A (5:58)

Hey Andrew, it's an honor to be here. Thanks for having me, man.

B (6:01)

We are so excited to have you here and most of our listeners most likely have read your book because we recommend it all the time. In fact, I just gave your book away to a ton of people over Christmas. It's one of the first books I give away to people when we kind of talk through finances. And I am just so excited to have this conversation with you today. So you have, and I've told you know, a lot of my audience already knows this because we talk through this stuff, but you have had a huge impact just on the way I think about money. Been reading your blog for a very long time. So very, very excited to have you here and excited to dive into this. So to start off, you've said in the past that simplicity beats complexity when it comes to investing. And I want to kind of start off the conversation with investing because I think there is some really, really cool nuggets that we can talk through here. But why do smart people still overcomplicate money? Why is it overcomplicated in a lot of different scenarios where you look at the media, you look at the markets and people trying to overcomplicate money? Why do people still do that?

A (6:55)

Wow, that's a big question, Andrew. I, I, you know, and I'm not a psychologist, so I have to speculate a little bit here, but I, I think it's because smart people, and maybe this was my problem. This is why I, I, it took me so long to come around to simple indexing. I think smart people have trouble believing that it can be that easy, that it can be that simple. They keep thinking, you know, in almost everything else in life, if you put in more effort, you get a bit better result. But the truth is, and decades of research back up what I'm about to say when it comes to investing, the less effort you make, the better your results are going to be. The less you tinker. If you set up a good plan and automate it, which is what I recommend in low cost index funds, and then you step back and just leave it alone, you will do far better than if you put in a lot of effort trying to tinker with it. Charlie Munger once said you never want to get in the way of compounding. And what he meant was don't try to dance in and out of the market trying to time it and all that, which is a futile and expensive mistake to make. And Jack Vogel once famously said, don't just do something stand there when markets were going south. So, you know, there's, there's a lot of people besides me that, that recognize the value of simplicity and less is more.

B (8:26)

And it's amazing when you kind of. I always think back to early on where I would read all the, the different Warren Buffett books very early and, and I would kind of say, oh, I'm going to try that. I'm going to try to value invest and kind of get in and out of the market and try to do some things, you know, very early on where my first stock I ever bought was a penny stock. And I remember I was like 17 years old, thought I could really beat the market, bought this pen, all my money in, in one single day. And it was just one of those lessons that I absolutely look back to every single time and say it was just so funny, you know, when you're doing more how much, how much worse your situation gets, where then, you know, once I started to invest in low cost index funds, I don't even look at them anymore, I don't even touch them. I just kind of invest in them over time and it just changes everything. And I think that's the really cool thing about the summary of this is, is complexity is just going to overcomplicate everything. And most people get way worse results if they actually, you know, factor in complexity.

A (9:18)

So, you know, before you go on just, I want to make one comment about your penny stock experience because that of course is what happens most of the time when you invest in penny stocks. It turns out badly for you. And that was probably a very inexpensive, very, very important lesson for you early on. The more damaging thing ironically is if it had worked, if the penny stock you happened to choose and this does happen, had skyrocketed, because what would have happened then is you would have confused raw luck with wow, I really am good at this. This is really something I know how to do. And you would have done more and more of it at higher and higher investments, you would have made bigger bets and it would have become a much more expensive lesson when it ultimately imploded on you. So you got very lucky that it failed the way it did early.

B (10:13)

And that's truly an important point to make because overall, like, there's a book I'm reading right now called Thinking in Bets. And what it talks about is an ex professional poker player kind of going through and saying, hey, the outcome of a situation doesn't mean it was a good decision. And you got to realize that in a lot of different scenarios. And so for most people out there that, you know, even folks right now who are maybe sports betting or doing something along those lines, right. You can see they think the outcome is going to be great because maybe they had some success very early on. But it doesn't mean it's the right decision or a good decision because it can become very, very costly as time goes on, especially if you start up the ante. And I think that is a huge lesson and a great point to add in there for sure.

A (10:49)

Yeah. When money comes easily, it's not sticky. You know, the tougher it is to acquire money, the stickier it is. By that I mean, the more likely you are to hang on to it. But when money comes quickly and easily, either because you make a speculation that turns out really well, or maybe you have an incredible talent in, say, sports or music or something, and you hit big financial success early, those people, there's countless stories of people who make enormous amounts of money that way and then turn around and lose it. So it can appear to be a blessing and to be a curse. The same thing with lottery winners that so often when people win the lottery, they wind up bankrupt because it comes too easily and it's not sticky money.

B (11:39)

And for all those listening right now, I think one of the most powerful lessons, even from what JL is talking about here, is that you can learn from, you know, failures. They just don't have to be your failures. And so you hear these stories of people out there or you read these stories of people who are making these mistakes, and you don't have to make those same exact mistakes. You can learn from those failures. And I think it's a powerful thing for a lot of people to, to think through is, you know, just making sure that you, you are avoiding a lot of these things is very, very important. So if you had to summarize your philosophy in one sentence for someone starting from zero, what would it be?

A (12:12)

Be Avoid debt, live on less than you earn, and use the surplus to buy your freedom.

B (12:19)

And if you were looking at that and you were saying, you know, I'm starting from zero, I'm. This is the very beginning. Let's say you're early in your career today, how would you go about doing that? How would you go about making sure that you are living on less than you make and investing the surplus?

