else could feel the same in our home and now it's easier than ever with airbnb because with their awesome new co host network you can hire a local co host to help you take care of your guest they do the work for you and you could earn a little extra money co hosts can create your listing manage reservations provide on site support and message guests it definitely could be a great opportunity for you find a co host at airbnb dot com host ever feel like managing your business finances is a full time job on top of your actual full time job well you can find some of that lost time with found found is a business banking platform that helps you effortlessly track expenses manage invoices and prepare for taxes you can even set aside money for different business goals and control spending with different virtual cards i've saved so much money because found helps me identify tax write offs and i've saved so much time that i can now devote to chasing new opportunities and doing the work that i enjoy the best part about found is that everything is in one place no more juggling multiple apps or losing track of receipts found helps you stay organized and rest easy knowing everything is handled oh and by the way other small businesses are loving found too this found user said found is going to save me so much headache it makes everything so much easier expenses income profits taxes invoices even and found has thirty thousand five star reviews just like this open a found account at found dot com money found is a financial technology company not a bank banking services are provided by piermont bank member fdic join thousands of small business owners who have streamlined their finances with found you just realized your business needed to hire someone yesterday how can you find amazing candidates fast easy just use indeed when it comes to hiring indeed is all you need that means you can stop struggling to get your job notice on other job sites indeed's sponsored jobs helps you stand out and hire the right people quickly your job post jumps straight to the top of the page where your ideal candidates are looking and it works sponsored jobs on indeed get forty five percent more applications than non sponsored posts the best part no monthly subscriptions or long term contracts you only pay for results and speaking of results in the minute i've been talking to you twenty three people just got hired through indeed worldwide there's no need to wait any longer speed up your hiring right now with indeed and listeners of this show will get a seventy five dollars sponsored job credit to get your jobs more visibility at indeed dot com biggerpockets just go to indeed dot com biggerpockets right now and support our show by saying you heard about indeed on this podcast indeed dot com biggerpockets terms and conditions apply hiring indeed is all you need thanks for sticking with us cody.

[Scott Trench]

If i handed you the one point two five million dollars fire portfolio that you're looking for for in cash what would the future state portfolio look like i know that the current state is all broad based index funds but would the future state look different would you would you diversify or how does that work especially in the context of recreational employment where you might earn additional income.

[Cody Garrett]

Yeah that's a really good point so i have a very simple framework that kind of aligns with even after i do all the analysis i'm like hey it's about the same is i say how much money do i plan to distribute from my portfolio over the next seven years and that's how much from a risk capacity standpoint that i put in fixed income since i don't expect to take any money out of my portfolio over the next seven years i'm one hundred percent equity you know that's my risk capacity and also my risk tolerance because definitely highly educated in the space but also i've kind of overcome those emotional behavioral aspects of risk tolerance my risk tolerance or risk capacity are pretty well aligned that i feel comfortable being one hundred percent equity which is globally diversified you know between you know us and foreign international total stock market.

[Mindy Jensen]

Can you clarify what fixed income means.

[Cody Garrett]

So fixed income to me is cash and bonds we could definitely dive into the portfolio part of this i really think of three parts of developing your portfolio which is the three dimensions of risk need risk capacity and risk tolerance we could certainly jump into that but i would say that if i were to use bonds in my own allocation it would either be it maybe actually be a combination of using like a total bond you know like for example like not advice for you personally but like bnd like total bond index etf i would also build like a small bond ladder so i'd specifically use a bond ladder etf ishare i bonds is a product out there and also invesco bullet shares you know again i don't sell these things but those are two products that i really like the idea of the asset liability matching of saying hey how much money do i think i need over the next three to five years and how can i set up a portfolio where that money will mature and redeem as cash within my account in the years that i need that money so i would actually do kind of a combination of a total return approach with a really like the three fund portfolio of like vti vx us and bnd but maybe have like maybe three to five years not in cash you're not just like in a checking account but three to five years in like a bond ladder etf so i know a lot of people say you know the bucket approach like is you know losing out because you have all this money in cash like my cash is still earning you know four to five percent in these bond ladder etf's so in terms of you know really net as long as i you know stay invested hold those to maturity you know i'm i'm like locking in a net yield of about four to five percent and it'll earn a lot.

