Sam:
[0:00] 250,000 is the magic number that I think where just compounding really takes
Sam:
[0:05] off and it's very noticeable. Once you get to that 250, you stay diligent in your contributions and in your investing. It's only a matter of time before you're going to get to a million dollars.
Ryan:
[0:17] Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is Ryan Sean Adams, just me today. I'm here to help you become more bankless. Guys, as it's no secret that part of the Bankless program is to help you become crypto wealthy. We talk about this at the beginning of all of our episodes. So why are we doing this episode in particular? I feel like often I run across people in crypto who skip the whole personal finance principles part of investing. They're looking at crypto as kind of a short-term lotto ticket. So this episode is for those people. Because becoming a crypto millionaire isn't all that different from becoming a fiat millionaire. The same rules apply, and there's a lot we can learn from personal finance outside of crypto. Sam Dogen was an early pioneer of a movement called FIRE. That's F-I-R-E. It stands for Financial Independence, Retire Early. It started around the 2010 era of personal finance, and I think people in crypto have lots to learn from some of the FIRE principles. You don't have to use Sam's asset classes like real estate to achieve your millionaire style goals. Maybe you swap real estate and bonds and equities for crypto.
Ryan:
[1:32] But still, there's definitely some valuable lessons here for all crypto investors. So please enjoy this conversation with Sam Dogen.
Speaker2:
[1:40] In the wild west of DeFi, stability and innovation are everything, which is why you should check out Frax Finance, the protocol revolutionizing stablecoins, DeFi, and Rolex. The core of Frax Finance is Frax USD, which is backed by BlackRock's institutional biddle fund. Frax designed Frax USD for best-in-class yields across DeFi, T-bills and carry trade returns all in one. Just head to Frax.com, then stake it to earn some of the best yields in DeFi.
Speaker2:
[2:03] Want even more? Bridge your Frax USD over to the Fraxtel Layer 2 for the same yield plus Fraxtel points and explore Fraxtel's diverse Layer 2 ecosystem with protocols like Curve, Convex, and more, all rewarding early adopters. Frax isn't just a protocol, it's a digital nation powered by the FXS token and governed by its global community. Acquire fxs through frax.com or your go-to decks stake it and help shape frax nation's future ready to join the forefront of defy visit frax.com now to start earning with frax usd and staked frax usd and for bankless listeners you can use frax.com slash r slash bankless when bridging to fraxel for exclusive fraxel perks and boosted rewards Uniswap is your gateway to a more efficient DeFi experience. With Uniswap swapping and bridging across 13 chains, it's simple, fast, and cost-effective, helping you move value wherever, whenever. Thanks to deep liquidity on the Uniswap protocol, you'll enjoy minimal price impact on every trade. And now Uniswap V4 takes it even further. Swappers benefit from gas savings on multi-hop swaps and ETH trading pairs, while liquidity providers can create new pools at 99% lower costs. The best part, you don't have to do anything extra.
Speaker2:
[3:09] Each trade is automatically routed through Uniswap X, V2, V3, and V4, so you get the most efficient swap without even thinking about it. Whether you're swapping, sending, on-ramping, off-ramping, or bridging, Uniswap's web app and wallet gives you the tools to unlock DeFi's full potential on Ethereum, base, arbitrum, unichain, and more. Use Uniswap's web app and wallet for a more efficient way to use DeFi. Cello, the blockchain engineered for everyday payments, has officially returned home to Ethereum as a blazing fast Layer 2. Built on the OP stack and eigenDA, Cello delivers one-second blocks,
Speaker2:
[3:39] Subcent fees, and fee abstraction so users can pay gas in USDT, USDC, or any whitelisted ERC20 token. Add native bridging, Ethereum-level security, and ultra-green money, and you have a network purpose-built for global commerce. In just five years, Celo has processed 730 million transactions for 12 million addresses. It's launching with 100 partners and fresh DeFi firepower. That makes Celo the on-chain FX hub for borderless remittances and real-world spend. For builders, distribution is baked in. Programs like Presentee Grants, Retroactive Public Goods Funding, CeloCamp, and Proof of Ship will put your mini app on Farcaster and Opera Minipay. Tokenomics leveled up too. The great Celo halving cuts inflation from 2% to 1%, aligning the chain with its ambitious Vision 2030. A trillion dollar on-chain economy where regens, cypherpunks, and degens create prosperity for all.
Speaker2:
[4:24] Follow at Celo on X and start building at Celo.org today.
Ryan:
[4:27] Sam Dogen, welcome to Bankless.
Sam:
[4:29] Thank you very much. Thanks for having me, Ryan.
Ryan:
[4:31] We're really excited about this. Okay, I got to start with the first question off the bat. It's in everyone's mind given the title of this episode. Can anyone be a millionaire? Is this a matter of luck or can like anyone do it if they just pull themselves up by their bootstraps?
