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Becoming a Financial Samurai with Sam Dogen #535

Published Jul 4, 2022, 8:00 AM

Happy Independence Day! We’re marking the occasion by talking with Sam Dogen- one of the pioneers of the Financial Independence Retire Early movement. Sam is the founder of Financial Samurai which he founded over 10 years ago. He retired at age 34 after a career at Goldman Sachs, but then came out of retirement as retired life was a bit too boring for him! He has written over 2,100 articles at his site and now his new book “Buy This, Not That” is about to be released very soon which is an excellent guide on how you can optimize your money to build wealth and live life on your own terms. During this episode we talk about why Sam isn’t a huge fan of the 25x rule, maximizing your earning potential, engineering a layoff- we’re excited to talk about all of that and more today!

 

During this episode we enjoyed a Daily Serving by Trillium- and thanks again to Sean for sending this one our way! And please help us to spread the word by letting friends and family know about How to Money! Hit the share button, subscribe if you’re not already a regular listener, and give us a quick review in Apple Podcasts or wherever you get your podcasts. Help us to change the conversation around personal finance and get more people doing smart things with their money!

 

Best friends out!

Welcome to How the Money. I'm Joel and I am Matt and today we're talking about becoming a financial Samurai with Sam Dogan. That's right, Sam Dogan. He is the founder of Financial Samurai, which you probably had heard of, uh, and he is joining us today. Sam was one of the pioneers of fire back when he started writing at Financial Samurai over ten years ago. He retired at age thirty four after a career at Goldman Sachs. But then actually he came out of retirement because retired life was a little too boring for him. But he has written over twenty articles at his site and now his new book By This Not That it's about to be released very soon, which is an excellent guide on how you can optimies you your money to build wealth and live life on your own terms. And yeah, I'm looking forward to talking about financial independence, about maximizing your earning potential, engineering a layoff. That's something that he that we're gonna get to. We're excited to talk about all of that and more today. And by the way, we're gonna give away several copies of Sam's book By This Not That, uh, And so stick around to the end of the episode to learn how you can enter to win one of those copies. But Sam, thank you so much for joining us today. Hey guys, thanks so much for having me Sam. We're pumped to talk to you man. And the first question we ask everyone out of the gate is what their craft beer equivalent is. And that's because Matt and I love craft beer. We spent a lot of money on it while we're trying to be good with our money, save and invest for the future. So, yeah, do you have something like a craft beer equivalent in your life? Yeah? So craft beer equivalent would be chlorine tablets or chlorine granules. You know what that is for It sounds like the opposite of a splur sounds I am very confus used. I cannot wait to keep these are all about. Yeah, there you go. So I get a bottle of chlorine granular tablets once every three weeks maybe, and I dump them into my hot tub every other day to keep the water clear and clean. So that is the absolute best splurge I've ever spent. This was six years ago. I spent fifteen dollars to buy hot tub, set up the level cement platforms, set up the electronics, and then just go with it. So that is my splurge. How often are you using that hot tub? So I go about three times a week, and then since the pandemic started, I've been going about four or five times a week, and it's been a great outlet for my son. And I had a bond because the hot tub is actually at a rental property, but half of the rental property is open, and so it's kind of like our sanctuary, our escape. Oh so it's like, Okay, I see what you did here. This is an investment. You got to run off those expenses. It's definitely an investment and there yea. Hey that's important man. Okay, So Joe, you gonna gonna pull the trigger. Joel always talks about getting a hot tub like pool my kids love. Just two years ago, you thought about getting one of the inflatable hot tubs. I tried on Black Friday, Sam, there was one of those inflatable hot tubs on Walmart site for like, listen, two hundred bucks. But I'm a little hopped on at seven PM when it was supposed to be on sale and it was sold out to jerk the rug out from money, Yeah exactly, Yeah, I was bumped but maybe I need to like go all out and get one of those nice ones, like Sam Scott, you gotta get out, you gotta go big and get the hardwired hot tub with the twenty jets whatever. That is so worth it. Okay, Well if I if I proceed, I'm gonna reach out to you for with some questions to get you that Cadillac of hot tubs. Sam. So you first started writing about financial independence, I feel like before it was even cool, uh, way back in the day. What is it that inspired you to pursue that that lifestyle and to start documenting it all way back in two thousand nine. Yeah, So, I started working at Goldman sax In and they required me to get into the office at five thirty in the morning. And it wasn't just getting in a five thirty. I had to stay back beyond seven pm every night to connect with Asia because the Asian markets were opening. And so I knew right then and there in after one month, I couldn't last, you know, for hopefully until I was aged forty. I like, beyond that, there was just no way to have a multi decade career in finance. And I mean, you know, I gained weight, I got sciatica. You know, I was just always stressed, and so I decided, you know what, I'm gonna try to invest and save as much as possible the first month from work so that one day I could escape. And so in two thousand and nine, July is when I started financial Samurai, because I had been putting it off since two thousand and six after I graduated from business school part time. And July two tho nine was the bottom of the global financial crisis, and I lost thirty five pc of my net worth in six months. That's you know, that took ten years to build. And I just felt like a dummy, and I felt, you know what, there's gotta be a better way to get out of this. And writing was Mike Catharsis, Okay, So yeah, it was like partly Catharsis, part documentation, and I, I just I'm curious to seeing your network dropped by something like other people in like today's market might be feeling something like you were feeling back then. They might have seen, you know, their their their stock market holdings dropped by if if they're heavily exposed to crypto, potentially more so, Yeah, how would you how would you talk to talk people through maybe an experience like this. Since you've kind of dealt with it firsthand and have recovered handsomely well, the important thing to do is learn from your experience. So investing is a long term game. It's a psychological mind vendor. The person who lasts the longest and is the most calm usually wins because over time, right you see stocks go up ten percent a year, real estate is up unlevered about three to four and a half percent a year just on average, So you know that over a ten twenty year period, you're probably gonna be fine. It's the people who wig out and just sell and just get out of things when things are crashing that generally end up regretting it over time. So the key right now, let's say in two you're down huge on your investments, is to understand what your risk tolerance is. And it's a wake up call. If you feel bad right now, horrible that you're losing whatever you're losing, then it's probably because your risks exposure