← The Personal Finance Podcast
The Personal Finance Podcast
The Financial Framework That Can Change Your Life With Paula Pant
01:13:01
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B
I spent my 20s making the mistake of being too frugal. I was so hyper concerned with pinching pennies and scrimping and saving that I was missing the chance to grow my income, to grow my net worth. Many of them, despite the fact that they had the skill set to become great bloggers. You know they are probably the best position to become great bloggers based on their skills, but they just didn't have the optimism. They didn't see it as an opportunity. They saw it as a threat. It's not the way that we've been trained. It's not the way that we've been taught. We've been taught to work hard, you know, and so when you take something as important as your money and say, actually, you're supposed to not.
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A
So, Paula, welcome to the Personal Finance podcast.
- [02:44]
B
Thank you. Thank you for having me here.
- [02:46]
A
So I am really excited to have you here. We want to have. I've wanted to have you on the show for a really long time. And one thing I want to tell you up front is I used to read your blog way back in the day, Even, like in 2014, 2015, when you were still writing a lot more. And it was one of the most influential blogs I had. You know, it was you. It was Pete from Mr. Money Mustache. I used to listen to a lot of, like, Rob Berger and those kind of guys, too. But your blog was so incredible. And I remember when you released your first episode of your podcast, you had the Money show with. With J Money, too. And I remember listening to those first couple episodes, like, this is so awesome. And now we have you in studio here, which is really fun. And so I'm really excited to have you here today because we're going to talk about a couple of your frameworks that I think are really, really powerful. And some of the things that you talk about and the way that you think about fire, I think is a lot different than the way that most people think about this. And you and I kind of align on some of these different areas. Where we're going to talk about money psychology today, we're going to talk about real estate investing. And adding that in, we're going to talk about just a bunch of different things within your frameworks. And so I'm really excited to have you here. So thank you so much for joining us.
- [03:47]
B
Oh, thank you. Thank. Wow. I'm honored. I am. I'm absolutely honored. Thank you.
- [03:52]
A
So I want to talk about your. Your fire framework. So a couple of things that you do when you talk about this is you start upfront with money psychology now. Money psychology, we talk about this a lot on this show, too, is one of the most important things when it comes to your money. I mean, mastering your money psychology, I think, is 90% of the battle. And so once you kind of understand why your psychology impacts the way that you even make spending decisions or some of the things that you do, I think this is one of the areas that most people kind of need to go through. So when you think about this, why is this one of the most important dominoes to start with when it comes to, to cure money, even mastering your money? Is it. Why is psychology so important?
- [04:29]
B
Well, most people don't understand the reason why they make the decisions that they do. You know, it's, it's tempting to think that, oh, we're rational people and we're just going to do what the spreadsheet tells us. The reality is that we're not. We are inherently emotional human beings. And oftentimes the people who say that they're not emotional are the ones who are the. Who react the most emotionally. They're just not aware of it. And so when you become aware of the way that your hidden psychology influences your decisions at both a conscious and subconscious level, you can, you can control it better. You know, like, you can't control it without first becoming hyper aware of it.
- [05:06]
A
Exactly. And I think that is one of the areas where once you understand how this works and once you understand why you're making some of those spending decisions, it's going to change the way you even think about this and it comes down to even your spending behavior. So there's a lot of different things for, for folks out there. Where I remember, for example, here's a great example of this is when was young, I remember my parents would spend a certain amount of money on us on Christmas every single year. So it was like flat $100 every single year, which was actually kind of a lot back then in the 90s. But I remember my friends would kind of get whatever they wanted all the time at Christmas time. And some, some of the people around me, and I remember thinking about this, like, man, I wish I could have got some additional things. And so when I had my first son, the psychology kind of kicked in and I was like overspending. And Irene, Irene's here in the producing over here. Irene can tell you I would overspend on him on Christmas time. Just kind of overcompensating for what I wish I had at that point in time. And this is something I think a lot of people think about too, where they think about their identity or how they grew up with money and how that shapes their money behavior. How have you seen that been impacted in your life? And is that something that you see with a lot of other people?
- [06:08]
B
Right, right. So you touch on something really important, which is one of the most deepest ways in which we learn about money are through those childhood experiences. And so we we are all carrying childhood lessons that we've learned about money. We're all carrying messaging about money that we've learned from broader society. And we're all carrying biases, you know, hidden biases that, in. In the way that our brains work. And I want to kind of separate these out, because childhood experiences about money, those are individual, right? And so they, they play out at the individual level. Societal messaging around money, that plays out at more of a social level. And then the hidden biases in our brain, like, for example, loss aversion, which we can talk more about in a moment, those are. They actually operate more at the reptilian level. They operate more at, like, the neurological level. And so when we talk about the broader field of financial psychology, we're talking all three of those dimensions, individual, social, and neurological. And so to your question about childhood experiences. So some of the earliest experiences that we have with money that play out at the individual level are exactly like what you were talking about. There are the things that we never had as children that we, we always wanted. And so we try to overcompensate for that by providing it to our own children or providing it to nieces or nephews, or even to ourselves as adults. But. And sometimes if it's done in a manageable way, that can be fine. But there are other times where it's taken too far or, you know, it's done without regard to how it's going to affect the other person, given their unique set of circumstances. And so, you know, those are some of the ways that, that trying to overcompensate, you know, for something that happened in the past, like making a decision now when the timing is different, it is not going to fix it and might only create a new set of problems for a new set of people.
- [08:04]
A
Exactly. And I think once you realize that this is happening, once you realize that, you know, your psychology impacts just almost everything you do, it really does change the way you think about money and the way that you think about spending money. Because I think for one of those. One of those different areas is like, I just always think about this. Now every time I spend money, I'm like, why am I doing this? What are the reasons behind that? And I just like understanding it. It's not like it's one of those things where I just take. Spend too much time on this. But I love understanding that stuff and kind of understanding why I actually do make some of the spending decisions that I do. So how do you check your own biases when it comes to your Money psychology, like a lot of us have these biases that are out there. Maybe it's from when we grew up, maybe it's from not having certain things. So how do you check your own biases when you think about money?
- [08:43]
B
Yeah. So you know, a lot of biases, they play out at the neurological level. And what I mean by that is that there are certain biases that all of us as humans inherently have. So these are different from learned childhood experiences or learned social programming. And so those neurological biases. So one is confirmation bias. People inherently just human beings, regardless of culture, regardless of childhood experience, human beings are more likely to place a higher regard on information that confirms your pre existing beliefs and to disregard information that does not confirm your pre existing beliefs. And that can play out in a number of ways. Your favorite sports team, if you hear good news about your favorite sports team, you're more likely to remember it and to trust the source of that good news. Whereas if you hear bad news about your favorite sports team or good news about its greatest rival. Right. You're more likely to question that source, to disregard it, to diminish the importance of that news. You know, so you see this play out in all sorts of regards when it comes to sports teams, when it comes to preexisting political beliefs or religious ideology. But it also plays out when it comes to, for example, maybe you hear some information regarding an asset class. Then maybe you, you love real estate, or you love crypto, or you love some, you, you want a particular asset class to do well. And so because you want that outcome, you might more highly value sources of information that confirm your pre existing idea that this asset is going to go up. And you're more likely to disregard information that, that contradicts that. So confirmation bias, for example, that's one, that's one of many of these, these biases that we all face. And to your question, how do you, not knowing that, how do you do something about that? Well, with confirmation bias specifically, I think one of the big tests is to, to, to track every piece of information that comes in. I find writing it down to be incredibly helpful. See, look, here's the information, here's the source. Here is how I am weighing this on a, on a scale of 1 to 10 in terms of its importance. Here are the reasons that I'm disregarding it. And if you. And now actually with AI, you kind of have a sounding board, right? Here's the input. Here is my interpretation of the input. Where am I going wrong? You know, and with AI, now as A sounding board. It can say, well, you know, it can give you that honest feedback of, hey, all right, if. If you are. And you want to prompt the AI to say, I want you to act as an impartial observer, and I want you to call me out on my confirmation biases, and I want you to drop your own optimism bias, because most AI has an optimism bias programmed into it. Right. I want you to drop your own optimism bias. By the way, when you do that, it gives you some really harsh truths.