[Scott Trench]

More than that if you're going to be recreational employed and starting three businesses every five years portfolio theory does not really account for the entrepreneurial itch that a huge portion of the fire community has i regularly pull the biggerpockets money youtube community to get data because i'm just curious i'm just fascinated about this a third of the people watching or listening to this show already own a business a little over a third thirty five percent definitely intend to start a business after they retire early another thirty eight percent are perhaps i might consider starting a business and only a quarter twenty seven percent say definitely not i will definitely not start a business and portfolio theory as we discuss it in the fire community and as we discussed it in a recent episode which was i thought was awesome with frank vasquez discusses you know how to have a portfolio in isolation distribute in perpetuity in a very safe way at the highest possible levels but at least with our audience at least the biggerpockets money community this is a very it was very rare for folks to really actually assume no distributions following that and i'm still grappling with what that means from a portfolio theory perspective i do think in practice one thing it means is these people hold way more cash i hold way more cash than what most traditional portfolio theory calls for but there's so much more beyond that that i think it's just an open book in terms of that but i would be curious to see what a mind like yours has to say on the subject because you've obviously spent a lot of time.

[Cody Garrett]

Thinking about this yeah it's funny being an entrepreneur changes the average adv for example i haven't contributed to a four hundred one k in the last three years right as somebody who talks about the order of operations like i haven't contributed to a four hundred one k because guess what i really value it's not less about short term stability it's more about the flexibility maybe we could talk about like you know like the entrepreneurial middle class trap is when as an entrepreneur you're still saving and investing like an employee like that is definitely like trap you can get yourself into so for me my kind of back of the napkin is i wanted to build up two hundred fifty thousand dollars of taxable brokerage so after tax investments before i start prioritizing you know the tax optimization and the traditional four hundred one k and all those things so you know as an entrepreneur it's it's actually it's funny too it's not just about the money that it takes to launch a new business but it gives me permission to launch it without having to feel like i have to succeed within three to six months because the average employee is kind of expecting you know income loss for three to six months kind of you know dave ramsey style whereas an entrepreneur i should expect you know like one to two years of runway the thing is going into you know beggars can't be choosers like i don't want to launch a business that has to be successful within six months i want to launch a business that gives me the ability to slow down be intentional over like one to two years to really build what i wanted to build because again if you go in with needing you know like as a financial planner if every prospective client has to become a client for me to be financially secure i'm not going to be a good financial planner i'm going to be rushing the advice i'm going to be rushing the the you know the qualitative the deeper conversation so yeah being an entrepreneur is very different on the path to fi okay.

[Mindy Jensen]

Hold on you just said you haven't contributed to your four hundred one k in three years that you want to build up two hundred fifty thousand in your after tax brokerage it sounded like before you continued to contribute to a four hundred one k why are you doing this instead of reducing your taxable income because you do have a sizable amount of income i'm pointing to my screen that you can't see you do have a sizable amount of income and and reducing that taxable income by what is the contribution twenty three thousand this year you're not over fifty so you can't grab that other six but if you are self employed with no additional full time employees you could do the the self directed solo four hundred one k which i can't remember the limits fifty eight or sixty four thousand dollars could go into your four hundred one k that's a lot less in taxes that you would be paying i know.

[Cody Garrett]

Can i can i try can i.

[Scott Trench]

Try to answer cody and tell me if i get the answer right let's.

[Cody Garrett]

Go scott the reason he does not.

[Scott Trench]

Contribute to his four hundred one k is because this man started a business a few years ago that has quadrupled or quintupled in revenue and in profit over that same time period and it would be absolutely silly and foolish to attempt to get a ten percent return even if it is tax advantaged in a four hundred one k in that same time horizon and the additional liquidity and optionality that the after tax brokerage account will give him and he can feel in real time will far outweigh the long term benefits of a few years of tax advantage contributions i am also sure that coti will soon begin resuming those contributions to his tax advantaged retirement accounts but that will be because he has so much more income because of the excellent investment he has made in his businesses that he can afford to both fund his entire ladder of tax advantaged retirement account contributions and still continue to generate spendable liquidity today how am i doing cody is that is.

[Mindy Jensen]

That close before we allow cody to answer the question that i asked cody you're still putting money into the after tax brokerage account so you're not getting the tax advantage but then you have more access to it but i would assume that since everything is in index funds you would be investing in the same way in the four hundred one k or in the after tax so i'm just asking the question that i hear people screaming at their radio right now why is he not getting the.