A (12:34)

Well, I would do it the same way I actually did it back in the day. So when I came out of College in 1972, the 70s were a terrible economic time for most of our listeners. They're probably not aware of that unless you study economic history. But 70s were a time of very high inflation and stagnation. It's when the term stagflation was coined. It took me two years to get my first professional job out of college. I put myself through college, and then for that two years I was doing landscaping to pay the bills. And then I finally got my first professional job, which paid $10,000 a year, and adjusted for inflation, that's probably 50, $60,000 today, something like that. And anyway, I arbitrarily decided that I was going to save and invest 50% of it because I knew that the most important thing that I could buy, that I wanted to buy with my money was my financial independence, was to have what I came to think of as FU money. So that's what I spent most of my money buying. And of course, you buy that by acquiring assets. Unfortunately, I wasn't very skilled at choosing the assets in those days, but that's a different story. And so people say, well, how did you live on half your income? Well, for me, that was more than I had been living on, doing landscaping. And the landscaping was a whole lot more than I had I was living on when I was a student. So, I mean, it was an upgrade. And then as my income grew, not only did the amount that I was saving and investing grow, because when I was making 20 grand a year, I was saving, investing 10. But my lifestyle could also grow because now I was living on 10 instead of 5. So it just was very comfortable for me. I think the much bigger challenge is for those people who are a little older, a little further into their lives, who have constructed lifestyles that use up every penny they make. And tragically, sometimes they have to borrow more to maintain those lifestyles. That's a much more difficult situation to unwind in order to follow this path.

B (14:52)

It truly is. It's much harder to go backwards than it is to actually kind of make sure that you establish this up front. The difficulty to kind of try to unravel that is very, very hard. And I've seen it time and time again.

A (15:03)

Anybody who's listening, who's young, who's just at the beginning of their, of their journey, you're in a golden moment, both because you don't have any of those bad habits and you haven't constructed that burdensome lifestyle, but also because you have time. And time is your friend when it comes to investing.

B (15:22)

So you and I both love index funds. And I think index funds are the, it's the impetus of my, it's what I invest in. It is my, you know, the total holdings of what I even are ever interested in. And it's one of the things that I think is just such a powerful way for a lot of average investors out there to look at investing. Why do you believe that low cost index funds beat almost every, all, every alternative over a lifetime?

A (15:46)

Well, there are a couple of reasons. One is in the name. It's low cost. And costs matter over time. Costs are, I mean, they can seem small. If you say, well, you know, I'm paying a 1% investment fee to an advisor or to the funder, whatever, that's, you know, 1%, what's that? Well, compound over time. That's huge. That's absolutely huge. So a dramatic advantage that these things have immediately is the low cost part. But the second part is if you're investing in the s and P 500, which is basically the 500 largest companies in the US or the total stock market index, which is my slight preference, you don't have to guess who the winners and losers are going to be because whoever the winners are, you're going to wind up owning them. And the losers will just fade away naturally and they'll drift down the index and eventually off. That's a process I call self cleansing. So I don't have to guess who the next market leaders are going to be for the next 10 years. I know that I will own them. And I don't have to guess which of today's current market leaders are going to fall from grace and fade away, because that will happen naturally as the new blood that replaces comes on board. So it's an extraordinarily powerful process. And that also means I never have to think about when do I sell this investment. If you buy an individual stock, if you're smart, you have to be thinking, okay, how long am I going to hold this? And on what circumstances would I Choose to sell it? Would I need to sell it? That's a very, very difficult decision. Picking which stock to buy to begin with is hard enough. Deciding when and if to sell it is is even harder. So it seems. This was my personal hang up because I was a stock picker for a long, long time. And my personal hang up when I looked at indexing was, how hard can it be to beat the index that buys everything? All I have to do is just buy the best companies and I'll beat the index or just avoid the worst companies and I'll beat the index. But that doesn't work. And again, there's decades of research that back up what I just said, and it doesn't work because today's best companies fall from grace and today's laggards. Sometimes there are tomorrow's really cool, exciting turnaround stories, and predicting what those are going to be is enormously difficult. People say that, well, most of the market gains are driven by a relatively small number of stocks in the index. And that's absolutely true. The trick is figuring out which ones those are.

B (18:43)

Right. That is the huge trick. And I think for most people, if they think about it this way, there are folks on Wall street right now, they have entire teams of folks who are Harvard or Yale graduates who are on their team, the best finance minds in the entire world. And their entire goal is to try to beat the market and they're trying to beat the S and P and try to outperform the market. And 90% of them this year. The data shows this historically, going back years and years and years and decades and decades. The data shows that 90% of them are not going to beat the s and P500. And of the 10% that that do, they are not the same year in and year out.

A (19:17)

Right.

B (19:17)

And I think this is the overall lesson that we have to learn is like, beat the smartest financial minds in the world. Do we really think that we're going to do a much better job than even them and they can't beat the s and P500? Why do we think that we can?

A (19:28)

Yeah, it's. It's kind of like saying, you know what, I could take some lessons and get in the ring with Mike Tyson.

B (19:35)

Exactly.

A (19:35)

How would that work? I mean, I could figure out how Mike trains, that I could go do that and, you know, then I could climb in the ring and. Well, yeah, I don't think that'd work out very well. At least not for me. It'd probably be okay for Mike, but you Know, but investors routinely do that and they don't even go through the training. They just say like, you did it when you were 17. You're like, yeah, I can get in the ring with the toughest, meanest, nastiest heavyweights in the investing world and I'm gonna win. You know, it's like, ok, okay, good luck.

B (20:07)

Exactly. And so you mentioned earlier that your preference is, you know, slightly towards vtsax versus maybe the S and P or whatever other options that are out there. Why do you like VTSAX the most? Or why is that your personal preference?