- [11:40]
A
Really?
- [11:41]
B
Oh, yeah, yeah. There. There have been times I'm like, put the optimism bias back, please. This is. This is a little much, you know?
- [11:51]
A
Yeah, and that's a great tip, I think, overall, for most of us, because we have these confirmation biases that I think, you know, we gotta find ways to overcome some of these or just look at some of the other angles. So is there anything else that you do or. Do you. Do you do anything else to kind of check yourself when you. When you see these popping up? And how often do you see that pop up?
- [12:06]
B
Oh, constantly. Every new piece of information that I get. You know, if. If I want to believe that a particular state is going to boom in terms of population growth or in terms of it's, you know, real estate, or in terms of what's going to be the next hot place, right? If I am predisposed to believing that it's. That some place is going to boom and, you know, I'm going to look for information that confirms that belief, and I'm going to disregard evidence of other places that might be doing better. So, yeah, so I see this play out all of the time. Loss aversion is another one. You know, if. If I'm thinking through some investment that I might want to make, I often find myself dreading the downside far more than I anticipate the upside. Because humans, and this is just inherent to, like, human psychology, humans are wired to feel the pain of losses more than we feel the joy of gains, particularly when those gains are hypothetical. Like, you don't regret the opportunities that you missed or the opportunities that you didn't take. Like, I never. I never get emails from podcast listeners who say, man, I just keep thinking about 2009, and if I had just put more money in the market in 2009. Like, no one ever writes to me and says that, you know, but people will write to me and say, man, I loaned five grand to my cousin and they never paid me back. And I'm just kicking myself for it, right? And they feel the loss of that $5,000, much, much, you know, more viscerally than they then they feel the missed opportunity of not having put more money in the market when it was rock bottom.
- [13:56]
A
Exactly. It just shows how emotional money can really be. And it's really one of those things where once you understand your emotions and you can kind of think through some of these processes and you understand these biases that you have, I think that really will just help people understand why they do what they do with their money. So I love when you talk about this, and Paula has some great episodes on her podcast, just talking through and diving deeper into some of this stuff, because I think the psychology is just so incredibly important for most people to understand. Now, the second portion that you talk about is income. And income by far, to me is one of the most important things to help people build wealth in terms of, you know, just increasing your income over time. And a lot of people will talk about cutting back, but really income is the way to kind of accelerate your path to wealth and accelerate your path to growth. So you emphasize this, you emphasize income over extreme frugality because you and I have gone to, you know, places like fincon, for example, or we've gone to other conferences where there are people on both sides of the spectrum. Some people love extreme frugality and some people are on the, the income side. You and I agree on this income side for sure, because that's the one thing that helped me accelerate my path to, to growing my wealth over time. So why is this the most overlooked path for most people today? And why is income so important?
- [15:02]
B
Mm. So I, I came to the conclusion of, you know, emphasizing the income side of the equation because I spent my 20s making the mistake of being too frugal. And in, in hindsight, that frugality cost me in again in terms of opportunity cost, because I was so hyper concerned with pinching pennies and scrimping and saving that, that I was missing the chance to, to. To grow my income, to grow my net worth, to grow the delta between what I spend and what I earn. Right. Because when we talk about savings, what are savings? Savings is that that delta, that difference between what you earn and what you spend. And there are only two ways to grow that, that gap. You can either earn more or you can spend less. But part of the reason that I think the spend less side of the equation captures so many people's attention, I think there are a few reasons. Number one, there's no fear of failure. Right. If you're thinking about earning More. If you're thinking about an entrepreneurial venture, it might fail. If you're thinking about pitching some freelance work, you might get, your pitches might get ignored. If you're thinking about applying for a second job, that application might get thrown out, right? There's, there is the fear of failure and the fear of rejection. We, when we think about earning more money, that's one element of it. The second element is tangibility. So if you're thinking about switching from brand name groceries to like store brand groceries, right? It's a, it's a very tangible, measurable thing. You can, you can physically hold the, the prego spaghetti sauce versus the great value spaghetti sauce, right? You can physically hold those two bottles of spaghetti sauce in your hand. And you can, and you can. L literally see like one of them is a dollar cheaper than the other. And you multiply that over 50 items at the grocery store and boom, now you've just saved 50 bucks, right? And so there's that cert, that tangibility and that measurability and that certainty, right? People love certainty. When you talk about earning more, it's so amorphous, it's so uncertain how much more, how long will it take? Will I be rejected a hundred times before it ever happens? And so when you combine fear of failure and rejection with uncertainty and ambiguity, it makes for a really unappealing case. Right? Like, and I think that's why so many people gravitate towards the spend less side.
- [17:35]
A
I agree. And I think for a lot of folks out there, one of the certainty is a big one. I think it's some people that's the first thing they know to do is they know to go out and try to cut back as much as they possibly can. But for folks who are living paycheck to paycheck, a lot of times you can only cut back so much and sometimes you can't cut back whatsoever. And so you need to grow your income. You have yourself an income problem. And so if someone feels stuck at their current earning level and they're trying to earn more, what are some of the tactical tips they can, they can do, or what are some of the things that they can do to earn more money over time?
- [18:04]
B
So the first thing that I'd want to, I want you to ask yourself, because for the, for anyone who's listening, the answer is going to be different depending on exactly what job you're in. But the first thing that I want you to ask yourself is, am I in a job where there is a chance for me to Grow to get promotions, to get raises. Like, is there a path in this job for that or not? If there is, if there's a path for promotions and a path for raises, and, and that's something that interests you. You are interested in that field, and you would like to grow in it, then I say double down and become the most valuable employee that that business has. And then learn how to negotiate so that you can negotiate hard for those raises and those promotions. That's what you do. If. And I. I'm going to emphasize the if. If you are in both an industry and a workplace where there is that upward path, not everybody is necessarily in that position. So for the people who are not, then on the side, where I would start with is developing some kind of a side hustle. That's. That's going to be number one, because that's going to provide a secondary source of income, which means now you have diversified income streams. You have multiple sources of income. If you were to lose your main job, your income wouldn't go down to zero. It might go down to 20% of what it is, but it wouldn't go down to zero. And that makes a big difference. So you've diversified your income streams by virtue of having a side hustle. You learn some basics about entrepreneurship. You learn whether or not that side hustle could one day is perhaps be viable enough to become your main thing. Um, there are a lot of people who start a side hustle, and over time, it grows to the point where it's matching or exceeding their day job income. Um, so I would start with that side hustle or start with maybe a variety of side hustles. Try four or five, see what sticks. Um, and then when it comes to your main job, your day job, the question is, are you in an industry where there's opportunity, or do you need to retrain into an entirely different industry? Because some people might have to retrain. I used to be a. A print newspaper reporter, if you can believe that. If for anybody under the age of 20, a newspaper is, you know, I think there's a museum somewhere where you can frame it. Yeah, exactly. Exactly. Dewey defeats Truman. Yeah. So I used to be a print newspaper reporter, and that just was not an industry overall where there was going to be growth. And so my, you know, my options were I could. I could pivot to pr, I could pivot to marketing, I could pivot to newsroom management, or I could just leave the industry, which is what I ultimately ended up doing. I could leave the industry and do something Else entirely.
