← Travis Makes Money
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- [00:00]
Travis
You're listening to the Travis Makes Money podcast presented by GoHighLevel.com for a free 30 day trial of the best all in one digital marketing software tool on the planet, just go to gohighlevel.com travis. What's going on, everybody? Welcome back to the show. This episode is just me, you and the mic. And today we're talking a little bit about why you need more money. This is the inception of the Travis Makes Money podcast. Basically, what, what I saw was that there was a bunch of personal finance experts, a lot of whom I follow, and I like their advice. If you, you know, take the whole broad area of work that they're talking about, I, I, I like a lot of it. Like, I, I love a lot of the Ramsey stuff, I follow a lot of people who are in the space. But the one thing that I, I guess my, my only complaint or gripe is that for most personal finance people there's a huge emphasis on cutting expenses and saving money and budgeting and not enough emphasis on going out and learning how to make more money. And I found that the latter is probably more of a valuable use of your time because it is theoretically unlimited in terms of scale, meaning that you cannot cut your expenses further than zero. And obviously your expenses will never be zero. But I'm saying even if you could theoretically do that and you're making 80k a year, then the most delta you could ever create, theoretically, if you could get your expenses to zero, the most delta you could ever create would be 80k a year. Whereas if you, if you cut your expenses and you're smart with your money and you budget and you save, you do all the sort of bare bones principles of, of personal finance, then the only thing left to do at that point that actually gives you real leverage in your ability, ability to create wealth, is your ability to go earn more income because you will always need more money than you think you're going to need. Life has a way of demanding more from you than you expect. So even for those of you who are listening, who have planned this out, who you, you stick to a budget and you, you tell your money where to go at the end of the month and you're not spending money or wasting money on stupid stuff all the time, and you have a plan and you're contributing to 401k and you think everything's good, even you are going to need more money than you think that you need because life will always demand more from you than you think that it will. Meaning that your house is going to need a new roof. Or you might not be able to buy a house because you can't get enough delta. So you're going to have to account for the increase in rent over the next five to 10 to 15 to 20 years, which will probably dramatically increase in that same period of time. Then your car is going to need new tires. Or you bought a used car thinking that you're making a good decision. You buy a car for ten grand cash, and then six months later the transmission goes out. And now you have to think about, do I spend six grand on replacing the transmission or do I sell the car for six grand and go buy another $10,000 car? And then your, your, your mom has some unexpected medical expenses that she can't afford to cover and you're trying to help her out. And then your brother has this thing, and then your daughter has this thing. And then you, to factor in the preschool, and then you wanted to put your kids in private school. And then they have sports and they have activities. And then you start, you start actually looking at the, the, the money that you're spending and it tends to be greater than what you accounted for in your actual budgetary, in your actual budget. So that was, became the whole reason for the show because what I found was like sort of this personal finance advice is like, you know, cut, cut, cut, cut, cut. And then you, you know, you're, you're, you're wildly undervaluing the amount of money that you need to be able to become a millionaire. And it's like, just put a hundred bucks a month into the s and P500, and then in 30 years you'll turn around and you'll have $1.2 million or something like that. And while that is true and all of those things are good, you just need to put in more than a hundred bucks a month. You need to put in more than 200 bucks a month. You need to put it like you, you have to reverse engineer the total number that's going to be able to let you live the rest of your life the way that you want to live it. And then in my pers, double it. It's just like it sounds like a lot because you might be thinking in your head like, man, a million dollars of life changing money. Or man, if I just had $5 million, I could live the rest of my life. Okay, great, but let's do the math on that. Can you actually do that? Can you actually live the rest of your life on this money? Because you're not going to be able to take, you're not gonna be able to take. Like if you want your balance, if you want your principal and your investment accounts to remain the same, then you can only really take out 4 to 5% of the total, the, the interest that you're earning. So if you're investing in the S P, which has historically returned about 10% a year for the past 100 plus years, then when you're, when you're taking money out of that for living, because you put $5 million in this account, you don't want to touch it, that in order for that balance to remain the same, you can only take out 4 or 5%, not the full 10%, in order to maintain that same balance. Balance. And then, but that doesn't account for the increased cost of living in 10 years, 15 years, 20 years, 30 years. And so I pulled up a couple here that I thought were really interesting. And that's to say that yes, you should be putting money into these things. Yes, if you can't afford to put in a bunch, then you should be putting in at least a little bit just to start to start realizing the value of the compound interest that it's earning to you. So the, the thing that you're looking to calculate first of all is the rule of 72. And if you've not heard about that before, it's very simple. Basically, it's a way to figure out how quickly your money is going to double using compound interest. You