is too high and you have to adjust that downwards. So over the two thousand dot Com bomb, the two thousand and eight two thousand and nine financial crisis, I've been able to hone my net worth asset allocation to match my risk tolerance. And everybody's risk tolerance is different because everybody's goals and DNA are different, right, And so you've got to use this as an opportunity to figure out what your risk tolerance is and net worth asset allocate apprope really yeah, So, Sam, you know like you're focused in the new book. It it centers around spending, and you say that like most folks, they get told about the saving side of the equation, but that we're often lost when it comes to knowing how to actually spend our way to wealth. Can you explain to to listeners what you mean by that? Right, So, there's only so much you can save, but the income side is unlimited. All the wealthiest people in the world didn't get super wealthy by saving their way to wealth, but by making more money, building more equity, building companies and businesses. So it's really going from a defensive approach, which I think should be a given saving budgeting, to an offensive approach where you can get your vacuum money vacuum cleaner and then just soak up as much money as possible in the world. Because truly, there's trillions and trillions of dollars for the taking, And it's a mindset you have to say, I too deserve to be rich. Why can't I stop up all this money as well? So it's really about thinking on the offense rather than the defense. Yeah, well, you talk about the root of inaction in your book and you say that, like that part of the reason so many of us don't take action when it comes to investing is because we desire absolute certainty. So in your mind, for folks who are like I would love to invest, it just feels a little risky. How how can we overcome maybe that tendency that so many of us have towards inaction, towards really kind of standing pat right. So it's important to realize that the fear in your head is often worse than the reality. And the other point to know is it's important to think in probabilities, not absolutes. So what do I mean by that? When you think in absolutes you short change yourself. You think you need a hun certainty to go ask out that girl or boy, You need a hun certainty to apply for that job or bid on that house before proceed And what a shame because you will likely miss out on so many opportunities. So instead, I encourage you to think in probabilities using a seventy thirty decision making framework. And this decision making framework can be used for investing, for having children, for doing a lot of tackling a lot of life's biggest dilemmas. And the Frameworkers says, if you believe there's a seventy percent probability or better that you will make the right choice, you go for it while having the humility in knowing that thirty percent of the time you're gonna make the wrong choice, but that's okay because you're gonna learn from that choice and make better decisions going forward, right. I mean, I guess the problem there, though, is that it's difficult to determine when you are kind of crossing that seventy percent threshold, right, and so so much of this, I mean it kind of comes down to you as an individual to kind of weigh the risk to kind of determined to figure out on your own that like, Okay, you know this, this feels like something that's seventy I think that's the pushback. I think a lot of folks might say that why. I get that theoretically, I get that as a principle, but in practice I think that can be difficult, right, right, So there's two ways to approach this um. One is by making calculations. Making calculations for everything, whether it's from the NBA Finals who's gonna win by how many games? To who's gonna win the Dog Show, to how long that marriage is going to last, to whether you're going to get into that incubator for your startup and so forth. And what you do is you, before something happens, you make a prediction, and then you write down why you think it's gonna happen that way, and then sooner or later you're gonna find out the result. And then you do a post mortem and try to analyze why things didn't go the way it did or why it did go. But are you sure it went the way it did because of those reasons you highlighted or big as is something else? You don't want to be delusional in your thought. So this takes experience and practice, really intentional practice. And that's something that I learned on the trading for working for a couple of Wall Street firms for thirteen years. You really need to make some probability estimates. The other way to get around this to overcome your fear is to listen and to read from people who have been there before. And so that's the whole point behind by this, not that how to spend your way to wealth and freedom. Not only is it a book about helping you achieve financial freedom in a risk appropriate way, it also tackles some of life's biggest dilemmas. You know, things such as should you marry for money or marry for love, Should you live in an expensive city um for the greater career potential, or should you relocate to a lower cost area, should you have kids later or younger? So all of these big dilemmas are approached using the seventy framework in my book. Yeah, I thought it was interesting that you said that people should go to the anemic coal Smith route and always just marry someone who's really rich and really old, and that's what you're set for life, right exactly, And then then you just leap frog generations of hard work and struggles. It's so simple, that's the real trick. Let other people do the compounding for you, and then you just meet them there at the end. The easy button at the easy button. Well one of the things too, you know, you're talking about the probabilities, and I thought that was a great, great framework, But it's also important probably to think about the potential negative consequences of something that you could do. And when, for instance, when you're talking about asking somebody out on a date, and like, how bad is the negative potential consequence of being talked about? Uh? And I had the distinctly remember when I was, you know, in my early twenties before I met my lovely wife, trying and I was like so bad at asking girls out, and I was like, finally, like what is the possible worst possible outcome. I'm gonna feel like crap for maybe twenty minutes and then I'll get over it. And so it was one of those things where I just kind of started with breathless abandoned to start asking people out on dates and UH. And so that's another thing like when you think about the worst possible outcome of not investing, man, it is so severe that you better get started. But when it comes to something else out the negative possibilities might be so infantestively small that you better just go ahead and do it. Yeah, A lot of about financial independence is about having the courage to change in sub optimal situation. So one test to see if you are truly financially independent is to see if you can change, to take action to change a bad situation. If you feel you're financially independent, but you're still coming into or getting oppressed by, you know, a terrible boss and doing something you don't like, well you're probably not financially independent yet. Well all that note about financial independence, I mean same, can you talk about like the evolution of the fire movement because you know, like folks who saved a huge chunk of their income, like they existed before, you know, the modern fire movement, but I feel that like you kind of helped to bring it mainstream. Like what's your take on where the movement stands right now? Well, it's really interesting. So in two thousand and nine, UM, when I helped kickstart the modern day fire movement. The basic definition