- [20:53]
A
Exactly. I think you laid it out perfectly. Where a lot of people, when they think about this, it's looking at where you are currently at your day job, and we talk about this a lot too, where you know, if you can learn how to negotiate your salary, that's one of the most valuable skills that you can have. And what a lot of people will do is they will walk into their boss's office, you know, they're fed up with how much they're making. They'll, they'll rush into their boss's office and they'll say, hey, I want to make more money. But that's not the way to do it systematically. You need to A, learn how to negotiate, but B, learn how to figure out what skills are needed at that specific company. If you want to stay there and figure out, you know, what are the people above me have, what kind of skills do they have and how do I develop those skills, then you got to develop a plan with your boss saying, hey, I want to make more money over this time frame. You know, what are some of the things that I can do that we can both agree on for me to either increase my income or learn how to get a promotion or some of those other things and then it's a multi month plan before you can actually go in and ask for a raise. Because typically for most people I've seen, I saw it happen over and over again when I was in the corporate world where people would kind of barge into their boss's office, they would catch them off guard, they had no idea what was going on, and then they'd ask for a raise and they, they would never get it obviously, because the, the boss hadn't even had a conversation with them or, or seen kind of what they've been doing. And so this is just a, one of the starting points then, like you said, having side hustles. So I remember, you know, in my 20s, I had more side hustles than I could count. I did everything from like Amazon Arbitrage to selling ebay to we had a Christmas tree stand, like a side of the road Christmas tree stand. And so we would literally do all kinds of different things and then some of them would just stick and you kind of figure out which ones stick. And I think that's just a really, really powerful way to learn how to increase your income overall. So you talk a lot about skill stacking too. And I think skill stacking is a big thing where that's a great place to invest your time, your energy and Even your money is to, to learn new skills, because people can't take those skills away from you, especially if they help you earn more. So can you talk, talk about some of the highest value skills that you see now and, you know, coming up in the next couple of years?
- [22:46]
B
Yeah. So as, as we are entering the age of AI, a lot of, A lot of the entry level skills, you know, writing, entry level writing, entry level coding, a lot of those entry level skills are not going to be as valuable anymore. And I think that, that there's a huge opportunity there. So I'll tell you, I. I'm gonna tell a story about like these two very different points in time, right? So when I was a newspaper reporter in the early. I'm dating myself with this story, but I was a newspaper reporter back in the days when Craigslist was becoming really big. And what that meant was that classified ad revenue was drying up. And for most newspapers, classified ad revenue was between 25 to 35% of overall newspaper gross revenue. So to lose classified ad revenue. And that happened suddenly, you know, like within a year, it basically just plummeted to nothing to lose. Classified ad revenue was huge. And it created all of this, the stress and fear and consternation in the newspaper world because everyone was like, we can't believe it. Like, there are no more classifieds and people are reading their news online, so they don't need print anymore, so we're not selling as many print ads. And there was all of this, you know, in the newspaper space, there was this sense that the Internet took the jobs away. And you would, you would hear that over and over. The Internet took the jobs away. And then I would come over to the blogging space and there was this absolute opposite sense. There was this sense of optimism and hope. And everyone was like, wow, the Internet created so many opportunities. We can be bloggers now. We can be. Podcasting wasn't really a thing back then, but like, well, technically it existed, but not, you know, we're talking like 2006 here. You know, like, we can be, we can be bloggers. We can share things online. We can, like, we can connect with audiences. We have reach. There are no more gatekeepers. So the people who really embraced the Internet in, again, we're talking 2006, were best positioned to like, take advantage of all of the opportunities that were there. And the people who were resistant or who were complaining, which were largely people in the newspaper space, many of them, despite the fact that they had the skill set to become great bloggers because they were print newspaper journalists. You know, they are probably the best position to become great bloggers based on their skills, but they just didn't have the optimism or the. They didn't see it as an opportunity. They saw it as a threat.
- [25:25]
A
Right, Right.
- [25:26]
B
So now take that story. Fast forward to 2023. I had taken a sabbatical from afford anything for. For one year to go to grad school. I didn't actually need to, but, like, bucket list dream was I'd. I'd. There was one particular program that I really want, one particular program at one particular school that, like, ever since I was a teenager, I'd wanted to go into. And so this was just a bucket list dream that I'd always had. And I was like, all right, I'm taking a sabbatical. I'm doing this for a year. Like, I. I'm. And I'm so happy I did. But I was in grad school in spring of 2023 when ChatGPT became a thing. And all of a sudden it blew up and everyone was talking about it. And I was in a journalism program. And one thing that I noticed was that it was almost the opposite story. People online who had earned a living as kind of as the type of writers who earn money based on volume. So they're not earning money based on being, like, highly, highly skilled writers, either technically skilled or skilled, you know, wordsmiths. Like, they were mostly earning money just based on churn and volume and. And, you know, turning tables as quickly as possible. They were the ones who were really freaking out. Meanwhile, in journalism school, everyone was cool as a cucumber. And I was like, huh, this is really interesting. Why is that? And as I'm looking around at these journalists around me, I realize, oh, the reason they're so chill is because what they're doing in, like, hinges on relationships. You know, AI can only obtain information that is already in the public domain. And the job of a reporter is to talk to sources and get information that is not yet in the public domain. Right. Their job is to uncover new information that is not yet known to the world and bring that information to light. And they do that by developing deep relationships with sources. And so all of the journalists who were in the business of developing, they're really in the. In the relationship business. They weren't worried because AI can never replace that. It was only the people who were. Who were, like, doing those volume transactions that were like, oh, no, AI is a threat. And so I thought that was. It was an interesting parallel seeing 2006 versus 2023. Because you almost had the opposite effect where the Internet people were freaking out and the journalists were super, super cool, you know, because they had learned that nothing ever supplants relationships. And so that's sort of a long winded way of saying, in the age of AI, where's the opportunity? The opportunity is in relationships. That's the one thing AI can never replicate.
- [28:18]
A
And I think that's one of the areas that most people need to double down on is learning on the relationship side. So there are things like, for example, sales is a great one where you have to lear how to develop relationships and be able to sell certain things. There's a lot of industries out there where just learning, like, like we talked about earlier, just even learning the skill of negotiation, you know, it's not like we're going to have AI negotiating back and forth. We're looking at contracts or things like that. Maybe we will, we'll see. But there's a lot of relationship building skills that you can develop over that timeframe where if you spot those opportunities, I think there's going to be just so much opportunity out there. A lot of people, like Paulo Paula's example, are just so worried about losing jobs and they're so worried about, you know, what is going to happen going forward. But if you spot those opportunities, you look for the opportunities. In the age of AI, I think you're going to be able to do a lot of really cool things. And stacking up those skills can be a really, really powerful thing. Are there any skills that you think people should focus on or hone in on over the course of the next five years that you think in the age of AI would be, would be helpful to kind of develop those skills?