take your, your doubling time is equal to 72% divided by the annual rate of return. So at a 10% s and P500 historical average, then your money's going to double approximately every seven years. You know, 72 divided by 10% or divided by 10, not 10% divided by 10 is 7.2, which would mean that it would take about 7.2 years to double. However, in that same period of time, you have to calculate inflation. You have to think about inflation. Now, historically we see that inflation is around 3%. The Fed targets 2%. However, if you look at actual inflation compared to what they're estimating inflation to be, especially in the last few years, it's obviously been significantly more than 3%. But even if we just say it's 3%, that 3%, the prices are going to double. If you take the same rule, rule of 72, and you divide, you know, 72 divided by three, then your prices are going to double every 24 years. So your investment might double every seven years. You're. But the prices of Everything that you do in your life are going to double every 24 years. But again, I think that that is probably more like 12 years. I think it's probably about double what they're estimating it to be or what they're at least reporting that it is. If you look at the actual inflation numbers. But let's assume that it's the bare minimum of the 3%. I, I, your, your, your money is not actually worth the amount that you think that it's worth. So just like in the 1950s, if you had a hundred thousand dollars, that's worth way more than it, than it is worth today. A hundred thousand dollars doesn't get you much today, but a hundred thousand dollars in 1950 got you a good amount of stuff. So that is exactly what's going to happen over the course of our lifetimes as well. And we have to be able to account for that. So that's why I say that putting the 100 bucks, 200 bucks a month into the stock market and then being like, oh, it's $1.2 million, I'm good to go. I'm a millionaire now. It's like, yeah, but it's also the year, you know, now it's also the year 2056. So the, your money that's in the account that you thought was $1.2 million is probably going to be a fraction of that in terms of how it actually spends in the year 2056. So let's, let's take the assumption that you're putting in 200 bucks a month. It's for 30 years, you have a market return of about 10%, and that, that grows to around $400,000 in nominal dollars. Okay, this is obviously ballpark. This is just based on historical data of how the S P 500 head has historically performed. Performed. However, at the inflation adjusted value, this number might actually spend closer to 150,000 rather than 400,000. So if it's 1.2 million, it's a 3x of that, then 3x of 150 is really about 450,000 in terms of what spending power is going to look like. Again, there's a lot of other factors that can determine whether or not this is going to be the case, because like I said, I genuinely believe that inflation is much higher than this. So, you know, if, if it is much higher than this, then it's not going to spend like $450,000 at 1.2 million. It might actually spend closer to $250,000 at 1.2 million, then $250,000 when you're 65. Especially with the fact that we're all living longer and that western medicine and preventative medicine have enabled us to increase our lifespan, that's just not enough money. You're going to have to continue working into your 60s, into your 70s. And that to me is not a great scenario.
- [09:24]
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- [12:40]
Travis
Now Will I always be working? I think so. I don't think there's ever going to be a time in my life where I just go like, all right now I'm retired and I'm gonna sit on the bench beach sipping Mai Tai. I don't think that that's. I frankly just don't think that that's a good way to live life. I, I don't. I just, I, I reject the idea of retirement. The goal is to be able to retire, meaning that you have the freedom and flexibility to choose the things that you want to work on. But eliminating work from your life is a fast path to dying sooner. Ultimately, just to put it bluntly, if you, if you extract the meaning from your life, if you extract the feeling of contribution that you get from working, then I think then, then you start to feel much more useless. You, you start to atrophy your actual muscles because you're laying around all day, but also your brain because you're not doing anything in quote, unquote retirement. So the goal is not necessarily to retire, never do anything the again. The goal is to put yourself in a position to be able to do exactly what you want to do whenever you want to do it with whomever you want to do it. So you just need more than the amount of money than that you think that you need so on paper, you know, the money sounds like a lot. It looks like a lot. Like, you know, you get those compound interest calculators and you plug it in, you're like, oh man, I'm going to be worth $2.4 million in 40 years from now. And it's like, great, that's good. You should be thinking about your future. You should be investing in. If you have a 401k match, your company, you should be putting money there, you should be putting money in the stock market. That's the, I'm not trying to vilify this as a method to building wealth. It's just that, it's just that you, you have to get real about the situation, which is that I will not be able to, to actually physically be done. I will not be able to actually reach that, that, that inflection point of freedom if this is all that I'm contributing to this. So the bottom line is just inflation is going to quietly murder your, your comfort, your nest egg. You know, the, the inflation range that we've been giving, you know, was about 2 to 3%, but 2022, it was 9.1% and then, and then cooling to 2 to 3% by 2025, 2026. However, again, that's probably a little bit less than what the actual inflation numbers are. So adjusting for these types of things, that's what I'm saying is that if you think a million dollars is enough to retire on, just realize that in 30 years it could feel closer to a quarter million dollars, which is not enough money to sustain your life for 30 years. Especially if you want to keep the principal. Like I said, if