of fire is if you have enough passive income or passive investment income to cover your basic living expenses, then you're financially independent. So what I've noticed over time is that definition of financial independence has changed, where there's terms such as Coast Fire, Barista fire, Lean fire, and all sorts of fire and what it is terminology has spread. Yeah, I mean it's it's pretty interesting to watch. And what it is is based off human psychology because it really is hard to accumulates enough capital to generate that passive income. It takes you know, ten twenty years, and a lot of people just can't wait too long and they will lose steam. So what has happened is instead of waiting that long, people have created these new terminologies to help fit where they are on their journey. Right. So for example, if you say, let's say Barista fire is basically working part time where you know, you get a job at Starbucks and they provide healthcare helps supplement your chilled, chilled out life. Uh. Coast Fire is is a is a fascinating one where it talks about having enough retirement income that if it compounds at the historical rate of return, you'll eventually be living the good life in retirement. But that's just defining what most people are doing right now is just saving for retirement. So it's really a psychological motivating tool to redefine what financial independence is for various people so they can continue saving and investing for the future, right, I mean, do you see that as a good thing, because I mean I hear all these things that what it does to me is it makes it sound a little more inclusive, which in my mind, the more folks you can kind of get on the boat, right even though it's like, well you're not you're not totally there yet. Man, you're still working a job or you're still clock in thirty hours a week and benefits necessarily want to quit altogether, which and so like, on one hand, I like I kind of see it as almost like a like a good thing because it gets folks on the boat that they're they're thinking in that direction, even though they might have years or even maybe decades of part time work ahead of them. Yeah, I definitely think it's a good thing to be more inclusive, because again, the journey is very long and sometimes it can be very hard, and it's easy to quit. I mean, how many of us try to go on diets and then we just quit after three months because we're like screw that, right, So the more inclusive it can be to help people go along on their journey, the better. It's just sometimes it can give get a little bit funny where there's another term called why WiFi so wife wife financial independence. In other words, you know, so men, we men have really fragile egos, and so when we leave our jobs and we've become stay at home fathers, a lot of men, it seems like, are not willing to say that they are stay at home dad's. Instead they'll say they retired early and while they have a working wife making good money and providing for healthcare. So again it's that yeah, so it's it's but you know I I I was like for me, it's like more prior to you, whatever you want to do to you know, help your situation, whatever is best for your household. I think that's the most important thing. And however you can frame it, that means that you're going to be able to pursue it with the most vigor in a way that's sustainable for for your life. Right right, All right, Sam, We've got more questions for you. Man. We want to specifically talk more about fire. We want to talk about how real estate can factor in to the financial independence lifestyle, and then we also want to talk about debt. You've got kind of some interesting thoughts on that, so we'll get to those questions right after this. Alright, well we are back from the break. We're talking with Sam Dougan about becoming a financial samurai. Angel. I know you're excited to talk about real estate with Sam here in a second. But uh, before we move on, Sam, let's let's talk about how you know that you've reached five How how you know you once you reach financial independence or achieve some sort of sense of financial freedom. Because we know you're not the biggest fan of the coming up with five times your your annual expenses, how do you suggest that folks think about what they'll need to have saved up in order to hit that five mark? Right? So, the times expenses is fine. It's based off the inverse of the four percent rule, which was started in the ninety nineties, when you can get a risk free return of five to six percent from a ten year bond yield. So, in other words, of course you can withdraw at a four percent rate because you were getting a risk free return of five to six percent. But obviously times have changed over the past thirty years, and so should we. In my mind, it's more important to base your financial independence number based on a multiple of your gross annual income, not your expenses. And why is that because when you base it off your expenses, there's a propensity to cheat. Right, So let's say expenses are a hundred thousand dollars and you want to do twenty five times to get to financial independence. That's two point five million. But let's say you're just tired of it all and it's just you want to just get out quicker, so you just say, well, I'm gonna do lower my expenses to fifty thousand dollars a year. So based on twenty five times, you know you only need to generate what one point to five million. So with the multiple based on income, you can't cheat. And many of us who are pursuing this, you know, obviously by definition, are younger, right forty, And if we base a multiple by income, as your income grows, as most people's income will grow over time, you have to force yourself to save and invest more, there's no cheating. And so the ultimate number that I've come up with is twenty times your annual gross income, which is a huge number, and I know some people will get married very mad at that. But the idea is to change your mindset again from defense to offense, and once you get to about ten times your growth annual income, that's really when you feel like you're you're on a great path of financial independence. So it is a stratus. Do you do you think that number and kind of that mindset is because you're probably more in like the fat fire camp talking about different fire terminology. Maybe because yeah, you're you're less. You're not looking forward to that Barista fire lifestyle. That's not that's not your jam. So do you think that's maybe part of why you kind of come up with with that methodology. It might be, But the good thing about multiples is that it works whatever the absolute dollar amount is. And so again it's back to the philosophy of focusing on income and growth and less so much about budgeting and saving. We should all be budgeting and saving, but this is like a standard operating procedure that should be a default setting. Really, you know, it's just changing that mindset to a number based on income. And I think that's very consistent with my whole philosophy of the book. Okay and okay, so when it comes to real estate, want to talk about real estate? Matt and I we talk about real estate A decent amount on the show, we're both you know, small time mom and pop landlords here in Atlanta have a small stable rental properties, and we are we think it's something that more people should consider, and we're constantly like you know, pushing people, hopefully gently in that direction. But um, yeah, how does real estate factor into the wealth building journey for you? Because it could be you know, a bit daunting for some folks to think about buying a single family home or a duplex renting it out and and you know that's kind of a part time job in addition to your day job. Maybe, So yeah, what are your favorite ways for folks to have some real estate exposure? So