- [29:15]
B
I would say anything related to, related to relationships. So learning how to listen, how to truly actively listen, a lot of people listen. They're just waiting for their chance to talk. Learning deep listening, learning how to ask people questions that get them to open up. Learning how to really understand what the other person wants, what are their fears, what are their hopes, what are their interests. Learning how to resolve conflict in a way that, you know, the best battle is the one that's never fought. So how do you, how do you avoid, I don't mean in the sense of being avoidant, but how do you avoid conflict before it even begins? And, and if one were to begin, how do you resolve it in as amicable way as possible? All of those, which all kind of fall under the broader umbrella of relationship, relationship building and Relationship management, those are going to be the most valuable skills going forward because that, that human element, A is something that I can't replace and B is something that people are increasingly hungry for. You know, in this world where remote work is now incredibly common, that means there are a lot of people, particularly knowledge workers, who are sitting alone in an empty room looking at a screen all day. You know, and you like, you wake up, you lay in bed, you look at a tiny screen while you're in bed, and then you get up and you look at a larger screen while you're at work. And then when you're done with work, you then like look at a medium sized screen to zone out and chill. Like all you do is look at screens all day.
- [30:57]
A
Exactly. And so that's where the. You're right. I mean it's just where the opportunity is, is this relationship building is going to be so incredibly important. And like you keep. See the studies come out right now where like people spending less time in person and it's just one of those things where they're going to, they're going to desire that more and more and more as time goes on and learning those relationship skills are going to be so incredibly powerful. I could talk about this all day long. So this is going to be awesome. I want to shift gears to investing next because investing is the, the next one that you talk about. It's the second eye in your framework. And I think investing is one we talk about a ton on this show. It is one of our biggest things that we love talking about here. We love index investing here. So we're passive investors. We love index fund investing and we love kind of, you know, teaching people all about that. How did the holidays get here so fast? Between work, the kids and everything else, I looked up and suddenly it was December. That's when I opened Wayfair and knocked out everything we needed from guest room upgrades to last minute gifts. We grabbed fresh bedding, some new throw pillows and a couple of things to make the kids rooms feel more festive. All delivered fast and just in time for hosting. Wayfair is the best for this. They've got thousands of styles for every room, great prices and shipping is free even for the big stuff. Whether you need kitchen gear for holiday dinners, storage to keep things organized, or gifts for the hard to shop for people in your life. Wayfair makes it easy and right now is the best time to grab everything while it's still in stock so you can actually enjoy the holidays instead of running around, get last minute hosting essentials, gifts for all your loved ones and decor to celebrate the holidays. For way less head to Wayfair.com right now to shop all things home. That's W A Y-F-A-I-R.com Wayfair every style, every home the holidays are chaotic. Travel gifts, hosting end of year work stuff. It's really easy to lose track of your money. And a few years ago I'd hit January wondering where it all went. But now I use Monarch and it's been a game changer. It's an all in one personal finance tool that shows me everything in one clean dashboard. Checking, savings, investments, even our house value and retirement accounts. And right now I'm keeping an eye on our holiday spending category to avoid that dreaded credit card shock in January. Now Monarch helped us catch some early travel overspending and adjust it before it snowballed. It even helps me stay on track with year end stuff like maxing out our Roth IRAs. And it's built for people with busy lives. And you'll never need a spreadsheet again. So don't let financial opportunity slip through the Cracks. Use code pfponarch.com in your browser for half off your first year. That's 50% off your first year@monarch.com with code pfp one of my favorite Christmas gifts as a kid was a brand new bike, bright red chrome bars, the whole thing. I wrote it everywhere, but within a year it rusted, busted and eventually was tossed out. It made me think the best gifts don't wear out, they last. And one of the best gifts you can give your family this season is security that lasts a lifetime with life insurance through policygenius. Policygenius is an online insurance marketplace, not an insurance company, where you can compare life insurance quotes from America's top insurers side by side for free. Their licensed team helps you find the right coverage, answers your questions, and handles the paperwork. And with thousands of five star reviews on Google and trustpilot, it's the trusted way to secure your family's future and lock in before the new year. Now with Policygenius, real users have gotten 20 year $2 million policies for just $53 a month. So don't wait until next year. Give your family the gift of security today with Policygenius. Head to Policygenius.com to compare life insurance quotes from top companies and see how much you could save.
- [34:39]
B
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- [35:12]
A
You teach this as well, where you talk about simplicity over complexity when it comes to investing. The invest the investment world is so complex. It is one of those things that I think people can just really get lost in the weeds. So why is it so important for people to learn how to simplify their investment plan?
- [35:28]
B
So oftentimes. So the word that comes to mind right away is friction, right? The more friction there is to doing something, the less likely we are to do it. And oftentimes people will let perfect be the enemy of good and will design investment. You know, they'll design like this, this investment plan that is so complicated that the best laid plans, you know, like just go to waste. They'll design something so complicated that they never actually take action on it. And so what I mean by that is, you know, I, I'll see people who, they will chase and this kind of, this is more broad than just investing. But they'll chase High Yield savings accounts. Every six months they're opening up a new high Yield savings account because APYS have shifted and they can get a little bit more here or a little bit more there. And then they also have their investments split up between all of these different brokerages because maybe there were different opportunities where some, there was some kind of a bonus that you could get, right? So they, they put some money here when there was a bonus and then they put some money elsewhere when there was a bonus and they the through bonus chasing. Now they've got 12 different, you know, they've got their money spread out across 12 different custodians and it's hard to manage everything. And then they've got like, you know, some software program that has a dashboard where they can see everything in one place. But there's something about the user interface that they don't quite like because it doesn't give them all of the information. So then they have a different dashboard elsewhere and the whole thing becomes so complicated. Then they get married. Now you're multiplying all of this by two, right? And you're, right, you're trying to manage two people's accounts. And each one. One of them has like, accounts spread across all of these various custodians. And some of them are individual and some of them are joint. And you haven't totally managed it all yet. And like, the whole thing just becomes so overwhelming and so complicated that there will. There might be a period of a year or two or three when you are gung ho about money management. And we see, I think you and I both see people in our community who are like this. There's people who get super, super gung ho about it, you know, and it kind of becomes your whole personality, right? And that's great to a point. But then after two years, three years, then your interests change and now you're really into scuba diving, you know, and that becomes your thing and you kind of forget about your investments and then. And they're sort of running on autopilot in the background and a couple more years go by and you're like, man, I don't even remember how many accounts I have. I don't know where they are. I haven't rebalanced any of them in three years. I've just been scuba diving this whole time. Right? You just, you can't sustain complexity for 50 or 60 or 70 years.