[Cody Garrett]

Tax deduction scott i'll give you a b plus the first part is actually the part that doesn't apply i do not think not investing to a four hundred one k is getting greater returns by not investing because you can see that i'm still investing that money in a different account type but the second part is where you absolutely nailed it that i want the flexibility and the optionality that if i do want access to those funds i don't have to do one of the specialized again you know i definitely know all the you know seventy two t and roth conversion ladders and all that you know all that fun stuff i want to be able to do some tax gain tax loss harvesting with easy flexibility and optionality so yeah i'm still investing that money in the low cost index funds only earning quote unquote you know ten percent annualized again it's the it's the future uncertainty of first of all professionally what we'll bring and also personally one thing i haven't mentioned here my wife and i are planning to adopt a child you know infant adoption within the next year or two and that's a big part of it too is professionally i want that flexibility to you know build fun businesses but i also want the liquidity and flexibility to say there's a lot of uncertainty that comes with adoption right including whether it's medically adoption for us costs fifty five thousand dollars right so just really thinking hey there's a lot of really short term to intermediate term and by by that i mean like kind of five to ten year money that we don't quite want to commit to you know our fifties and.

[Scott Trench]

Beyond thank you for the generous b plus grade here i have the same framework for a like twenty three year old for example just getting started in life making a median or maybe around that median income level and the idea is i'm not against retirement accounts and i max my retirement accounts now here at thirty four but to get started the journey of compounding wealth that liquidity you're so much more dangerous in a good way if you're relatively young relatively entrepreneurial relatively flexible and this money is in cash and not in your mind locked away in the four hundred one k for a couple of reasons one a house hack for example is so powerful for that person there's no possible way that the benefits of a four hundred one k in almost any situation you can really conceive of is going to be out a well thought out disciplined house hack that involves that sacrifice from that person and then if you take that next another year or two and you still defer those retirement account contributions and you build up thirty forty fifty thousand dollars i mean this person's going to be very dangerous in the sense that they're going to be able to take a sales commission job for example that might have a lower base salary but way more upside or they might be able to buy a business or take a year and start that business idea if their expenses are low that optionality and flexibility even if it's not actually if it doesn't actually translate in a way that's specific to one of those examples that flexibility i think will benefit that person so greatly that it will overwhelm the delay of the retirement account investing for three or four years and this only applies to the very aggressive cadre of people in the personal finance world this does not apply to the more moderate folks who would absolutely benefit from just be getting those contributions early and letting that compounding go to work but that's the trade off people in some situations you can't max out all of the order of operations financial stack and have liquidity to do entrepreneurial things which can generate way better returns and so there's a sacrifice and trade off and i think some people should make them and it sounds like.

[Cody Garrett]

You are yeah and by the way we're still maxing out our hsa our roth iras and you know just those two combined you know that's that's you know twenty plus thousand into those kind of more traditional like parts of the order of operations but one thing i want to touch on real fast is the difference between liquidity and stability so you do talk about having cash available i will say that i think once you build up a certain level of taxable brokerage investments you know assuming you're not actually going to spend planning to spend all of it right within the next like one to three years i don't have stability in my taxable brokerage account because it's invested in equity but i do have liquidity like i have quick access to be able to sell those securities and convert you know again kind of turn assets into income you know assets into cash flow so i kind of think about liquidity and stability as being like kind of you know two sides of the same coin let.

[Scott Trench]

Me go back a few minutes and you kind of answered the first part of it but if i handed you that one point two five million in cash for your fire portfolio what would that portfolio look like specifically these days.

[Cody Garrett]

So the one point five are you saying like continuing as an entrepreneur yes.

[Scott Trench]

Sorry and specifically in the context of the retiring as an entrepreneur entrepreneur would you still hold the bond funds would you still hold these other items would you get more conservative in some cases how do you think about it again.

[Cody Garrett]

Going back to that framework any money i'm planning to spend within seven years out of my portfolio would be in fixed income if i were four years in the future at one point two five million fire number i would still be one hundred percent equity just either one to two funds would be vt or a combination of vti and vxus so that global stock market index i wouldn't have you know a humpty dumpty portfolio of like growth value mid small you know i would just have like the one egg rather than the humpty dumpty version of that model portfolio okay.