my absolute favorite way to build a rental property portfolio to generate passive income is to buy your primary residents, get neutral real estates. You're going up and down with the market, living it for three to five years, maybe longer, rent out that property by another property, living it for three to five years, maybe longer rented out, and over a forty year career post high school to college, you can easily build a three to four rental property portfolio which will most likely pay for all your living expenses by the time you know you're fifty or sixty, and so that's the easiest way to do it. Another easy way to do it is obviously to buy public rates or invest in private real estate funds. UH. You don't need to borrow money. You can just invest as it is to gain that exposure as you're building your down payment for your primary residence or your rental property portfolio. For me, real estate accounts for about of my net worth, excluding the value of my online business. And the reason why it's so high, whereas stocks it's only about is because I'm focused on generating cash flow so I don't have to go back to work, and real estate is something that's more stable generates higher yields. You are the king or the queen of your asset. You can do things to improve the asset, not only just remodeling and expanding, but hustling harder to find better tenants to pay you a closer to market rate. So it's a much more stable and attractive way to go to generate income, especially with the higher yields compared to stock divd and yields. Because you don't wake up one day and see your property down thirty You just continue to you know, collect that rental income where it's with stocks crypto, it's like, man, you know, look at the tech stocks they're down. Sure, yeah, well I guess the biggest downside right too. I mean, and we think people should save up. We encourage people to do. This is kind of the nest egg that you have to have on hand for a down payment to buy that house. And um, and we want people to challenge themselves to save more for a bigger down payment. But that that for a lot of people. That's why maybe people might go in the direction of real estate investment trust a publicly traded reats instead of a single family home or a multi family home, right just because just because it's more accessible, right, and so it's important. So it is daunting to come up with a ten or twenty or thirty percent down pay and on the value of the home. Right now, the median price in America is like four four and fifty thousands, so you're talking eighty to nine dollars. But it's all about perspective too, because the first time home buyer in America is in their early thirties, let's say two to thirty four. So yeah, you know, when you're twenty two or twenty. Yeah, you're you don't get that money usually, right, But it's about perspective. So the average is, let's say thirty four first time home buyer. Just try to beat the average. Maybe you can get long by age thirty, thirty one or eight. It's all about being understanding where other people are in general with your age group. The one other thing about the down payment is, and I talked about this in the book, it's about, um, how do you access to the bank of Mom and Dad as well? So here in San Francisco, of homes we're purchased in cash and something like first time home buyers had the help of bank of Mom and Dad and in the past, right, like if you if you just bought a property on your own, you probably poopoo the people who leveraged the bank of Mom and Dad. And that was me too, I was. I was. And it's barely because I don't even have access to that. So yeah, exactly, Yeah, I'm like jealous. I'm like, you know, scool, you I had to I had to cut myself to save this. You know, I'm just jealous. Basically, you're just jealous, right, I was just jealous. But if you think about it if your parents are you know, fifties sixty seventy, they've been able to save and invest so much and take advantage of the massive bull market we've had. And as a parent now, I totally understand why every parent you know I love their child and why they want everything to be best for their child. And if you're a responsible parent who has saved invested over the past thirty to forty years, you're probably going to die with too much money, and so it's probably better to help your children and loved ones while you're still alive then after you're dead, because after you're dead, you know your children might be fifty plus years old. So what's the point of that, right. I completely agree with that philosophy, and I think, yeah, there are way too many people hoping to leave some sort of massive inheritance when they would be using it in here now to help their kids and uh and get to actually experience the joy on their kids faces as were able to maybe buy a house that they otherwise wouldn't have been able to. I mean and and yes, I totally believe that as a parent, um. And the key is obviously not to brag about it. If you're receiving all this help from bank of mom and dad. You know, it's to be humble, it's to be low key, it's to be set helf, and to actually pay your parents back to It's just even if they don't need the money, I'm sure they'll feel even more great that. Wow, you know, my kids are such responsible individuals that they want to pay me back. Yeah. Well, when it comes to taking out a mortgage, it's interesting because you've been a proponent of adjustable rate mortgages, where the interest rate right, it can move around after a set period of time. So I guess I'm curious because interest rates have been on the rise lately, so people with adjustable rate mortgages might be shaking in their boots a little bit. How do you feel about those those products right now? Yeah, So I love this debate. I love this debate, and I've been encouraging people to take out adjustable rate mortgages since I started in two thousand and nine. And the reason why is because of perspective. First of all, interest rates have been coming down since the late nineteen eighties. Literally it's been a forty year decline. And why is that. It's because the world has gotten smaller. The federal reserve boards around the country, central banks around the country have become tighter, they've become more coordinated, and we better, We've been able to better manufacture inflation. Further, with a smaller world, you have input costs that have come down. Right, So China, India, Vietnam, they're creating goods, They're creating goods and exporting it to more developed countries and lowering the cost of goods. Right, And this is all you're going to continue over time. Now, sure you we're gonna have um, you know, short term spikes in inflation and therefore interest rates as we are experiencing right now. But right now is a special situation. You know, we've at war in Ukraine. Who would have thought, you know, Russia would have invade Ukraine. We had COVID pandemic which hopefully is not going to last for more than five years. And we've had massive, massive amount of stimulus, which obviously percolates through the system. But think about it, if you are an arm holder, you're basically borrowing money at the shorter end of the yield curve. And when you borrow at the shorter end of the yield curve, the interest rate is lower. So the spread between let's say an average thirty year fixed rate mortgage and let's say a seven one ARM might be like one and a half percent. So for seven years during that fixed rate period, you're saving one and a half percent in terms of interest cost for a year. So you're only going to start losing seven years later after if the thirty year fixed rate mortgage or a new rate mortgage is one and a half percent or higher. So, in other words, let's say you did get an ARM, I'll just use my example. I got a seven one ARM at two point one two five because I