- [38:24]
A
And I think that is where I see a lot of people like this, where they are, you know, churning accounts all the time, or they'll have all these different things. They have all these different spreadsheets where they're working through their finances. And we've done this a lot of times in the past where we kind of just teach them, hey, here's some things that you can do to automate your money. And we will take them through that process. They start to automate their investments or they'll start to automate even just their. Their finances in general. And a lot of those folks who are so used to churning are doing so much, they almost get to the point in time where they'll start automating their money. And we've had people say this to them. I feel like I'm not doing enough. Like, they automate their finances and everything is working properly. And they say, I feel like I'm not doing enough. And then all of a sudden, it takes a little bit of time for them to get used to it. Once they get used to it, they love it. They can focus on other things. They can focus on growing their income, which I think is so much more important than optimizing your spreadsheets and all those. Those different areas. And so I think this is just why simplicity is so important for, for most folks is it allows you to live your life. It allows you to kind of go out and do the things you want to do day in and day out. Even for a lot of people out there who are just trying to get their finances together, most of them just are. They need to spend more time, again, focusing on growing their income and less time in the weeds. And. And, you know, simplifying investing is a great place to start because you can just get so deep in those weeds and it could just, you know, be overall just detrimental to your finances if you go too far.
- [39:39]
B
And I think one thing that is counterintuitive is that in almost any other area of life, there is a relationship between effort and results. In if you want to learn how to cook or how to play chess or how to play the guitar or how to learn a foreign language, there is a direct relationship between the level of effort that you put in and the quality of results that you get. If you, you know, you spend more time learning how to speak Japanese, you put a lot of effort into it, you're going to be better than somebody who has of the same age. You're going to be better than someone of the same age who has put less effort into it. Like, that's just the reality of effort and results. And investing is one of those few areas where the opposite is true, where often the less you do, the better. And that is so counterintuitive and it feels so unnatural, and particularly to people who are always high achievers or who are high achievers, it's not in our nature. It's not the way that we've been trained. It's not the way that we've been taught. We've been taught to work hard. And so when you take something as important as your money and say, actually, you're supposed to not work hard at this, what do you do exactly?
- [40:54]
A
I think it reminds me of the study that Fidelity did where they looked at the portfolios that did the best overall, and they went through all the portfolios throughout the last decade or something like that, and they went back and looked at which ones had the highest performance, and it was their portfolio or their members who had passed away were the ones that had the highest performance. To your point, it's just so funny because it's the folks who did nothing who had the best performance overall. If someone wants to master one investing concept or if they want to figure out, hey, what is the most important thing I need to master, what would that concept Be I would say the.
- [41:24]
B
Single most important, important investing concept is understanding how any asset makes money. Because assets make money in two ways. There's the appreciation on the asset and then there's the dividend or the income stream that it pays out. And the appreciation is speculation, unless there is something that you can do to force appreciation. But market based appreciation is speculation. And then the dividend or the income stream is more planned and predicted, predictable. And I think if people understood that, you could evaluate every asset through that lens. So a share of Coca Cola is going to make money in two ways. There's going to be the growth of the growth or fall of the share itself and then there's going to be the dividend that that share of Coca Cola pays out. Right? And if you are an executive at Coca Cola, there are certain things that you can do to force appreciation. But there are also things, you know, market based reasons that that share of Coca Cola stock might rise or fall that purely just relate to the overall market and really have nothing to do with, with the, what the executive team does, right? And, and similarly you take, let's say real estate, a house will rise or fall in value over time, right? That's the appreciation. And that can be market based, meaning it relates to the overall just broad market and is completely out of your hands. It's outside of your locus of control. There's also forced appreciation. Maybe you do a bunch of renovations and you manage those renovations in a very cost effective manner and by doing so you give that home value in excess of the work that you've done. So you've now forced some appreciation there, right? So there's market based appreciation, there's forced appreciation. And then if you rent it out or you Airbnb it, there's also the, the quote unquote dividend, the income stream that it pays out. And so I think once you understand that, those are the fundamental ways in which any asset, whether it's a stock or a piece of real estate, or Dutch tulips, you know, like, right, any, anything that is being sold as an asset, a piece of art, you know, gold, like all of these things hinge on. And some of them don't have any dividends, some of them don't have any income stream. Bare land, right? Bear land might have an income stream if it's got trees on it that can be felled, or it might not have an income stream. And once you can filter every single opportunity through this framework of does this require appreciation? Does it produce a dividend, does it do Both. Or does it only do one? If it requires appreciation, Is it only the speculative kind or is it the kind that also I can force? Right. Once you filter every investment through that framework, it gives you a better way to compare. Should I buy silver or should I buy cryptocurrency, or should I buy individual stocks, or should I buy index funds or should I buy rental property?
- [44:40]
A
I think that's. That's the way to look at it too. I think for most of all, I think for most people out there, if you have an understanding of how that investment works and you understand how it makes money, it can really just change the dynamic of how you do a lot of things. I remember early on, like even thinking through, well, I was trying to figure out how the stock market worked, and I was trying to figure out, well, how do I make money with the stock market? I was reading all these different books like the Intelligent Investor. And the first time I read that, I was like a teenager and it was going over my head and I was like going back over it over and over again. And it was one of those things that I remember just spending the time and the energy to kind of understand some of this stuff and how market cycles move and how they work and all those different things. And then learning over time by doing a little bit too, I would do just small amounts over that time frame really helped me. But I love what you're saying about just every single type of investment and dynamic where you got to understand for real estate, a big one we'll talk about is you have to understand the numbers going in. You make all your money when you buy the real estate investment. And so like, learning how to run the numbers is really important. And learning how those properties make money is how you learn how to run those numbers. So there's just so many different areas that you could think about that in. And I think it's, it's really powerful to, to understand that. So are there any evergreen rules when it comes to investing that you think are out there that most people need.
- [45:48]
B
To understand in terms of evergreen rules? Keep it simple. Understand the Achilles heel. Every investment has an Achilles heel. And if somebody, which is just another way of saying a downside, and if somebody's presenting an investment opportunity to you and they're saying, oh, that, and all they're doing is promoting the upside. And they're not talking about the downsides, they're not talking about the risks, that's a huge red flag. Right? So always ask yourself, what are the ways that this can go Wrong. What are the Achilles heels? And that's not in order to have negativity bias, you know, opposite of optimism bias, but it is simply because you, you know, the rewards are always going to be commensurate with the risk and there will never be an investment in which rewards and risk don't. Potential rewards, I should say potential rewards are commensurate with potential risk. Right. Because if there is ever an asset where those aren't, you know, in lockstep, then market forces will pile into it to such an extent that that equilibrium will happen. Like assets tend to revert to the mean over time. And I think, keeping that in mind, that there's never going to be a silver bullet, there's never going to be a runaway winner. Everything has a downside. That's a lesson that keeps, I think people need to remind themselves of over and over and over, because if an asset has had a really good run, it can be easy to become blase about the risks. And for example, with my podcast audience, you know, like I every other episode that we do on the Afford Anything podcast, we answer audience Q and A. And I will notice, you know, I've been doing this, I've been hosting a podcast since 2016, so I've been doing this for a long time. And I will notice trends in the types of questions that I get that reflect the market. And often if we've had an up market for a long time, people start saying, do I really need to put money in an emergency fund? I don't like keeping this money in cash when it could be making so much more in the market. And the question is asked in this way where I can tell that people are starting to think of the market as a high yield savings account. Right. They're forgetting that there's risk. Because if all you see in recent memory, this is salience bias, Right? Another one of our psychological biases, there's also one that's called the availability heuristic. We tend to prioritize memories that we can, that are easily available, that we can recall right at the, the forefront of our mind. So if something is highly salient, if it's easily available, if it's for recall, we overweight that, and then we tend to underweight or dismiss things that are harder to recall. Right. It's harder to remember 2009, it's much easier to remember the last six months. And so we assign weight to things accordingly. And so if we have a long upmarket, many, many months of just the stock market rising, people, people will start to think that the market is a high yield savings account. And conversely, you know, if we have a big dip or, you know, like April of this year, one thing when everything tanked briefly, Right. People really panicked in those moments and said, oh my goodness, is, is this, is this the end? Right, right. And so I think remembering the nature of investments helps, helps you neither overreact to good or bad times. It helps keep you more even keeled.