A (20:20)

Well, let's start with why it's such a slight preference. Right. Because if you track the S&P 500 and you track the total stock market as represented by vtsax or vti, which is the ETF version of it, you'll see that in performance wise over time, they track very closely, almost identically. Right. And the reason for that is the bulk of VTSax is made up of those 500 stocks because it is cap weighted. That cap weighted simply means that the bigger the company, the greater percentage of the fund it represents. So the biggest companies by definition are going to be most of the fund. The reason I prefer it is it does have some. Well, it has a lot, a small percentage of the overall capitalization. It has 3,600 companies as opposed to 500. And those extra companies are all mid and small cap companies and they add a little spice to the portfolio. So I prefer vtsax for the same reason I put Tabasco on my eggs. It's just a little bit of extra spice that I kind of like. But if you have a, if you're in the S&P 500, you're in a 401k for instance, and they don't have a total stock market index fund, but typically they almost always have an index 500 fund that's you're good to go. That's golden. Jack Bogle himself owned the S&P 500 fund for his entire life. So you're in good mood.

B (21:56)

I agree. Yeah, I like that too. I think the thought process of having the additional mid, you know, the small cap and some of the mid cap stocks I think are just a great addition. And we did an episode probably about a year ago now where we were comparing a bunch of different portfolios. So we, I kind of went back and looked at all the historical data for 10 different portfolios and we went through one where you just held VTS X. We went through one where you did the Warren Buffett portfolio, 90% S&P 10% total bond. We went through like Ray Dalio's portfolio, we went through even Dave Ramsey's portfolio. We went through all these different ones, you know that the three fund portfolio and a bunch of other ones ones. And the funny thing was historically the portfolio that performed the best overall, weathering all the storms and everything else was just holding btsax. It was the, that was the one portfolio that actually outperformed everything else. Now sure, during downturns you may have some more volatility there because it's obviously just holding a lot of equities. But overall long term, that was the one that actually performed the best, which was a very interesting case study because that wasn't what I expected when we first kind of dove into it. But at the same time it did hold the most stocks overall. And so that's kind of part of, part of that process. So it was a very cool, the episode was just very fun to do and kind of go through some of those, those holdings and see which ones weathered the storm. Now if you obviously when you add in bonds and those types of things, it weathers out some of the downturns. But at the same time, as long as you're a long term investor, that stuff matters a lot less than someone who you know would be interested in investing short term in any way, shape or form.

A (23:22)

Well, that is a great point. And, and that is the reason that when you're accumulating your wealth, VTSAX is the only investment I think you need to own, right, because bonds are there to smooth the ride. But when you're accumulating your wealth, presumably you have earned income that you're diverting into that investment. And that earned income, those regular investments are what smooth the volatility. So you are taking advantage of those expected regular market pullbacks to buy your shares at a discounted price. And it does ultimately over time give you the best performance. The problem with it, and you alluded to it, is it is a wild and rocky volatile ride. And so when you look at portfolios that are put together by other people and they have things other than vtsax, the reason they have them is to smooth out that volatility, right? So you don't have those wild swings. And if that's your goal, then certainly you should do that. And I myself recommend at some point you want to add, and I prefer Vanguard's Total Bond Market index fund to add some bonds to smooth out that volatility, especially when you don't have that earned income and the percentage of bonds you hold in my world is entirely dependent on how uncomfortable that volatility makes you. Because if you are willing to tolerate the volatility, nothing will outperform stocks over time. But a lot of people struggle to tolerate the volatility. And if you can't tolerate it, if you're going to panic and sell when the market drops, and notice I didn't say if, I said when, because the market will absolutely drop on a regular basis. It's a perfectly natural part of the process. It's not the end of the world, as the financial media would make it appear. When it happens, if you're going to panic and sell when that happens, you don't want to follow my advice. You don't want to be in stocks at all, because that's a recipe that will leave you bleeding by the side of the road. You have to stay the course. Going back to Charlie Munger's thing, don't get in the way of compounding. As Warren Buffett once said, try to dance in and out of the market. That's a fool's game. But it's very hard for people to do that. And I appreciate that. And that's why other portfolios that have other asset classes, diversification are so frequently recommended because they smooth out that ride. So when your stocks are plummeting, hopefully your gold or your bonds or something else is, is doing better. But overall, that's going to give you, over the decades, that's going to give you lower performance overall. So that for me is too high a price to pay to smooth out the volatility. I'd rather toughen up and learn to live with the volatility and have the greater return.

B (26:27)

And especially with the two phases of the portfolio that you talk about, I love the way that you kind of position this. There's two kind of life cycles to your portfolio. There's the accumulation stage. So during your working years, when you have that income coming in, you know, you're accumulating this wealth and you can go or, you know, look into further investing in, you know, the majority of your portfolio or all your portfolio, if you can weather the storms into stocks. And as you get closer to retirement age and start to shift, then you have that preservation portfolio where you're looking at this and trying to live off this portfolio instead of just accumulating and growing that portfolio over that time frame. So I love the way that you position that too, just having those two stages, because that's a very, very powerful way to think about this when people are starting to develop their plan and think through their plan overall.