[Scott Trench]

How about if i doubled it to two and a half million which is.

[Cody Garrett]

The midpoint same thing yeah nothing would change about five million nothing would change.

[Mindy Jensen]

Is there a point where it would.

[Cody Garrett]

Change i would say the total portfolio allocation would not change but my asset location considerations would definitely be in play so so if i were just owning us and international equity i want the international equities in the tax deferred vehicles and i'd want the us equity in the taxable brokerage account assuming i had space in both of them to get that global allocation so most likely if i had that global allocation my us equity would fill up the taxable brokerage and my international equity would be in the roth ira the future traditional four hundred one k and things like that but yeah the total allocation wouldn't change even you know twenty ten twenty million.

[Mindy Jensen]

Dollars and why would you put the international in the roth and the us.

[Cody Garrett]

In the other so it's two reasons so international equity in terms of dividends the dividend yield is much higher than us equity i don't have the numbers right in front of me but i'm guessing at least double the dividend yield and also there's a larger percentage of those dividends that are non qualified which would be taxed at ordinary income tax rates rather than the favorable long term capital gains tax rates you're very clear.

[Scott Trench]

On these two funds vt and vxus for entertainment purposes only of course what is your thought process on some of the other portfolios that are coming out like some of the work that paul merriman puts out or the golden ratio portfolio for example that we talked about with frank vasquez when and where would you shift away from just those two funds that you've emphasized here into something.

[Cody Garrett]

Else the only shift i would make is adding fixed income again talking about kind of like that you know there is the constant duration bond funds like bnd you know that's the total bond market etf also those bond ladder funds i guess the reason that i wouldn't start again maybe a mean way to say like the humpty dumpty version of that where you split it into all these different things and maybe go more into small cap value is really that's like optimizing like the top five to ten percent right like i really value i call return on hassle roh and also this idea of what i call the headspace premium i tell a lot of retirees and they want they want this too many likes that headspace premium yes i do most retirees want to become more passive with their investments and more active with their lifestyle the thing is the more complexity i've learned the more i value simplicity so i know that frank has talked about you know like make it simple but not too simple right like that's kind of my version effectively at this point and moving into retirement my simple but not too simple would be vti vxus and then a combination of a total bond fund and like a bond ladder which again is kind of just like four kind of four little things hybrid together what.

[Scott Trench]

Are cases in which you've deviated from this in your practice with the families.

[Cody Garrett]

That you work with keep in mind that i work specifically with diy investors on the path to early retirement so most of them are listening to frank's podcast which is by the way amazing i love it risk parody radio a lot of them are coming saying hey i've listened to you know paul merriman or i read you know i'm in the bogleheads forums so a lot of them come to me with their bias i would just say this they all have a bias toward optimization all these things we're talking about are ways to optimize they aren't like the fundamental kind of if you think core and explore like there's core and then there's exploring on the top ten five to ten percent like everybody kind of has the same core which is like hey like let's say you know in retirement you know let's say like fifty to eighty percent equity rest is fixed income but then we explore in terms of like okay well which products do we actually put all those things into and i would say people come to me with a bias typically toward how they want to explore but they all have the same core philosophy so frank and i can certainly talk about you know the correlation between pretty much all us equity is very highly positively correlated to each other whether it's like large mid small cap again international and us has been pretty highly correlated to each other when in terms of diversification you're looking at negatively correlated assets the only really negatively correlated asset i'm looking at are treasury bonds right looking at different durations and i would say we probably have the same overall fundamental philosophy but we like to tweak in the top five to ten percent of optimization based on again going back to that risk need risk capacity and risk tolerance there's a million.

[Scott Trench]

Questions to ask about portfolio theory i guess the one that i'll bring to the surface is it seems like lately in a lot of circles the concept of small cap us value stocks as a component half of for example the equity position for the us allocation in a portfolio and then half growth for example instead of a broad based market index fund is becoming more popular i actually saw a recent article i think big earn did kind of refuting this where he felt that that was not true or there was in the recent times it had been less effective but is that becoming more a question that you're increasingly getting or noodling on when you think about portfolio construction so i.