bought another home. Then, right, so am I quaking in my boots? I'm not quaking in my boots because it doesn't reset until and if it does reset, there's a limit to how much it can reset. It's not like endless reset, right, It's like two or three percent limit, and then it only resets at a limit a year after that. However, it's in my opinion that inflation will ultimately moderate and therefore in st right, So I could easily see a scenario by three where inflation starts moderating because there's demand destruction. Right, The higher prices go the less demand comes, and if inflation starts rolling over, let's say in August, there's going to be a decline in the bond yields and there's gonna be a client in mortgage rates, and you're right back to long term forty year trend. And here's the other thing, And sorry for blabbing around so much, but it's interesting. This is good. But the average person, the median home ownership duration was about at four and a half years before the financial crisis in two thousand and eight two thousand nine. Today, the average homeownership duration is closer to ten and a half eleven years. Okay, so it doesn't make sense to take out a thirty year fixed rate mortgage and pay a higher rate if you're only going to hold your property for ten or eleven years, or hold onto that mortgage for ten or eleven years. Instead, it's a much more optimal financial decision to match your fixed rate duration to the length of ownership of your home. So if it's ten years you plan to own it before you sell it or pay off the mortgage, then you should match it with a ten one arm. This is something I've kind of come around on because I used to be like, oh no, no no, you've got to do the fifteen year fix. You got to do the thirty year fixed. But that, like you said, that assumes that you're gonna be there for the next fifteen years, in the next thirty years. And one thing I've realized is that folks they like to move. There are opportunities that draw them to different cities or two different parts of the country, or to close closer to family for just a desire for a big your or different house. Life changes. I mean, your your wealth now will be different from your wealth twenty years from now or thirty years from now. To be able to match your flexibility is actually much smarter and so and but the reality is ninety plus percent of mortgages are thirty or fixed mortgages. It's something like five to our arms. And and I get a lot of pushback from that. But if you live your life and you observe other people living their lives, you will notice change in their their homes over time. And you just have to do the math. If you ever have doubt, just run the scenarios on the break even point. Because I'm I'm very happy, i I'm holding an arm and The other thing is you're not stuck, right, Like, let's say when my arm resets in two thousand seven, I'm assuming I will have some more cash. I can pay down principle when at a time comes so that my payment is lower, or I could sell the property. I can do a lot of other things. So I think the optionality of paying less and having flexibility it is very valuable. That's true. Yeah, So let' let's talk about a different kind of debt, Sam, because you say that most of us get into debt because we want to live a lifestyle that we don't deserve. So can you explain what you mean by this? And how does debt factor into someone's ability to achieve financial independence? Yeah, if you think about how we consumed and purchased goods hundreds of years ago, just a hundred years ago, we pay mostly cash because the debt markets weren't built out yet. But very smart and wise people have been able to recognize that we're greedy. We want things now, and we don't want to you know, we want to go straight to the corner office without putting in our dues. And that's just human nature, right. So we've created credit cards, pay day loans by now pay later to get people to get what they want what without having to be able to afford, you know, whatever they want in full value. And so I think getting into debt is something that UM people really need to get out of, especially it's consumer debt. If you have credit card debt, revolving credit card debt, the average illustrated something like SEV which is seven to eight percent higher than the average SMP five return over since and it is also higher than the average return UH. The illustraus Warren Buffett has been able to generate in his career and he's one of the top ten richest people in the world. And so if you have this revolving credit card debt or consumer debt and you're buying things that don't have a chance of appreciating and value, I think you're doing yourself a disservice. So you have to ask yourself how much do you really want and you want to do you want to get rich or do you want to make the lender yet rich. That's the mindset. And the other thing UM I think you're asking about is you know, debt and investing. So many of us have debt, but we also want to invest. So I have a framework called the financial Samurai debt and investment ratio, which basically states, if you have debt and you also want to invest, you should use that debt interest rate as a barometer for what percentage of your monthly cash flo you're going to use to pay down that debt. So, in other words, if you have debt at seven, you multiply that by ten to get seventy, so you would take sevent of your monthly cash flow to pay down debt and then to invest. So this way you're always winning and you're always hedged. Now, after ten percent, which is also the SPI historical average return, you would allocate one of your casual to paying off that debt because you can't really really launch if you're getting dragged down by ten plus percent debt interest rates. Yeah, now that makes sense. And really the only caveat to that, I'm sure you agree is if you're getting some sort of company match on some of those four one dollars right where you might want to avoid paying off something it's like eight or nine percent interest rate in order to get that max that match out before you start attacking that thing like gangbusters, right, I mean the company matches a hundred percent return, so yes, definitely fulfilled that return up to the match maximum and then start paying down that debt. I mean, you want to change your mindset to say, well, what is the return on my debt? Pay down? It's obviously the interest rate that you don't have to pay. Yeah, all right, we want to talk about some career stuff with you, Sam, including you know, one of the coolest things. I feel like I read this on Financial Samurai years ago, and uh if for some reason, it sticks in my mind more than anything else when it comes to like the content that you've put out, and it's about basically getting paid to walk away from your job. So we'll talk about career advice that you've got and more right after this. All right, we are back talking with Sam Dogan and Sam, we're gonna spend this last section talking a good bit about career advice. We're gonna talk about how you were able to engineer a layoff before we dive into that. Can you share the story of actually about how you got your first job. You you tell a pretty good story in the book about yeah, scoring that that first position there at Goldman Sacks and how it wasn't necessarily about grades, but yeah, share how that came to be. So it all came about because there was a career fair in Washington, d C. And Williamsburg, Virginia, where the College of William and Mary Is is about a two and a half hour drive south or north to Washington, d C. And so I signed up for a career fair and Goldman Sachs said they wanted to to see me. I was like, okay, sounds good, and so I woke up at five thirty am to get on a bus at six am from Williamsburg to d C. And nobody showed up, and supposedly twenty five to thirty people