A (27:08)

The other thing that I would add to that, and by the way, thank you for pointing that out, and I agree with it, is that especially for young investors who are just beginning, the absolute best thing that can happen for you is a market crash. I mean, any young listener who is beginning to invest in the stock market, us, should be rooting for a major market crash. I'm not predicting that to be clear because I have no idea what the market's going to do next, and by the way, neither does anybody else. But if you're in your 20s and investing, you should be hoping for that because that allows you to accumulate shares at a bargain price. Imagine for an example that you came out in, say, the year 2000. So as your listeners may or may not know, the first decade of this century is referred to now as a lost decade when it comes to investment. It was bracketed by two of the worst market crashes in history, the tech crash in 2000 and then the financial debacle in 0708. It was a terrible decade for stocks. It would have been a magnificent decade to have begun your investing career assuming that you were not bothered by that volatility. You just kept putting money in because you were acquiring shares at unbelievably, looked from today's perspective, unbelievably low prices. And then of course, beginning in, I think, March of 2009 when the market bottomed, we've had this very, very long term bull market with a few pullbacks, but overall, a bull market for how long has that been? 15, almost 20 years now. I mean, what a magnificent bit of luck to have endured that quote, unquote lost decade. So if you're young, you should be rooting for another lost decade.

B (29:06)

Exactly. I think that's, that's the truth. I mean, overall, when you think about that decade, it is absolutely incredible. You know, some of the opportunity that was actually available there if you just continued your plan and continued investing overall, which is why for most people out there, we talk about this a ton. You just have to know that these pullbacks are going to happen and they're going to happen pretty frequently. It's going to be part of your portfolio, you know, throughout your working years. If you work over the course, course of 30 years, it's probably going to at least at a minimum happen, you know, every 10 years where there's going to be some pullback and there's going to be a lot of other minor Pullbacks as well. Over the course of that working time frame, you just got to get used to it, kind of power through and stick to your plan, know why you were doing this. And I think that's the most powerful thing for most people to note. And there's a lot of folks out there who come to, to listen to this podcast and they will, they'll come in and they're, they're just getting their finances started maybe. And when they're getting their finances started, they feel like they are maybe a little bit behind or they're starting a little too late. What would you say to someone who feels like they missed the boat or they started too late? Maybe they're in their mid-30s and they have a family or they're in their mid-40s and they're just getting the ball rolling. What would you say to them? Are they too late? Did they miss the mark? Did they miss the timing there? Or do they need to get started sooner rather than later?

A (30:14)

So what I would say is, first of all time is your friend, as we talked about further. So anybody who's very, very young listening to this and just starting, that's a tremendous advantage. No question. Having said that, if your goal is to achieve financial independence and you are serious about it and you are willing to commit, as I did, half of your income to buying your financial independence, it's about depending on how the market does, it's a 10 to 15 year journey from zero to financial independence. It doesn't matter how old you are when you start, it's a 10 to 15 year journey. Now the other question becomes, well, what if you're 70, right? I mean, forget when you're 30, because when you're 30, you say, okay, great, I'll be financially independent by the time I'm 45, that's pretty damn good, you know, no worries there. Even if you're 40, I mean, but let's say you're 70. Really? So I'm only going to get there at 85? Well, yeah, maybe, but one of my all time favorite quotes is from Leo Burnett, who started the Burnett Ad agency in Chicago back in the 50s or 60s. And the quote is, if you reach for a star, you might not get one, but you won't come up with a handful of mud either. So if you start your financial journey and you don't get to full financial independence, you're not going to come up with a handful of mud. You are still going to be significantly better off than you would have been before. It's the Same thing as exercising and working out. Right. I'm trying to spend a little more time being a little more diligent about my health. I would love, as some of my friends who are helping me, my younger friends who are helping me, I'd love to get down to a body fat content of under 10% my age. That's probably never going to happen. But can I improve my health? Yeah, absolutely. I can make it better. I'm probably not going to get to that gold standard that these younger people have, but that doesn't mean it's a journey that I shouldn't take. Now I can make myself leaner and stronger than I am, even though I might not get to that golden ring. And it's the same thing financially. If you were starting and I'm 75. If you were starting at 75, yeah, you're probably not going to be financially independent, just like I'm not going to have a body fat content of 10%. But we can still make ourselves better.

B (32:57)

Exactly. It's really just overall, like I see this happen all the time, even with folks in different generations. For example, JL we will post a video on Tick Tock and we'll talk about, hey, if you start investing now, even if it's a small amount of money, because we're talking to usually younger viewers on TikTok and we'll say, hey, you know, just $100 a month, $200 a month, just get started, just start to invest something. And then we'll all, we get the response, it's fail proof every single time. They will say, what am I supposed to do? Just keep investing this money over the course of 40 years and then I'm going to enjoy it when I'm, you know, in my 60s and 70s, I don't want to do that. I want to live right now. And it's over and over and over again. You kind of see these responses of this pushback all the time from just different generations where some people will be saying, hey, I'm just struggling to get the bills paid. You know, I don't even know what I need to do next. You know, I'm just trying to figure out where to get my next dollar, how am I ever going to be able to invest? And it's all these different things that kind of come across the board where people start to have these just negative reactions to, to us talking about investing. And I think that is the most important thing. What you're saying right there is I love that quote where even if you reach for the stars, you're not going to grab a handful of butt. And I think that's just a really powerful way to look at this and think through. Well, you just got to get the ball rolling. You just got to get started and get that momentum started. And once you do this and once you set out a plan, especially when it comes to financial independence, this is what I love about the fire movement so much, is that there's just so much tenacity when it comes to that goal, and you can accomplish this in a decade and really be so much better off. And I think that's just one of the most amazing things. Now, when it comes to financial independence, how do you define enough? And why do so many people never find or figure out what that enough number is?