Sam:
[4:45] Well, I don't think there's 100% probability, but I think if you read millionaire milestones and you follow personal finance sites and podcasts, you're going to be much more focused than the average person. Only about 6.5% of the U.S. population are millionaires. But I think you can raise that probability to probably 75%. Let's do with that. Wow.
Ryan:
[5:06] Okay. What's stopping people from just becoming millionaires? Why can't everyone just do this?
Sam:
[5:10] Well, one, there's education. You got to understand how to save and more importantly, how to invest in asset allocate over a period of time. There are many reasons. You just might not have enough money. You might not have enough education. You might not have enough patience or time, and you might not know what to invest in. So Millionaire Milestones really starts helping create a framework for investing over the long term. You've really got to know what you're doing and be patient along the way.
Ryan:
[5:38] One of the things I've been kind of shocked about is like, none of this is taught in schools. I mean, I guess there are like, you know, personal finance classes in some jurisdictions and some areas that are being mandated, but they still don't quite teach this. They certainly don't frame it as like how to become a millionaire. Are you like, you know, is this the type of thing that most people learn in school or how do people actually learn these lessons?
Sam:
[6:04] Well, it's interesting. California, I think, passed a law that says there needs to be one course for all high school seniors in 2026 and beyond, a personal finance course. So it's happening, but it's still a shock to me that there are no required courses on personal finance. And it's not just about becoming a millionaire. It's just being... Financially literate to handle your finances. And I think you learn so far by doing and by failing and by wondering where all your money went after you pay all your taxes or wondering what happened to your crypto position or stock position after you bought at the right time and then you panic sold. Most people learn by trial and error. And I'm trying to help people not make too many errors on their path to financial freedom. Yeah.
Ryan:
[6:50] Do you agree? It's like investing. I think this is Charlie Munger take, like investing is more like a temperament than it is sort of a knowledge set or a specific skill set that you accrue.
Sam:
[7:02] Well, you definitely need to know the fundamentals of investing. You should learn about, for example, the probability that the S&P 500 will go up in any single year is about 75%. The probability of a bear market happening, while the drawdown is about 35%. So you understand these historical figures and there's no certainty in the future, but you understand this historical framework so you can invest accordingly. And investing definitely is a lot about emotion control. But if you understand the numbers and you can control your emotions with a proper asset allocation, according to your own risk tolerance and financial goals, which change over time, it's a forever going process, you're going to do much
Sam:
[7:46] better than the average person.
Ryan:
[7:48] Just top of the line stats, like how many millionaires are there out there? Maybe just in the US?
Sam:
[7:52] So it's about six and a half percent of the 340 million US population. Okay. So there's about 20 million millionaires.
Ryan:
[8:01] That's a lot. That's more than I think a lot of people are expecting.
Sam:
[8:04] Yeah. So it's like if you're walking around and if each millionaire was actually a zombie or something, you'd be kind of scared walking around. So it's actually kind of ubiquitous, but not really, right? Six and a half percent. And they're more concentrated in the bigger coastal cities where the income and growth potential is generally higher. And when you say millionaire,
Ryan:
[8:26] Is this basically net worth less the household or do you include the house in that as well? The primary residence.
Sam:
[8:34] It includes the primary residence. And so there's two ways to think about this. So in the United States, the median house is about $400,000 and the median net worth is about $200,000. So about 80 to 85% of a typical person's net worth is in their primary residence, which is kind of risky. We saw that in 2008, 2009 during the housing crash, a lot of people lost their homes through foreclosure, short sales. And this is something where we talk about in the book on how proper asset allocation is very important And then over time, the average, actually, American is actually a millionaire based on the latest consumer finance survey. It's about $1.06 million is the average net worth for households in America.
Ryan:
[9:21] Oh, wow. That's average. That's not median, right?
Sam:
[9:23] It's not median. The median is about $100,000. Let's just call it about $200,000.
Ryan:
[9:28] Okay. And the reason that's skewed is because we have a lot of centa millionaires and a lot of a fair number of billionaires out there that are definitely, you know, Bezos is in the average numbers.
Sam:
[9:37] Right, right. So that skews it upwards.
Ryan:
[9:39] But so I think some people will be surprised with some of those, you know, raw numbers that being a millionaire only puts you in the top 6% or so in the U.S. So like, what does it take to get in the top 1%?
Sam:
[9:50] So top 1% cutoff is 13 million, 13 to 14 million. Once you got that, that is the threshold for top 1%. Okay. And then top 0.1%, it just really ramps up that way. So it's really skewed on the top 1% to top 0%. When people think about like the really wealthy people, it's really the top 0.1%, not so much the top 1%
Sam:
[10:12] anymore. It's interesting.