signed up to go go on this bus to go to d C. And so after about forty five minutes, the driver said, you know what, screw this, nobody's showing up. Let's go change vehicles. So he drove me in the bus to some random shack in Williamsburg and out popped a black Lincoln town car. And then so he drove me like a shave limo for two and a half hours to the career fair, and I had a lot of series of tough interviews and then I was invited to super Day where there were twelve interviews that one day, and I thought, all right, twelve interviews, let's rock, let's do it. You know, you drink your caffeine and you go. And I felt great afterwards and they said, oh, thanks for your interviews, let's come back. So all told, I ended u up doing. I believe it was fifty five interviews over seven rounds to get my first job in New York City, and the reason why it took so long is most likely because I was a poor candidate. You know, they couldn't fit me in the right bucket. You know. I was interviewing on the on the US trading floor and then the options derived of desk they made me read a thousand page book called Options as a Strategic Investment Way. I think it was Nate McMillan, and then they asked me one question about what is a butterfly spread? So that was it was like the gauntlet and so but after you know, like about the fourth round, you're like, okay, if they're not gonna hire me, and that's ridiculous. I started feeling confident and so they finally hired me, and then then I had to go through the mean Grinder again about getting into Ork at five thirty and then realizing is this what my life is going to be? Yeah, well it's fascinating to that just your basically your pursuit of that job, your work ethic, your your willingness to show up when when nobody else did it set you apart in a way that maybe you didn't go to one of the schools that they typically mine. It was not a target school at all. I mean, you gotta show up, folks. Showing up, I really is like fifty plus percent of the battle. You know. I promised myself in two thousand and nine I would write publish a new post three times a week for ten years to see what would happen, because I I strongly felt plus probability greater that something good would happen if that were to come true. And so it's now it's been over thirteen years, and I'm just going to continue because if you can speak forever, you can write forever. There's so much interesting stuff to talk about every day. Yeah. Well, one of the things you talking about in the book too, is you talk about how not many folks pick a place to live based on income potential. And I love that you actually dedicated a whole chapter to it in your new book. But like, salaries in coastal cities are often higher, but it's also much cheaper to live in like the American heartland. So so how does someone decide that that conundrum of where to live? And you know, when it comes to job opportunities. Fortunately, now I guess maybe it's a little bit easier with more work from home opportunities. But how do you think about that? So when you first start off, you're learning instead of earning, and eventually you're gonna start earning. But when you first off, if you don't have that much knowledge, you don't have that much experience by definition, So you should go where the job opportunity, the salary is the highest, the greatest, And even if that means living in a studio apartment with two other people in New York City because it's so expensive, that's where you should go. Again, we're talking about growing income versus saving money to generate wealth. Because look, so many people talk about San Francisco and New York City is they're so expensive, how do people afford to live there? But it's it's it's economics, folks. You can't talk about, you know, a one point eight million dollar medium price home without talking about the median household income of the buyers of those homes. Right, you have to look at both sides of the equation, and because eventually, eventually your income, well this is the whole will will skyrocket far beyond the cost of living. And this is what people don't tell you who have been able to generate a lot of wealth in the more expensive places. Yes, it costs a lot to live, to buy home, to send your kids to school, whatever, but that income growth is huge. People are making two thousand dollars right out of school working at Facebook, Google, Apple, and by the time they're thirty they're making four hundred thousand. And then if two people shack up, they're making seven eight hundred thousand dollars. So suddenly, maybe that one point a million dollar home on a seven thousand dollar household income isn't that expensive. So it's it's important to look at it that way. Now, I love the heartland because of the opportunity to invest as a real estate investor. Post COVID. Now we're seeing much more segregation spreading out of America, where you can work from home, you can go. So if you are in a relatively senior position, people trust you and they know you're going to do your job. I would take advantage of, you know, relocation closer to where your family is. Maybe you can save some money, have a better lifestyle. Um that is that makes tons of sense. However, here's the one thing a lot of people again starting on the career of twenties and thirties, need to be cautious about because out of sight is often out of mind. So if you are that person who wants to get promoted and paid and go places and you're earlier on your financial journey, if you're out out of sight physically in a satellite office, you might be missing out on those in person opportunities. And when it comes time to lay people off, it's so much easier to lay people off who you don't see often, So please be aware of that. Also when it comes time to get a raise, like you probably aren't going to be the first person when it comes to a promotional raise on your manager's mind. Yeah, let's imagine a scenario where there's a conference room, you know it's it's hybrid work from home whatever. There's like five people in the room, and then there's five people dialing in and you see them on TV. I will promise you that the relationships in that office are going to be stronger, and the people who are dialing it in are probably not going to be called on as much to participate. And this is based on my talks. I've already given talks at Google, Yelp, some other large firms and they're talking about this dynamic now. So it depends on where you are in your career too, and how much you want it. Totally agree. Yeah, So, Sam, can we talk about your experience negotiating a severance package because you basically got paid handsomely to leave your job when you're itching to leave anyway. Yeah, share how that went down please. Yeah. So, one of my biggest failures as a financial writer and blogger is that I haven't been able to create a movement where if you're going to quit your job anyway or retire early anyway, you should try to negotiate a severance because what's the downside. You're gonna leave anyway, your two week notice, you're just gone. Why not create a win win scenario where you try to get a severance based on your good work, your good relationships while you help the firm find your replacement and you train your replacement. Because I was a manager once, and every manager will agree that losing people who have done decent work or even just social work is really painful, especially in this market tight labor market. Right. So my my story is essentially, in two thousand eleven, I was really burned out from finance financial crisis. You know, the correlation with effort and reward was no longer there, and so I really wanted to get the hell out of finance. You know, it's just enough, twelve years enough, and I really liked financial Samurai and just writing and connecting with people online. So after