A (34:36)

Well, before we go there, let me make one comment about what you just said. And that is because, like you, I've gotten that same kind of pushback. And it takes the form of, you know, that just feels like so much deprivation. You know, I have to set all this money aside to invest and I don't get to spend it. And I think that's a product of our culture that encourages people to spend on what I call trinkets and trash, because that's me. But you are still spending your money. You have to sit back and decide, I have a certain amount of money that comes in through my earned income or whatever, however much it is, you get to decide how you want to spend your money. What is the most important thing to you to buy with that money? For me, and I don't suggest that this should be true for anybody else, but for me, the single most desirable thing I could spend my money on was being financially free. There was nothing I wanted in life more. So it never felt like deprivation. It felt like I'm spending the bulk of my money on the thing that I want the most. How is that deprivation? Now, if being financially independent and having that freedom is not something you really want, or it's not something you want more than all the other things you could spend your money on, then this is probably not the path for you. And candidly, it is probably not the path for most people. Most people who. Well, first of all, most people are never going to hear this conversation or read my book. So they are never even going to be aware that this is a thing they could be buying with their money. That's one thing. So that's most people. Even the people who listen to this conversation and. Or read my book, a lot of them are going to say, you know what? Okay, but I'd rather have the fancy car or the bigger house or whatever. And hey, it's your life, it's your money. You can do whatever you want to do if that's your choice. But at least you know that this was another way you could have spent your money. So there you go.

B (37:06)

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A (40:38)

If you care about electricity, but.

B (40:40)

Exactly, exactly. So overall, that's kind of the thought process that, that I kind of came through it. It became a, a skill that I developed over time. I think when I first started to earn some sort of money, I didn't have that skill in place and I didn't understand that skill. And I developed the muscle and the skill over time to kind of think through and decide these types of things. And I think that is for most people, if you struggle with this, if you're like, man, I do want financial independence, but I got all this stuff and I can't stop buying stuff and these trinkets and these random things. My garage is filled to the brim and there is just so much stuff in my house that drives me crazy. It actually stresses me out how much stuff there is because there's so many people I know that I talk to where that that's kind of going on. Then learning the skill of spending, learning the skill of identifying what you actually value and putting more dollars towards those things can absolutely change your life for the better. And I think for most people, they don't actually spend on what their values are. And it is something that over time can just tremendously change their life if they learn that skill.

A (41:37)

You know, that brings us back to the question that you asked a moment ago about what's enough, Because I think that's an important thing to determine. One of the hot topics of conversation in the FI community these days seems to be learning how to spend. And the idea evidently is that some people who are pursuing this path are so good at diverting money to buying their freedom that they have trouble once they've achieved that, they have trouble in shifting gears. So what I would say, and this kind of baffles me, I guess, because it wasn't a problem for me, but as I said a moment ago, I set out to spend most of my money on the thing that was most important to me and that was buying my financial freedom. But once I bought it, I didn't have to keep spending, diverting money to it. Right. So that goes back to your question of what's enough? So how do you figure out what's enough? Well, the best guideline that I'm aware of is what's come to be known as the 4% rule. And the 4% rule, it was an idea that a guy named Bill Bengen came up with. He was a financial advisor and he was trying to figure out how to advise his clients on how much they could spend in their portfolio without running out of money. And he did some research that was later backed up by the Trinity study in the 90s that indicated that adjusted for inflation every year, you could withdraw about 4%. And in the worst, it's very conservative. It was designed to survive the worst economic time, the worst start period of time, and it would last for 30 years. So that's a very conservative way to look at it. And I think it's a great way to measure whether you have enough. So how does this actually work in the real world? Well, two ways. You have to determine how much you have invested and how much do you spend. And you can look at it from either direction. So let's suppose you decide, you know What? I need $100,000 a year to live on. That's what I want to live on. That gives me the lifestyle I want. Whatever. Okay, great. You multiply whatever that number is in our example, 100,000 by 25, and that gives you $2.5 million. So that tells you that invest it in low cost index funds, at least 50%, equities, stocks, you're going to probably be golden. You'll be able to pull that 100,000 a year for indefinitely. In all but the absolute worst scenarios, you'll probably wind up with far, far more money than you ever dreamed possible. So the other thing you can do is you can say, well, okay, I don't want to work anymore and I've got a million dollars invested. Okay, well, you look at that and you say, what's 4% of a million? Well, it's $40,000. Can you live on $40,000 a year? Is that comfortable for you? And if it is, you're financially independent. So it's not. Financial independence is not a given number. It's not two and a half million or 10 million or a million or half a million. It's a formula based on how much do you want to be able to spend and how much do you have. But once you decide that once you get to that point, you've bought your freedom. You know, if Your number is 100,000 a year and you get to two and a half million, you have bought your freedom. Now you can continue to save and invest at that same aggressive rate, and that number will get bigger and bigger. But now you're buying something that you already have. And at that point, I would say, okay, if that's what you want to do, hey, it's your money. But you don't really. You've already bought your financial freedom. You don't have to keep buying it. You know, it's like if you went out and said, you know, I really want to drive a Mercedes, okay, you go out and you buy $100,000 Mercedes, you don't have to go out and buy another one next year or next month. I mean, you've bought that car now, maybe every five years you got to go buy another one. But whatever. I mean, once you bought the thing, you have the thing, so then you can spend your money on other things. Does that make sense? I mean, it seems. It seems so simple to me. I wonder why people struggle with it, but they seem to.

B (46:14)

It does. And I think I've seen a lot of people struggle with this, where they had that. They struggle with, I guess, the accumulation stage. They get so aggressive with it. I think early on especially I've seen it with people who are extremely aggressive very early, where they will go through the process. They get to this point in time, they're done, and then all of a sudden they don't know how to flip that switch into being able to kind of stop having to accumulate over that timeframe. And so honestly, there's. There becomes A point in time where I've seen even people begin to accumulate and it almost becomes counterproductive for them because they, they, you know, they over accumulate, essentially is kind of one of the ways I put it where they, where they just can kind of continue to do that. And really just learning to turn that switch on is, is really important. And I think for, for most people out there, you're hitting the nail on the head. It's, it's. For me, it would be pretty easy too. And I kind of learned that skill just kind of over time and it was pretty easy. But for a lot of folks out there, I think sometimes it's hard to turn that switch on.