- [49:38]
A
Agreed. And I think really overall that's, that comes down to partially like your financial education to where a lot of people will. We get so many emails when the market will take a dip. Like, like in April we got a ton. And I remember just thinking through, like, how did I get through this? How. What were some of the ways that I actually, you know, early on understood because I never, you know, I don't panic anymore. I don't have the emotions anymore when the market goes down or dips or whatever else. It's just from having that financial education part of its experience to kind of watching how the market moves, but it's really just understanding that this is very, very normal and having the, the understanding that, you know, this is something that's going to happen over and over again and you just have to get used to it over that time frame. And so it's one of those things I love that I think that's, that's just understanding, you know, how markets moves can really, really just change, change everything for you. So the next one I want to go into is real estate. Now we could do, you know, 10 podcasts on of go through this, but you've lived through multiple, you know, real estate cycles and you've been through a bunch of different ones out there. What's missed? What's the most misunderstood reality of real estate that you've seen over that time frame?
- [50:41]
B
So I think people emphasize appreciation far too much. I am really big into buy and hold rental real estate. That's, that's my, my specific area of expertise and particularly residential real estate, which is anything that has four or fewer units. And I think that, you know, part of the reason that I love it is because real estate over time tends to have similar returns to the Overall S&P 500 or the overall like total total stock market index. But those returns bias towards that income stream. And so what I, what I mean by that is that, you know, you might have a total of, let's say, 9% appreciation in both an S P 500 index fund and a piece of rental real estate, let's say or I'm sorry, 9% total returns. You might have 9% total returns, but if you look at that index fund, the bulk of those returns will come from appreciation, and then a smaller portion of that would come from dividends. And with rental real estate, it's flipped. So with rental real estate, the bulk of the returns will come from that, that, that unleveraged dividend or that income stream that's paid out, a thing called the cap rate. The cap rate is a measure of your unleveraged dividend. So the bulk of it will come from the cap rate and then there will be some market based appreciation as well. But generally speaking, historically, according to the national association of Realtors, historically that's been around 5% over the long term annualized average. You could even more con, if you wanted to be more conservative, you, you could use 3 or 4% just to kind of peg it to inflation, depending on what area you're looking at. So all of that is to say, not to get too far in the weeds here, but all of that is to say that I think, you know, we, we have had in recent memory a couple of years, like 2020, where between 2020 and 2021, during the pandemic, real estate shot up nationwide, 17% in one year. And I think when people look at appreciation that is that dramatic and that rapid, a lot of people get really caught up in the hope that maybe I can just buy something and sit on it and then, and the market will produce my returns for me. And I think that's the mindset that I really want to encourage people to get out of because it's a very passive mindset, right? Buying something and then hoping that forces outside of your control are going to, you know, ride on their, like night in shining armor on their horse and save you. Like that's not gonna happen. And I think what's beautiful about real estate is that it puts so much of the power and control in your hands in ways that stocks or index funds don't. With a stock or an index fund, sure, you can asset allocate and you can have the right mix of investments. And you can look at asset location like, okay, what should go into a tax exempt fund versus a taxable fund versus as a tax deferred fund, sure, yeah, you can do all of that. And that's important. I don't want to diminish that. But at the end of the day, the overall market returns are really outside of your hands. What's, what I think is amazing about real estate and Part of the reason that I like it so much is because it is really a hybrid between the eye of investment and then the E of entrepreneurship. Right. So if you think of the acronym F double I R E, it's actually kind of perfect that the R is right in between I and E, because it really is a mix of the two. And because it's sort of a hybrid between an investment and an entrepreneurially, an entrepreneurial endeavor, you can, you yourself, through your own decision making and your own actions can improve the returns and improve the, the performance of it. And, and by doing so, increase the value of it. And so that I think is, is one of the main messages that I want to spread when it comes to specifically rental real estate. You don't have to passively sit around waiting for appreciation to have market appreciation to happen. You can force that appreciation and force a higher income flow through good decisions.
- [54:51]
A
Exactly. And I think it's the perfect dynamic for people who are interested in entrepreneurship as well, if they want to kind of take that bridge. It was one of the earliest for, for, you know, things that I did to get into entrepreneurship. And I just remember like when you have your first rental property, you have to develop systems in order to, to make sure that you know it's operating properly, that you get the right tenants involved, that you, you know, you have these SOP set up. You got to make sure that you have your finances correct. You have to understand all these different dynamics and the skills that you develop just by buying your first rental property can be so incredibly valuable for people that I think it is one of those areas where I love that you're saying it's to going kind of right in between there, because it really is, it's like, it's the hybrid methodology between investing in the market and being able to, to become an entrepreneur. You are an expert actually on this question. So this, you're the perfect person to ask this question because you literally teach people about this. But how does someone know? Because a lot of our audience is interested in real estate and we talk about a lot in this show. But the biggest question I get is how do I know I'm ready for my first investment? I'll give you my example. So one thing I do did is I had analysis paralysis, so I would invest in the market. But I took probably three to five years of just researching and reading books. I probably read 50 to 100 books before I actually bought my first property. And I remember doing that and kind of trying to learn as much as I possibly Could. And I learned even more just by kind of getting my first property and kind of going through it all instead of like all the research that I did. So how does somebody know that they're ready to buy their first investment property? Property?
- [56:17]
B
You know what's great is the story that you just told illustrates something. This is a callback to the beginning of this episode when we talked about opportunity cost versus loss aversion, right? The opportunity cost of three to five years of not getting the, the, the income stream, not getting the appreciation, not getting the returns that that property and the tax benefits, all of the returns that that property would have given you over those three to five years. That's missed opportunity. But the, the reason that, that you miss that opportunity, and this is quite common, is because the loss aversion of what if, what if I buy the wrong property? What if my property sits vacant for four months? What if my tenants trash the place and punch holes in the drywall and you know, pour a bag of cement down the toilet?
- [57:08]
A
Right?
- [57:08]
B
Like, right. What. And it's that what if, what if there is some loss, right? And often the fear of that loss is more powerful than any fear of. Fear of missed opportunity.
- [57:22]
A
Exactly.
- [57:23]
B
Yeah. And so to the question of how do you know if you're ready? Number one, do you have any credit card debt or any high interest debt if you have any of that, stop what you're doing. Pay, pay that offers, right? Don't do, don't do any other than like getting your employer retirement match, you know, make sure you get your employer retirement match. But outside of, if that's available to you, outside of that, any high interest debt. And by that I mean double digit interest rate debt, that is your number one priority. Pay that off. Don't, don't even think about doing anything else. Number two, save an emergency fund at least three to six months worth of expenses, possibly more. I'd say if you, and, and whether or not you need more than six months is going to depend. A. Are you single or single income or do you have a double, a dual income household? Because if you have a dual income household, then if one person loses their job, then you've got the income from the other person, right? So are you a single income household or a dual income household? Are you in an industry that has a lot of income opportunity or are you, are you in the typewriter industry? You know, like, are, are you managing, are you, are you manufacturing three and a half inch floppy?