I got a Bagel bonus in twenty eleven, I was like, you know what, this is really not worth it anymore. I got to find a way out. And I recognized from you know, basically we were going through like three to five rounds of layouts almost every year for a couple of years. I recognized that people were getting laid off with pretty decent servance packages, you know, based on two to three they were getting paid two to let's see, two to three weeks of pay for every year worked. And also they were getting their deferred cash and stock compensation. So in finance, there was more senior you rise, the more of your compensation, your your arin bonus will be in deferred cash and stock. So it's like a golden cancuff. So you you can never eve right because there's no like retirement part of your pensions. And so if you quit your job in finance, just like if you quit your job in tech or any industry that provides deferred compensation, you tend to lose it all. And so after being in my one firm for eleven years, I had three years of deferred compensation and generally I got paid thirty five percent of my total compensation in deferred compensation. So in other words, I had like a year of deferred a year of income that I was just gonna lose, and that was in the hundreds of thousands of dollars. And not only that, the company forced all employees to invest a portion of their bonus in the toxic assets of all these mortgage backed securities to get that off the company balance sheet, and which was I think a really smart and wise move that we all shared the pain. But those investments in turned out to be multi multi baggers and if I left that, I would have lost that as well. And so the bottom line was I was able to to my manager and talk to my HR person and say, hey, look, you know these are tough times right now, and I've hired my replacement. I'll do whatever it takes to train him make the transition as seamless as possible, if you can reward me with all my deferred compensation and a severance. And it took about a month of going back and forth, and ultimately I convinced them to let me go and pay me out. So it's exactly the opposite of trying to convince someone to hire you and pay and promote you. But it's actually the same because it's actually about understanding what the other side needs. The other side, you know, they would like to cut the salary and conversation of a director like myself whose heart was no longer in it, to promote and pay less a younger person, and then to move on. So it was it was great win win situation, and it's better. It's just easier emotionally to act somebody who who wants to leave than to like find somebody who's like yes, it's the hardest thing to it. It's one of the hardest things to lay people off. And if someone can volunteer to get laid off when you have to lay someone off anyway, it is a huge relief on the managers, uh, Psyche. And so I really hope that more people if they're going to leave their job anyway. You know, I think actually giving a two week notice is kind of cruel because what are the chances that you know, your boss, your colleagues are going to find your replacement within two weeks that's good, and you know your colleague is gonna be left holding the bag where they got to do all the work. So my transition out took a couple of months because I was trying to help make things smooth. Yeah, I like that. One. One of the other things you mentioned briefly in the book too, is that there are additional benefits to getting laid off as opposed to quitting or getting fired, whether it's governmental benefits, U and so cobra, things like that. So those are important things to think about. But I guess I want to ask you about this this situation because you were in a kind of an interesting job that most people they might think Okay, cool, maybe this works in high finance, But isn't that sort of an outlier scenario? U? Yeah, what would you say to that person and can they make this a reality in their kind of everyday sort of work wherever wherever they're at. So I would say anybody who has uh the courage to confront their manager or hi person to try to get laid off is an outlier. But I think we're all outliers if we want to do something different or special. I would say everybody has the ability to negotiate a severance because everybody has emotions, everybody has needs. Paying a serverance is voluntary. The warn Act pay, which a lot of people confuse with a servants, is actually law. If you're a big company, you have to give severance in the form of warn Act pay, which is mandatory one to three months of pay. A severance is voluntary. So let's just put I don't know myself as an example, I have a hard working employee. I'm a private company. I don't have to pay a severance. Let's have a great employee five years just added so much value, so, you know, always nice, great, friendly to work with, easy, and they say, Sam, you know I I gotta move on. I got another opportunity. You know, thanks so much. Is there anything I can do? Um, you know, maybe get a severance or something. It's like a going away gift. If I like that person and they try to help me find their replacement, I'm happily giving them a severance, because, if you think about it from a corporation's point of view, a severance the amount is not huge in terms of the overall earnings, but the good will is huge. It's about treating people well so that it can attract more people in the future. If you're like a big employee. One of the biggest actually for all companies, one of the biggest fears is gaining a bad reputation as a bad place to work, as a place where they don't treat their employees with respect, as disaster with social media and everything, you know, I mean, if I want it, I can blow people left and right with my platform, right, I mean, that's you don't want to do that, but frankly, anybody can do that right now. So it's really about create um that that collegiate atmosphere, collegial atmosphere and creating win wins with situations and anybody can do it in any kind of job setting. It might not be a specifically like a severance. I mean it could be you know what you can how about you work four hours a day for the next three months. That's kind of like getting double pay for three months. Or how about just come in two days a week and you know, just do hybrid two days a week and then take Friday off. You get three day weekend every every weekend for one year. That's kind of like a severance because it's about creating matching a scenario of demand and supply as well. Yes, not black or white. There are a lot of options out there, not black or white. Everything. Every problem is there, there's a solution, there's a more optical solution where both sides can win. And that's what I encourage people to do is always think about the other side so you can make a better situation for yourself, totally make it win win for for both parties involved. With all the talk about severance, Sam, did you happen to watch the TV show Severance on Apple TV? Yeah, I've watched the first episode, so I'm actually gonna watch more. But I gotta sign up Joel both so you got to get that first episode get so good, and uh, I mean, I'm sure it's gonna kig. I'm not taking that show. I just finished Peaky Blinders season six. I gotta do the severance. Well, San, thank you so much for joining us. Man. Where where can folks learn more about you? Well? Obviously at Financial Samurai dot com. I'm gonna go ahead and say it, but where can folks learn more about your books? Specifically, you can buy buy this, not that, How to Spend Your Way to Wealth and Freedom anywhere that they sell books, Amazon, Barnes and Nobles, Powells Books, Indie Books, and at your bookstore. It's coming out July. I think that's it's gonna be the best book. And obviously I'm biased because it not only talks about helping