A (47:10)

I would put out there too. Is so I don't seem like too much of a hypocrite. We don't spend nearly the resources that we have. And it's not because we have a problem spending. It's because there's just not very much that we want. And so if you have increasing resources going out and just spending it because you have it seems silly to me. I mean, at that point you should look at giving it away and maybe helping other people with it. You probably ought to be doing that before that point, but that's a different conversation. But just because you have it doesn't mean you have to spend it on something that is not meaningful to me. A Mercedes, for instance, is. I could easily afford a Mercedes. I have zero interest for a whole lot of reasons in owning Mercedes. It would not make my life better to buy it. So just because I can, I'm not going to. And if that means that my net worth increases more than, well, okay, I mean, you know, poor me, right? I mean, right. The terrible problem. So you also shouldn't feel compelled to spend money just because you have it. But the only thing I would say is if you're somebody who is living frugally and saving, investing, and there is something, and you're financially independent and there's something you really want and you are still saying to yourself, no, I can't afford that. I think that's a problem. So for me, that's traveling first class. When I fly, first class is a terrible value proposition. Terrible. Probably the worst value proposition out there. But for me, it makes flying not good. Not even average, but slightly less terrible. If I fly first class, flying is slightly less terrible if I don't. At this point in my life, I can easily afford it. And yeah, I'm willing to make a very bad value purchase. But just because it makes my life Slightly less terrible. So.

B (49:20)

Absolutely. And I think that's just finding those things that are. Are, you know, important to you. Like, there's, for example, for years and years and years. Here's a great example. For years, I would. I tried as hard as I possibly could to avoid paying someone to come mow my lawn. And so every single week, I'm, like, working, you know, 60 hours a week. And I'm. Every single week I'm. I'm sitting there and then I'm coming home and I'm mowing my lawn for five hours a week and trimming the hedges and pulling the weeds and doing all these things. And I absolutely hated it. I hated every single second of it. And I did not want to fork up the $75 a month to have somebody mow my lawn. And so eventually, over time, I realized the time value of money, and I said to myself, okay, here's what I'm going to do. I'm going to hire this lawn company. It was the best $75 I have ever spent in my entire life to get that time back, because I was able to. And really, what the impetus of this is, when my first son was born, I decided, okay, I want to spend more time with him on the weekends and, and. And those types of things. And it just changed my life and it unlocked that thing. And I was almost overly frugal during the beginning, and then once I started doing that, it changed everything. So is there. Is there like a formula or a way that you think about aligning spending with happiness instead of a lot of people out there spend for status, but is there a way that you can kind of think about spending your money for happiness instead of status? Is there a way that you think that through that?

A (50:34)

So before we go there, just one comment on your lawn mowing the other, which I fully applaud. The other thing to think about is that you are now taking that $75. That is buying something that's important to you, getting rid of a chore that is onerous, but you're also putting that $75 into the pockets of people who need it, who will make better use of it, Right? So when you're spending money, you are benefiting the people around you. I mean, charitable giving is one way to benefit people, but taking on their services and paying for their services and. Or their products is another way that you benefit people. So going to your question on spending and happiness, I think that's very, very tricky because I think this idea that spending money will make you happy is Suspect. I'm not sure that you should look to spending or your money to make you happy. I. Happiness comes from different directions. A lack of money can certainly cause unhappiness. If you don't have enough money to pay the rent, put food on the table. If you don't have enough money to take care of car repair, if your car breaks down, I mean, that's terrible way to live. And so money can absolutely increase your happiness by taking care of those basic things. But I think once you have enough money that you are living a reasonably comfortable life, and it doesn't take very much money, at least in my world, to have that reason. Roof over your head, clothes on your back, food on your table, and have those things reliably, then I think the idea of spending money to increase happiness is suspect. If you've always wanted to go on a trip, then go on the trip. And experience will candidly probably bring you less happiness than you think it's going to. You'll probably have a lot of that happiness simply in planning it. If you buy objects, if you've always wanted to own a certain kind of car, well, when you can easily afford it, then go buy it. You will probably find that the novelty wears off pretty quickly. And that's okay. There's nothing wrong with that. But I think. I'm not sure money and spending is where you should. What you should look to for happiness.

B (53:08)

I love that answer. And I think that's kind of the conclusion that I came across as time went on is where, you know, I think a lot of people chase happiness with their money. And it seems like every single object that you buy that you think is going to make you happier, even just researching that item is more fun than actually once you get the item. It's almost like one of those. One of those games that I think as time goes on, it feels like every single time I've done that and thought, oh, this is going to make me, you know, enjoy life more or enjoy a specific project more or something else. It never does. It's fleeting and it goes away. And I think that is one of those areas that I learned over time as well.

A (53:41)

You know, a great story. I love this is a Warren Buffett story. He was evidently notorious. He used to drive Cadillacs, and I guess Cadillac's a fancy brand name, but when you're worth multiple billions of dollars, it's, you know, it's pocket change, right? But he would drive them for a long time, and he said at one point he drove them and his daughter Said her dad is just so disreputable. You have to get a new car. So he's driving these things for a decade plus. And he said, you know, the reason is that I just don't want to waste half of a day going to get a new one. That's just not how I want to spend half a day of my life going to buy a new car. And I can kind of relate to that. You know, I would probably own new cars more frequently if I didn't have to spend. Spend half a day of my life acquiring the damn thing, which is a fairly unpleasant process.