[Cody Garrett]

Think we need a break off there's really two people in the fi community there's those with a high risk capacity and a high risk tolerance and those are kind of like the logical thinkers i'll actually share here briefly so risk need by the way is the level of portfolio growth required to achieve your financial objectives so effectively saying hey if my whole portfolio were in cash would that be okay and by the way what's kind of ironic is a lot of people retiring in the fi community they could put all their money in a checking account and probably still be fine because they underspend and undergift but the risk capacity part another objective measure is the amount of potential portfolio loss that you can sustain without jeopardizing your ability to maintain your financial objectives so that's saying hey if i did go one hundred percent equity and it dropped by fifty percent would i still be okay right and again a lot of people in the fi community they have a high risk capacity but here's the part that where those you know the small cap value and all that comes in risk tolerance this is a subjective measure the emotional and behavioral willingness to endure market volatility and portfolio losses and scott what you mentioned there the people who are really into the small cap value they have a high risk capacity and a high risk tolerance they're very logical they're like how can i increase my risk adjusted return and they're mostly looking at upside rather than protecting downside because as you know if you're doing a small cap value tilt like you got to be on that roller coaster for a long time to really for it to pay off like that's not something that you just put it in there for five years and again you know frank would say the same thing like if you're going to choose a small cap value and only be in there for two to five years like don't don't it's like that's a long term play but then there's the high risk capacity but low risk tolerance by the way that's most of the fi community like that is most of what i see is and those are the people going into like the time segmentation the bucketing then we talk about morningstar's research christine benz the four percent rule they have the ability to be one hundred percent equity most of the time but they have such a low risk tolerance and a fear of spending and of course a fear of volatility they have the scarcity mindset their grandparents you know went through the great depression and taught their parents you know to keep everything you have because you never know when you're going to need it so i think that maybe we could break down high risk capacity high risk tolerance investors versus high risk capacity low risk tolerance investors because those are the two people in this community that have a very different approach to investing who's going.

[Scott Trench]

To be richest over the next ten.

[Cody Garrett]

Years well definitely the high risk capacity high risk tolerance people from a logical perspective but at the same time what's really funny here is that they have a confidence in their ability to adjust but both of these parties high risk tolerance and low risk tolerance it's funny they focus on education with a confirmation bias or what they already believe so the people with a high risk tolerance they just get more educated about how to increase returns and then the low risk tolerance people get they love when they talk about oh the four percent rule becomes the three percent rule they act scared but they're actually inside they're actually really excited because they're like oh good i can be more safe i can be even more conservative with my portfolio and stack i'm going to assume no social security you can tell i'm getting really excited about this because there's a lot of missing pieces in these conversations i think the logical thinkers are going to be best off financially but the less off in terms of i guess maybe both parties will be less off in terms of really missing out on a lot of life because they're so focused on the numbers and they kind of put all the physical mental spiritual relational health on the back burner because they're so focused on either upside or protecting downside and they kind of lose the forest for the trees i.

[Scott Trench]

Think the guy who's going to be best off here is the one who retires with a portfolio they're comfortable with either way and then spends all of their time as passionately discussing the business that they're doing as you do cody and has the liquidity of course to invest in that to some degree as opportunities arise and make sure that there's.

[Cody Garrett]

Timeshare for that the best investor doesn't spend money right seventy three percent of.

[Scott Trench]

Our community is going to do that at least consider it once they fire i'm sure you're already seeing that as a entrepreneur with the tax advantages that accrue the ability to drive revenue and actually take control of that income stream and i can't wait to see how that's going to turbocharge for you the.

[Cody Garrett]

Next couple of years and i also want to just quickly add that i'm an entrepreneur but out of the one hundred fifty people that i've helped retire early over ninety percent of them were employees their whole life their whole career right so like i love speaking kind of to those two sides and those the ones who have been saving and investing for decades you know as employees when they retire they're the ones that typically go into the high risk capacity low risk tolerance because entrepreneurs naturally have a higher risk tolerance so that's where we get into the heavy cash positions that i've got cd's and five different banks to make sure i hit all the fdic limits they would actually benefit from using annuities but they're very anti fees and anti flexibility so they just end up in this place of having all this cash in their bank account and you're not wanting to hire an advisor which by the way those are the big fish the advisors are chasing after so there's definitely like that realistic tension of like hey i'm the person who needs the most help spending and giving but yet the advisors who want to work with me that have an incentive for me to underspend and under give based on how they manage my portfolio it's a very hard part of this industry is working with those people who have the money to live their big juicy life but have a scarcity that's going to be backed up by how they're paying their advisor which i know i'll probably get a lot of hate mail on that little chat right there but there's a lot of conflict in our industry that's thankfully slowly changing.