- [58:42]
A
Exactly. Printer paper?
- [58:43]
B
Yeah, exactly, exactly. So you know, the, those are the Kinds of questions are you, you know, if you're a tenured professor, you're going to need frankly a smaller emergency fund than somebody who is a self employed entrepreneur. So have minimum three to six months or if you are in what I would call a higher risk or more volatile category, maybe even up to nine months of an emergency fund, do those two things first. After that I think you're ready, you know, once you've done those two things, then you're ready to begin the process of identifying where you want to buy this property. Because many people live in high cost of living areas. I personally live in Manhattan where I would never ever, ever in a million years buy a rental property because it does not make sense to buy in a place like Manhattan. It makes sense to rent in a place like Manhattan and then to buy in a place like Indianapolis or you know, the broader Atlanta, Georgia area or Las Vegas, or you know, Columbus, Toledo, Ohio. Good, good friends of mine, we were talking about them right before we started recording. I have very, very good friends who invest in Toledo, Ohio because that's a place where the price to rent ratio favors owners. And if you're gonna buy, if you're gonna buy cash flowing rental properties and you're focusing on the Toledo, Ohio area, at least as of the time that we're recording this, which is the end of 2025, you're gonna have a great time.
- [60:17]
A
Exactly. That's one thing a lot of our, our listeners, you know, a lot of times we've started to talk about this a lot more where you don't have to invest in your local area, you can invest outside of your local area and kind of go farther out. You got to build out a team and have the team in place, but you can definitely do that. And I think that is where a lot of people and some of the best real estate investors right now, they're, they're going outside their local area. Especially if you're in a high cost of living area. Like, like what, where Paul, is where, I mean, it'd be possible to invest in Manhattan, it feels like, but I know people still do it. But it's just one of those things that I think is, is, is really, really powerful that people realize they can unlock the entire country if you kind of realize how this, how this works. So what part of real estate investing do you feel has the, the highest learning curve or have. Where is the area that you've seen most people struggle?
- [61:02]
B
A lot of people feel like they need to do everything themselves, which is a big mistake. So if you're investing locally, one of the risks actually to investing locally is, is the risk that you end up doing too much yourself and it becomes more of a hobby than a business because you're not building systems, you're not building a team, you're not treating it like a business, you're treating it just like sort of a side construction project. And so you'll see people who, if they're investing in their own backyard, particularly like you'll, you'll sort, you'll see these two types of people. You'll see some people who invest in their own backyard and they're kind of handy. Like they, they helped their dad or their uncle with like little construction projects during high school, you know, and so they try to fix things themselves and try to do it. You know, they just, they think that they can save a couple hundred bucks here, a couple hundred bucks there by being the little, the handyman. And what that ultimately does is it caps their potential because you can do that with 1, 2, maybe 3 properties. You cannot expand to 8, 9, 10 properties. If you do that, you just, you can't. There, there's a limit to the number of lawns that you can mow and then you're likely going to not enjoy it because you're spending every Saturday mowing lawns instead of being at your kids soccer practice. And then ultimately, unfortunately, what happens is these people who, they did this as a method of saving money initially, like they took on the work themselves in order to save money. And then they get so frustrated by the fact that they're putting in so much elbow grease that they decide to sell it, which is horrible. It's, it's, it's tripping over dimes at the expense of dollars because now that they've sold it, they've lost all of the asset growth, the income potential, the tax benefits, they've lost all of the opportunity. Plus they're paying transaction costs, right? You, like you've, you've already done the hard work of identifying a property with a good cap rate in a good location. Like treat it like a business, develop systems, you know, like the, the going back to the Coca Cola example. The CEO of Coca Cola is not trying to improve returns by personally being the guy on the bottling floor. You know, why would you violate the fundamental principles of business? Just because this feels like a hobby? You know, oftentimes people will take the same framework that they have when they think about their own personal home and they apply it to an income producing property. This is not your Personal home. This is an income producing property and you, if you think of it as a business and not as a, a home and break that association, you can start thinking of it in terms of systems and teams and not in terms of like, you know, hey, maybe if I, if I'm the person who like nails the baseboard to the wall, I can save a couple hundred bucks. So.
- [64:05]
A
Yeah, exactly. And that's why it's just the perfect bridge, I think, for, for most people is if you systematize your real estate, you can grow it exponentially. It's just one of those things that if you really want to scale and you really want to grow, you have to have those systems in place. And for most people, you know, if they miss out on that early on and, and try to fix everything and try to, you know, pick out the perfect colors for each wall and all that kind of stuff, I've seen people do all that kind of stuff or overspend on certain areas. That's where they can get into trouble overall.
- [64:29]
B
And can I say one other thing? The beauty of investing out of state is that it forces you to treat it like a business. So a lot of times people will think, oh, you know, if I have to invest out of state, that puts me at a disadvantage. That's, that's, that's a, a fear that some people have. I would argue that investing out of state actually puts you at an advantage because it forces you to treat it like a business. And one just small example, there was one time when I was doing a turnover and we had, I had a property manager, like the, you know, the property manager was in charge of the turnover. I get a call from them and they're like, oh, the new tenant has just moved in. And they say that the, the smoke detector is not working right. And normally, like throughout a tenancy, the tenant is responsible for checking the batteries, blah, blah, blah. But at a turnover, of course, I as the landlord am responsible for that. So we send a repair guy to the house and he's like, oh, you know, the batteries aren't in there. Like the backup batteries aren't in there. So it's chirping as a warning, right? So we, we end up paying like maybe 150 bucks for some guy to go out there to tell us that. And that the beauty of that is that that only had to happen one time before I went to this checklist that I have for every turnover and I put like, check batteries, like check backup batteries in all smoke alarms. I added that to the checklist and it's just very simple. I added one sentence to a checklist. That checklist goes to, you know, I make. Because not every property manager is going to have the same turnover procedures. And I've got properties in three states, right. So I have my own checklist that I send to every property manager to supplement their own procedures so that I can make sure that, you know, all of the bases that I want covered are covered. And that that was $150 lesson that only had to happen once. And once that lesson happened once, boom, it became systematized. And now for all of my properties in all three states, you know, from that point forward, we have the benefit of that knowledge, right? And so I think that's the, you know, that's the benefit of managing properties out of state is if I had just driven there myself and handled it, I wouldn't have put it onto a checklist. It wouldn't have gotten baked into a system. You know, that would have just been like an hour out of my afternoon and that would have been the end of the story. But now because it's out of state, it's systematized.
- [67:01]
A
Exactly. And I think that's just that the systems are what absolutely changed my real estate business where I was just spending so much less time. I remember when I didn't have the systems, it would just be one of those things that I would spend so much more time. It was so frustrating early on. But once you start to systematize everything and you create like what Paul is saying, checklists, sops, all those different things, it'll absolutely change your business. And speaking of business, the last one that we have in the acronym is E, which is entrepreneurship. And I think this is one where there's a lot of opportunity here for, for folks out there who are interested in entrepreneurship to really use it to accelerate their path to building wealth. So why do you see this as having high upside going forward? Why do you see entrepreneurship as something within someone's journey that they can really build a tremendous amount of wealth?