B (54:38)

So 100%, I love that. I think that's just kind of what happens.

A (54:42)

I've.

B (54:42)

I've acquired things, for example, like there's just things I've acquired in the past where the maintenance of acquiring that thing is just so frustrating. I'm like, why did I ever buy this darn thing in the first place? Like, why did I ever even consider this? And it's just one of those areas, I know that now before I purchase anything, I always think through that, of even the upfront cost of, like the operating, you know, the cost of your time up front and then in the back end, just the maintenance of those, those specific things are sometimes it's super frustrating, whereas you already have it pretty easy right now. And if you start to add more things into your life, the maintenance is just going to be that much more.

A (55:13)

Well, the other thing is when, at least when I buy something, I think not only of, okay, what's the not? And I don't even think about in terms of money anymore because that's rarely the issue, but how much of my energy is going to take to acquire this thing, right? How much of my energy is it going to take to have it in my life? And then importantly, how do I get rid of it when I don't want it anymore? How big of an effort is it going to be to get rid of the damn thing? Because I am not going to, like a lot of people do, stick it in some storage. I'm not going to pay to store the damn thing. So I have to be able to know how I'm going to get rid of it. And it can be as simple as just giving it away. But sometimes in my experience, giving things away is surprisingly difficult.

B (55:57)

So it really is. And I think that's. That is. It's very important, I think, to think through that before, especially any purchasing decision, but really even the big ones, for sure. Now, you wrote this book and anybody watching Right now will see my book and my copy is beat up like crazy because I reference it all the time. But you wrote this book originally for your daughter and you were writing these, these letters to her essentially and teaching her about finances and all the lessons you wanted to learn. And if you were, I have three kids now, so I have a seven year old, a, a four year old and a one year old. If you were teaching these lessons or some of the lessons of finance to, to kids now, would you teach, would you teach it in the same way? Would you talk about the same exact lessons or would there be anything you change?

A (56:45)

Well, the lessons would be the same. So I mean, when I hear people say that they gift my book to their children, well, I have mixed feelings about that. On the one hand I'm like, wow, that's great. I mean, because the earlier kids start, the easier their life will be. On the other hand, sometimes if it comes from your parents, that immediately the kid is true, I'm not interested in this. So it might even be, I know I turned my own daughter off to all this stuff because I pushed it too hard, too early. And she teases me now because she says, you know, dad, if I'd listen to you, there would be no blog, there would be no book, there would be no chautauquas. Nobody, you know, Andrew would not want to interview you. You know, it's you. All these things have come into your life, all these great things, because I wouldn't listen to you when I was a kid because all of this has been my effort to get her to listen to me. By the way, mission accomplished. She is now retired at the age of 33 herself. So she did ultimately go on the path. But yeah, this has all been about teaching my effort to help my daughter have the best life that she can have.

B (58:05)

I think that is, is that is one of the, the most incredible things overall is, is you started off with those intention and I think, you know, I, I, my hope is overall that my kids will listen. I've already given them lessons. Now probably it's probably too early, but at the same time I've been giving these lessons for a really long time and trying to kind of ingrain a lot of this stuff in them, especially the older, the older two and older your kids. They're seven, seven four and one. So that like basically kind of what the way I do this is, I kind of think through and I start them off with three jars. So one is give, one is save, and one is spend. And so I'M trying to teach them kind of a skill of thinking through. Okay. With these three jars, I need to allocate a percentage to. To these three jars. And so typically, we'll put 50% save and the rest will kind of allocate towards the other two. And so when we think about that, a lot of times it is one of those. One of those things where it's just so cool to kind of see this unlock for them, especially when they earn money, they. They start to immediately think already kind of, hey, I'm going to put a percentage in each of these jars and try to think through it that way. And my hope is that as they get older, this is my biggest fear. I'll just tell you, my biggest fear right now is my biggest fear is as they get older, they're going to resent this. Some of the conversations that we're having, because we're having them early. And so my hope is kind of some of this stuff will stick as time goes on, but we'll see what happens. They're still very young, obviously, but it's just one of those areas that I am really excited to kind of see which direction they go and either direction pivoting based on that.

A (59:27)

Well, the most important thing, at least in my experience, is they will pay very close attention to how you are actually living your life. That's more important than anything that you say to them or any lesson you try to give them. They will be paying attention to how do mom and dad handle money? That's what they will ultimately be likely to model. So if you're living that life yourself with those three jars, then. But if you're not doing that and you're running up your credit cards at the same time, you're telling them you got to put 50% of your money in this jar for savings. Yeah. Well, that's probably a lesson that's not going to take, but if you're doing the same thing, then they'll probably. At least. I think that's how our daughter finally caught on or finally wound up because she saw us living the way that we were telling her was good to do.

B (60:26)

Absolutely. And I think that's the. The biggest thing is that setting that example is. Is the huge key first, and that is what matters most. And that comes across with anything with fitness, with. With. With health, with. With finances, everything across the board. I think that's what matters most for sure. So before we. We wrap up this episode, JL because this has been amazing, I wanted to. I give opportunity to some of our listeners and members to, to ask a couple of questions to, to be able to ask you. So I have three questions for you from our members that I just wanted to go through that I think are actually pretty great questions. So the first one is, if you were starting from zero today with high student loan debt, housing costs at historic highs, and a less stable job market, what principle from the simple path to wealth would you emphasize even more now than you did when you wrote the book? And that's questions from Noah.