you achieve financial freedom based on real life experience and examples, but it really tackles a lot of life's biggest dilemmas. What's the point of money, right is to live a better life and to look back with no regret. So I really think you guys love it? Yeah? No, well we enjoyed reading it, Sam, and yeah, we think how the money listeners are gonna love it too, So Thank you so much for taking the time out of your day to join us. We appreciate it man, And yeah, I hope to talk to you soon. Thanks so much, guys, I really feel honored that you have me on. Well, Sam, we are honored to have had you on the show today. Thanks again for joining us, Joel Man. Great conversation here with the financial Samurai. The man himself, Sam was one of the o g uh he he was just on the space. He was on the scene very early on when it came to folks who were writing about personal finance and specifically on you know, about the different ways that you can achieve some sense of financial freedom. So it was really cool to have him on today. But yeah, what were your Did you have a big takeaway from this episode? I think maybe I know, there's a lot of great stuff for sure, and I love the way so I'm Sam talks about engineering a layoff, and I just think that's like such beneficial advice for so many people who are interested in changing careers or just tired of their job and want something different and they want maybe a little bit of peace out money to to help them navig eight uh those few months in between finding something else, but I think I don't know. The main thing that that stuck out to me talking to him was when he said investing is a psychological mind bender, and he said stay calm um, And basically what he said was that the fear is worse than the reality itself. And I think it's true. I think it's very true that we get fearful and we let that fear override the reality of the situation. Um, we we we let our emotions overly influence our behavior. So I think, yeah, staying calm is staying reasonable in a time where everyone else is running around like chickens with their with their heads cut off. I think is is sage advice and it's something that we should all be following during this time. There is no need to look at your account balance every day or every week. There's no need to read the headlines. And the calmer you can stay in the midst of chaos, the more wealth you're gonna be able to build. That's right. Yeah, you just set up fear is bigger than the actual reality, and so all parlay that into negotiating that severance. And one of the things that took out to me was that in reality, for a business. We're not talking about a large amount of money in the grand scheme of things, and you know when you're taking the zoomed out big picture look at things, but the amount of goodwill that you are fostering by working with your boss or your manager or your employer to make sure that they're not the ones left holding the bag, because a lot of times it's not. It's it's less about the money, and it's more about the work. It's more about the different tasks. It's more about the client relations that you have, and if you are able to make that transition stretched out over a period of time, or if there are just some ways that you can make that happen more smoothly, like he said, while you train the new person who's going to be taking over your role. That is worth the money, and that is something that a manager is willing to pay for. And so I mentioned that because you're you're talking about fear, and I think a lot of times folks are afraid to step out and do something like that. But he positioned it where it's presumptuous, it feels presumptious, or it feels like or it feels like maybe mean or something like that, but what he was saying is that it's it's seems more rude to give a two week's notice where you're doing all right, because that seems like the clean when something that it makes complete sense that that is actually maybe a better way to go about it. And I just want to say that I was able to do this exact same thing. Like I read what Sam wrote on this and I was like, dang it, that makes a whole lot of sense. And I was like looking to to leave, but there was a perfect outlet to say, what if I stick around for a little bit longer? And I helped with this transition and ultimately, like, I see that you're actually trying to get rid of people, get rid of me. And so when your employer was better off for it though, because you were to stick around. And yeah, I think a lot of times folks see the two week noticed thing. I was like, Okay, that's just how you do it. There's a reason why everybody remembers that. I don't know, it's got a good marketing platform. Like for whatever reason that is stuck in our minds, that's what you're supposed to do. But in reality, maybe there are some alternatives where everybody is able to win where everybody's going to come out a little more ahead. But yeah, that was my big take away. Uh, Foster that goodwill with with your employer. Don't be afraid to start having some of those conversations. But unless get back to the beer that you and I enjoyed during this episode, we both enjoyed a daily serving and this is a tropical punch berlinavice. This is by Trillium. I didn't know that Trillium makes Berlino vices. I think most of the beers I've ever had by them have been I P A s. And so this is a quite a surprise to to be able to enjoy something so delicious that I'm not used to these guys making. But what were your thoughts on I think we've had like a coffee stop from them before too, but everything we've had from them has everything else. It's been incredible. Yeah, and and so this one was no exception to me. If this could count as my serving of daily fruit, I would drink it every day because it is just like it's bursting at the seams with fruit flavor and so just incredibly juicy, luxurious amounts of fruit in this I would say, like they must have used a ton because the fruit vibes come forward in a big way. But yeah, again, like everything Trillium does, I'm impressed. It's so good. Right, So some of the flavors they don't like bash you over the head all ryeah, it's just not like this perfume kind of over the top fruit flavor. It's it's it's real, like you can tell that there there there is real fruit in here. And like you said, I think that's why they called it daily serving, because it truly is real fruit in this beer. Honestly, it kind of reminds me of Humble Forger because they do a really good job of incorporating a lot of that fruit flavor without it feeling like this perfumey artificial fruitiness. Um. And so I think Trillium has done an incredible job. And this was another beer that was sent to us, by the way, by Sean. He is up there in Boston, I'm pretty sure, and so for him this is maybe this is a daily thing because it might be his daily serving. Gonna be able to enjoy something this delicious, I'm jealous, But Sean, thank you so much for sending this one. Hour away. Seriously, thanks Sean, we appreciate it. By the way, Matt, we should announce how to enter the book. We almost forgot that you mentioned at the beginning of the episode. We are giving away five copies of Sam's new book by this, not that, And all you gotta do is be a How to Money newsletter subscriber. If you already subscribed, you realize how glorious it is, and you are already entered. Uh. But if you have not yet subscribed, you should and it's free, and you will get entered to win one of these five copies, and we will mention the winners in next week's newsletter a week from tomorrow. That's right, and you can sign up for that newsletter at how to Money dot com Ford slash newsletter. I love how we got that. You are l just nailed right, We got it all right man. That's gonna be it for this episode, buddy. Until next time, Best Friends Out, Best Friends Out.