- [67:43]
B
So the beauty of entrepreneurship is that you get the upside. You know, you, you get the value of all of the upside that you're creating. When I, when I first left the newspaper, I, I at the time conflated being self employed with being an entrepreneur. It took me a couple of years to figure out the difference. So when I left the newspaper, I started freelance writing. And what I realized after a couple of years of freelance writing is I don't actually get any of the upside. Sure, I, I have the independence that comes from being self employed. And so that meant this is, you know, back before remote work was very popular. Like I, I could, we call back then we, we called it being a digital nomad. Right? I could take my laptop anywhere. I could take my laptop to Thailand or Bali or you know, wherever I wanted to travel and like work from a beach, you know, drinking, you know, a mango milkshake or whatever. And that was great and it was fun and it was a very, it was a fun like lifestyle. But I wasn't fundamentally capturing any of the upside. I was trading my time for money and I was doing so in a self employed manner which gave me some freedom. But I still wasn't, I still didn't own an underlying asset. And it took me a while to figure out, wait a second, the, the distinction between being a freelancer or a contractor where you're trading time for money versus or, or a W2 employee where you're trading time for money versus being someone who owns the asset. You own the platform, you own the thing, whatever that thing is that you are the product or service, right? If you own that ip, then whatever that upside is, it's yours. And the beauty of that is that that upside is unlimited. And once you get into entrepreneurship, you will start to see that you have the issue. And I'm sure you can relate to this. There's never a lack of ideas. You know, you are, you're like this, you, you have, you are drowning in ideas for how to grow. And your limitations to growth are the, the natural human limitations of at some point I need to sleep and eat right, you know, or like maybe after, after X number of hours per day. I know that my brain is going to conk out and I'm, my eyes are going to get fuzzy and I'm not going to be able to focus anymore and it's time to shut down the laptop and go like work out, you know, like. But it's your natural physical human limitations and the limitations of your money when it comes to hiring people because you can only hire so many people before you run out of money. And then you are like, all right, well that's, that's my hiring budget. That's, that's, we need to make more money to hire more people. Like those, those are your limits. Ideas are never the limit. So you, once you have an entrepreneurial venture, you see so many opportunities for how to grow the grow the reach, grow the impact, grow the revenue, grow the team. And then it's just a matter of the Implementation gap.
- [70:57]
A
It's ideas are my biggest problem. They're probably my biggest block overall, where I have too many ideas and I'm trying to take action on way too many. And we'll tell you, Irene will tell you, it's just one of those things that I cannot stop coming with ideas. So that's for sure one of the things that I see most of all. Yeah. What skills or traits in personal finance do you see kind of translate over to entrepreneurship?
- [71:17]
B
I'd say the ability to assess both opportunity and risk. So I think with, with well managed personal finances, like what is personal finance? It's resource allocation. You know, money is a limited resource. And so the way that we, we manage a limited resource is, is a function of what are our highest priorities and how do we align this, this limited resource with those highest priorities in, in a way that chases opportunity but doesn't subject us to undue risk. Like in poker, there's this concept called the risk of ruin. Meaning in poker you do want to take risks, but you never want to take a risk that is so, so bad that it will literally knock you out of the game. So job number one is just stay in the game, right? And, and manage the downsides so that you stay in the game. And so long as you stay in the game, then, then even if you're trailing behind everyone, even if you're losing, you're still in the game, you know, and as long and, and as long as you're still in the game, then there's still a chance, right? And, and then your job is just to like come to, to, to, to be the comeback kid, right? To come back from that losing position if you've, if you've had a number of bad, bad hands. And so I think in personal finance, what you want to do is manage the risk of ruin. And then beyond, beyond that, if, if you think about sports like that's the defense, right? So you put up a good defense and then once that defense is secured, then it's time to play offense. And so it's, it's balancing defense and offense, it's balancing risk and opportunity. You do that with the, you know, capital allocation, which is money management, personal finance, and you do that as a business owner as well. And so I think that that skill set really translates 100%.
- [73:18]
A
I think that's where there's a lot of those different areas where I think if you are, you know, if you, if you are kind of one of those folks who kind of optimize early on with your finances, you can probably translate some of that over to, to business and there's some things that you can do there for sure. So this has been awesome. Paula, I want to, I want to ask you a couple of rapid fire questions before we wrap this episode up because I'm really excited. These are some of the fun ones we want to do. So the first one is what's one money belief you had to unlearn to build wealth?
- [73:44]
B
That that building wealth is all about frugality. And I, I made the mistake of spending my twenties being hyper frugal. So don't do what I did.
- [73:52]
A
Are you a saver or spender by nature?
- [73:55]
B
By nature a saver. But I have trained myself to be a spender and I think it's important to learn if for anybody who is naturally frugal as I am, it's important to learn to be a spender and it's also important to learn to be a giver because that's how you hardwire yourself into a mindset of abundance, I think.
- [74:14]
A
And if anybody hasn't read Morgan Housel's new book on the art of spending, he's got a great concepts in there that are talking about through just even like just how to become a spender if you're struggling with that. So what's the most underrated money skill?
- [74:24]
B
Most underrated money skill is recognizing new opportunities. Because often new opportunities, we over ascribe risk to things that are unfamiliar. There again, familiarity bias, right? If something is familiar, we underplay the the risks of it and if it's unfamiliar, we overplay the risks.
- [74:45]
A
What is one psychology trap, especially when it comes to money that you see everywhere?
- [74:49]
B
I'd say the biggest One is confirmation bias.
- [74:52]
A
One. What is one question people should ask before buying anything.
- [74:58]
B
10 years from now? Will I be glad that I did this?
- [75:00]
A
Oh, I love that one. What is one investing myth that will not die?
- [75:05]
B
That it's all about appreciation. That it's all about speculative appreciation.
- [75:09]
A
Love that. And the last one is my favorite. What does wealth mean to you?
- [75:13]
B
Wealth is the freedom of time and energy because we pay for everything in one of three ways. We pay for things with money, with time, and with energy. And the more that you can use money to pay for things, the less you have to use your time and energy to pay for it.
- [75:29]
A
I love that. Well, Paula, thank you so much for being here today and thank you so much for coming in studio. Where can people find out more about you, your podcast and everything else?
- [75:35]
B
So my podcast is the Afford Anything podcast. You can find it on any major podcast player, Apple podcast, Spotify, YouTube.com afford anything to watch our videos so just search for the Afford Anything podcast. We also have a newsletter afford anything.com newsletter where we share lots of tips, tricks, information that we don't offer anywhere else. It's completely free afford anything.com newsletter awesome.
- [76:03]
A
We will link all those up down the show notes below. And Paula, thank you so much again for being here. We truly appreciate it.
- [76:08]
B
Thank you Limu Imu and Doug Here.
- [76:12]
A
We have the Limu Emu in its natural habitat helping people customize their car insurance and save hundreds with Liberty Mutual. Fascinating. It's accompanied by his natural ally Doug.
- [76:26]
B
Uh Limu is that guy with the binoculars watching us.
- [76:29]
A
Cut the camera. They see us. Only pay for what you need@libertymutual.com Liberty Liberty Liberty Liberty Savings vary unwritten by Liberty Mutual Insurance Company and affiliates Excludes Massachusetts.