A (61:13)

Okay, so first of all, what I would say to Noah is that that is the way other than the student debt, that is the way that I started out because again, I came of age in the 70s, which was another lost decade, basically. So from my perspective, looking at the situation today, today's a walk in the park. I mean, today's economic environment is incredibly good on multiple fronts. Certainly compared to the first decade of this century and compared to the 70s. The student debt thing is the wild card there because when I went to college and I put myself through college, you could do that in those days because college had not become the obscenely expensive thing that it is. There are lots of ways and we don't have the time to get into it, to thread the college education needle without going into debt. And that's what I would suggest real quickly. A two year community college for the first two years is a great way to avoid that huge expense. And then you transfer into a four year college gifts, saving money, working in between as you build your college experience is another way. So anyway, there are lots of ways to do that. The idea that you have to take on student debt to go through college is nonsense. It's a lot harder, but it was hard when I was. Most of the people I knew had their parents helping them. So life's tough, get over it. So that's kind of number one. And now I've lost the thread of Noah's question.

B (63:03)

And so he basically say, what would you emphasize even more now than you did when you wrote the book based on like the conditions that are happening right now?

A (63:09)

You know, it would be the same thing because, you know, this idea that at some point in time, you know, the world was this magical, easy place is just nonsense. I mean every, every decade, every year has its own challenges. Every generation comes up and faces its own challenges. Some are, I mean, I think coming out in the 70s was particularly difficult time to come out. Coming out in the 80s was probably a lot or 90s, probably a lot easier from my perspective. Perspective. This is not a bad time to be coming out given what's going on economically. You know, in the, in the early part of this century, it was probably a lot tougher. But you play the cards you're dealt.

B (64:00)

Yep. And I think that's the most important thing for sure.

A (64:04)

Yeah.

B (64:04)

The next one's from Hannah and Justin. So in your opinion, what is the biggest mistake people make in their early 30s with money?

A (64:11)

Oh, inflating your lifestyle. No question. I mean, no question. The biggest mistake in general people make with their money, especially they graduate. And if it's a challenge financially, graduating, as it was for me, as it sounds like it is for Noah, you come out and suddenly you're making some bucks and you've got two options. You can continue to live like a student and take this newly flow of money that's coming your way because now you're in the world working and buy your freedom. Or as a lot of people do, you can say, wow, now I'm going to go out and lease that fancy car and now I'm going to go out and get this fancy apartment or whatever it is. If you want to be financially independent, if that's your goal, if that's, if financial freedom is your goal. And again, going back to our earlier conversation, it is not everybody's goal. It's not even most people's goals. But if it's yours, then the worst thing you can do is inflate your lifestyle 100%.

B (65:22)

And the 30s are just the biggest time for a lot of people to do that. A lot of people, folks are either getting married or they're having kids, and there's just a lot of things that are happening all at the same time and, or their careers are advancing, they're making a lot of more money. And so because of that, that really does come into play, especially for folks early in their 30s. And watching out for that and understanding the problem with that is very, very important. The last one is from Sahil. So he said, what is one lesson you learned after having written the book?

A (65:50)

Wow, that's an interesting question. A lesson I learned after having written the book.

B (65:57)

If any.

A (65:58)

Well, you know, I think the lesson that I've learned is, and maybe it was not just after I've read the book, but in the process of writing about this stuff in general is how unique these ideas are to so many people. I mean, to me it feels as natural as breathing. And so when I hear people say things like as we talked about earlier, oh, that feels like such deprivation. It's hard for me to wrap my head around that, because it just never felt that way to me again. I was spending my money on the most important thing to me. Or when people say, well, of course I have a car payment, well, I've never had a car payment. I mean, the idea of having a car payment seems so silly to me. When you can drive a junker for a few years, save the money instead of making a car payment, make that payment to yourself. And now the bank is paying me interest instead of me paying the bank interest. I mean, why anybody would have a car payment is beyond me, but I've learned that. So I think that's the thing that was brought into the most sharp relief, is how this way of thinking is very much out of step with the culture 100%.

B (67:29)

And I think that is, that is what your book, the message that it spreads, is so important for people to learn because it is one of those areas that honestly, a lot of them have not heard this message and they have not heard exactly how you can even just take these steps to become financially independent in 10 to 15 years. And I think that is something where most people want their freedom. They want freedom with their time. They want freedom with their energy to spend time with who they want day in and day out. And this gives them the playbook. This gives them the starting point of what they need to be doing in order to get there. So, jl, thank you so much for coming on here. This has been an incredible conversation for sure. And I know our listeners are going to absolutely love this. Where can people find out more about you and your book and everything else?

A (68:06)

Well, first of all, Andrew, thank you for having me. I've really enjoyed this conversation. I think it was really good. I appreciate all the great questions. Probably the easiest thing to do is to start at my blog, which is JL Collins, nh, you can find the book on Amazon or it's now sold everywhere. I mean, I just got noticed. It's in Target stores, it's in Walmart, it's in bookstores, Barnes and Noble. So it's. With the new edition, it's become a lot easier to find. So, yeah, I'm not hard to find these days, I guess. I'm also on X and Facebook, if anybody cares.

B (68:46)

Absolutely. And that is the for sure. I highly encourage every single person. If you have not read JL's book, it is by far, it's the number one book that I always recommend. It's the one I give away the most. And I think it is absolutely amazing. And if you are new to investing, JL Stock series on his blog is by far one of the best places to get started in. Just reading through that series I think is just one of the most well written series and easy to understand. I think it's very, very powerful. So jl, thank you so much again for coming on. We truly appreciate it.

A (69:13)

It entirely my pleasure. Thanks for having me. I hope we do it again.

B (69:16)

Absolutely.