[Scott Trench]

I think that the folks that really highly defend the aum financial planners or the financial planners that sell various products and generate commissions they don't listen to biggerpockets money we've had plenty of ragged on those types over the years the.

[Cody Garrett]

Anti advisor community is here in this podcast and the advisors are listening to other podcasts that are focused on the things they care about yeah definitely i.

[Scott Trench]

Guess that's a great question to wrap up on could you give us a brief overview of the financial planning industry that is a little bit more in depth than what i my like off the cuff remark there and what it specifically you feel are the channels that people should be looking for when they're looking for a cfp how much should one plan to spend on financial planning if they're avoiding the assets under management the aum types or the commission types.

[Cody Garrett]

The two parts of this are which services do you actually want and only pay for those services right so if you want financial planning you shouldn't be paying for investment management if you only want investment management i'll try to convince you that you need financial planning but that's a big part is only pay for the services you actually need and are provided the second part is if you want financial planning there's only really three options right do you want to work on an hourly basis where you just say like as needed i just you know i reach out like you know nectarine is a i'm not affiliated with any of these companies but hello nectarine dot com you can hire you know an advisor literally just one hour at a time right just to kind of as needed others say hey we'll do like ten hours together as like a package so there's hourly there's project based which is hey we're going to have a two to three month engagement to do a comprehensive financial plan we're going to look at everything in your life with a number on it right we're going to give you like kind of a what i call the measurable action plan the map of you know what are the things we're going to do over this next year to optimize your financial plan then there's ongoing these are the people who say hey i want somebody who like he's going to keep me accountable not just for saving and investing but keep me accountable in retirement to actually say hey you said you want to go on that big trip did you actually you know did you actually go into you know airbnb and book the nice cabin and all those things so if you need accountability ongoing monthly is great like abundo wealth is a great firm that does that it's like just a few hundred bucks a month for ongoing support project based for a comprehensive financial plan you should expect to spend between two thousand five hundred and five thousand dollars for that kind of that full comprehensive two to three month engagement and then hourly you should expect to spend between two hundred fifty to four hundred fifty an hour depending on their level of expertise and.

[Scott Trench]

Experience super helpful yeah i just want.

[Cody Garrett]

To say here even though i'm a i'm a certified financial planner professional a cfp professional i'm not your financial advisor so the content i provide today does not provide financial tax legal or any professional advice right so do not act on any of the information the tickers that i talked about those are not advice for you just the things that i would do personally based on my own situation and certainly consult with a licensed investment tax or legal professional before implementing anything that you heard today awesome.

[Mindy Jensen]

Cody thank you for the disclaimer and thank you for your time today this was very enlightening where can people find.

[Cody Garrett]

You online my biggest excitement right now is measure twice money youtube channel you can actually watch real financial planning meetings with real retirees struggling with what we talked about today by the way i might even send one your way that you could interview a real retiree who retired last year and what the emotional behavioral elements of scarcity and also if you go to measure twicemoney dot com book you can sign up for just a simple email whenever that tax planning to and through early retirement book is coming out in september later this year.

[Mindy Jensen]

Awesome cody thank you so much for your time today and we'll talk to.

[Cody Garrett]

You soon absolutely take care you guys.

[Mindy Jensen]

All right scott that was cody garrett and that was a lot of fun what did you think of the episode.

[Scott Trench]

I thought it was great i love the passion for personal finance and the shift to aligning his career with that passion and that allows him to pursue fire faster so i think it's great i think we need a lot more of these advice only financial planning folks in the industry and i think it's great and we're starting to see those pop up more and more and more with hello nectarine and cody's firm and more like it so i think it's great and it was fascinating to hear that story shared from him i love.

[Mindy Jensen]

His new definition of fire financial independence recreational employment i think that is a great mindset to be in hey i could be retired but i don't want to be i like my job i'm going to continue i am declaring myself fire scott financial independence recreational employment me too perfect all right should we get out of here let's do it that wraps up this episode of the bigger pockets money podcast he is scott trench i am mindy jensen saying time to soar dinosaur.