you want the principal there, it's like, well, a quarter million dollars and I can only take 4% of that, that means I got to be able to live on, you know, 12, $14,000 a year. Like, that's, that's, it's untenable, it's impossible and you're going to then pass the burden on to other people in your life because you did not properly plan for what it actually is going to mean when you get to that age. So the only way out of this is to, is to make more money. Again, the other pieces of personal finance I agree with, you got to cut your expenses. You don't spend money on dumb things. You watch where your dollar goes. Those are all really important. Those are like bare bones principles that, these are the barrier to entry, to create wealth. However, beyond that, if you can just increase $200 a month to, let's say $1,000 a month. Let's see what that does. So what if I went from, say we added a thousand dollars, so from $200 a month to 1200amonth invested in 30 years. Okay, so at the same 30 year mark with the 10% stock market assumption going from $200 a month to $1,200, you roughly from around 400k to around 2.4 million. So we're talking about, you know, 5, 6. It's a 6x to 6x. So you're increasing your contribution by 6. You're increasing your, your total investment value by 6. So the thousand bucks, you might be thinking like, okay, but I don't have another thousand bucks. But that's the entire point of the show is to say that you might think that it is a waste of time to drive Uber on the weekends or to have a food truck that you do festivals during the summer with to make some extra money. Or your, your landscaping company that you just mow lawns on the weekends and you make an extra 1200 bucks a month, you might think that that's not doing enough. But in reality, this could be the difference between you living the life that you want to live sooner rather than being chained to continuing to have to work to make money, which is not a great scenario to be in. So even if you're not going to become the next Jeff Bezos entrepreneur, change the world, become worth, you know, $100 billion or whatever, it's like, it's not really about that. It's just what are the. What, what is the amount of time that I'm spending doing a bunch of stuff that's never going to do anything for me? And can I, can I take a chunk of that time and put it towards something else that will enable me to be able to get to my number faster and then invest the majority of that money? If you're going to flip couches on from Facebook marketplace to ebay, then every dollar you make doing that, just plow it right into that same investment account. The entire point here is that you're just going to need more money because life will always demand more from you than you think it will. There will always be emergencies you have to spend money on. There will always be unforeseen circumstances or expenses that are going to come about. And then ultimately you still want to have the control over whether or not you are going to work on the things you want to work on or are you going to work on the things that you have to work on? Because you literally don't have any other options. And that's why it's important to start thinking about how can I make some extra money doing something. And like I said, for me, in my opinion, if you're working on a side hustle, I believe that it should be something that is potentially scalable. If you find that you like the work and, and you start actually increasing that side hustle money to where you start looking at what you're making full time, and it's like, oh, this is, these are actually kind of getting close here. It's like, what happens if you quit and just went full time into this? Could you 5x your income and go from making $50,000 a year to making, you know, $250,000 a year, in which case you can invest 10 grand a month as long as you keep your lifestyle creep low. So then 10 grand a month, and to get to that, you know, $5 million mark, whatever number it is that you have in your mind, then that is going to take you a much shorter period of time than it is if you are putting in a thousand bucks a month or 1200 or 200 or 500. So. So it all lies within your ability to create more income for you and for your family. Now the question then becomes, well, how do we do that? How do I, how do I just go 5x my income? If I could do that, I would have already done it, Travis. Duh. It's like, look, I get it, I get it. And this is the conversation I've had with myself multiple times throughout the years. But the only path forward, the only path to creating exponential increases in your earned income is through skills that you do not currently have. It's through the acquisition of competence, Knowledge, skills, relationships. Knowledge, skills. Relationships are things that inflation can't take from you. They're things that economies can't take from you. Recessions, depressions can't take from you. If you have a highly monetizable skill, you have highly monetizable knowledge, you have specialized knowledge, you have relationships that provide opportunity, you have all of those things together, then you have the ability to earn outsized income and change the trajectory of you and your family's life forever. So start thinking about, how am I, how am I going to make more money? Because your current plan probably isn't up to snuff. And look, I don't know, because obviously everybody that's listening to this is going to have a different plan. But that's why this show exists is just to bring awareness to the idea that probably you're going to need to make a lot more money than you think that you are. And so your level of comfort that you've deluded yourself into accepting right now is not going to be the thing that allows you to be able to grow into the lifestyle that you actually want to live. So do the math. Figure out the number. What's the number that I need to make to be able to live my life without having to actually work? And then double that number. And then. And then relentlessly seek to acquire the skills that will allow you to get to that number as quickly as you can. So that is it for this episode of the show. Thanks for tuning in. We'll catch you guys in the next one. Peace out.