Ryan:
[10:14] Let's talk about the why question, because that's sort of where you start your book and your book goes through a number of milestones that millionaires will need to consider and will want to hit throughout their journey here. But the first is, I think, the most fundamental question of all, because there could be some people listening to this saying like, maybe not very many, maybe most people want to be a millionaire. But others say, look, why should I work towards this? What is the point in being a millionaire? What are the benefits? And you begin with your first milestone in this book of you actually have to find your why. So could you talk about that? Why is being a millionaire worth pursuing at all? And how does someone find their why?
Sam:
[10:53] Well, I think it's important to understand there's trillions of dollars out there in the world for the taking. The knucklehead you went to high school with might be super wealthy because he or she decided to try and put themselves out there. So one, know that there's a lot of wealth, especially here in America. And if you don't take advantage of that, I think you're kind of wasting your opportunity of being born and to live in America. There's just so much opportunity. I grew up overseas in Malaysia, Taiwan, Philippines, Japan, Zambia. And then when I got here, I was like, wow, this is like the land of the free and the rich. Let's go.
Sam:
[11:27] And so you don't really know your why maybe until you kind of get out of school and you get into the real world and it starts beating you down, right? Maybe like a micromanager starts telling you what to do every single day, even though you know how to do it. Maybe a colleague backstabs you and you thought, you know, you guys were good friends. You won't really discover your why until maybe five years out of high school or college. And then what happens is you might be stuck in the wrong path or you might think this is your why. And then years later, you're like, this is terrible. I don't want to go through the motions over and over again. So you will eventually, I think everybody will eventually get sick and tired of what they're doing. For me, that was about 11 years in banking industry. I was like, after doing the same old conference, speaking to the same old clients, going to the same old country, it was boring and it was a grind. And so it's important to discover your why because it's important to realize that eventually you're going to become miserable. And by that time you're miserable, you need enough money. You need enough passive income, wealth to give you the options to do something you really want to do for your next step.
Ryan:
[12:36] Yeah, that certainly resonates with me. And I think resonates maybe with a number of bankless listeners here, which is like, and there's a term for this. I know you were kind of one of the early profits of this movement too,
Ryan:
[12:47] the FIRE movement, financially independent, retire early, right? That's FIRE. And I think that resonates for me when it comes to a why to build your wealth. A lot of that is summed up in the word independence, or maybe like another word for that is kind of freedom. So like for me, it was always very much about the freedom to work on like whatever I want and not be, you know, people use the term wage slave, the freedom to just work where I want for who I want on whatever causes or purposes I want to work on and not to have to just be in the grind of producing a paycheck. It was also like the freedom to help those in my life, like my family, those around me, you know, the idea of having a safety net for people I care about, the ability to, you know, buy a loved one, something that they need. Maybe it's a car, maybe it's a house, something like that. It's like.
Ryan:
[13:41] It's security. It's protection for those that you love and those you care about. And it was also the freedom to convert this wealth into other types of wealth. We recently had Sahil Bloom on the podcast who wrote a book called The Five Types of Wealth. I don't know if you've dug into that, Sam, but it's funny because this episode is all about net worth, which is one component of wealth. But the beautiful thing about net worth is you can kind of convert it into the other types of wealth as well. So if you're not grinding on a, you know, 70 hour work week at a banker job at, you know, Goldman Sachs or something like that, well, then you have more opportunity and time to spend on your physical fitness or your relationships or just like time in general to get your mental house in order. And so for me, it was all encapsulated in kind of the word freedom. And that's what financial independence, that's been kind of the goal of like what we're doing on Bankless and is like one of my personal goals too. Is that a common story? Does that resonate with you?
Sam:
[14:42] Well, when I started talking about FIRE, it was July 2009 when I started Financial Samurai, and we were going through a global financial crisis. It was really scary. It was really bad. Credit Suisse, at the time when I was there, we had gone through seven rounds of layoffs, and I was thinking to myself, well, I'm probably going to be next, but somehow I survived. I was probably too cheap. I wasn't a big cost center, so I was like, okay, let's keep saying. So I survived. But then I was thinking to myself, man, this sucked. Going through the global financial crisis, because if you're in finance and you're not helping your clients make money and you yourself are not making money, then what's the point? I mean, it's kind of like a soulless job. And so, yeah, I escaped in 2012 after negotiating a severance package. And so my why was finding happiness in health again. I was going through a lot of chronic pain, chronic back pain. And I was just miserable. This, this, this is no way to live.
Sam:
[15:36] There's no way I could do a 40 year career like my parents in the government. And so I wanted to get out by 40, but when I decided and I discovered how to negotiate a severance package, the seas parted. I was like, okay, no more golden handcuffs. I could keep the gold that they were deferring to me over the next five to seven years. And so I said, you know what? I'm 34 years old. I'm out of here. Worst case, I don't like freedom and I don't like doing the things that I want, I'll just go back to a job within the next two, three years.
Sam:
[16:05] And what happened was I discovered my joy for writing on Financial Samurai. And then I became a father in 2017, five years after I left. And I was like, this is the best thing ever in the sense that I had the finances and the freedom, the time to actually raise my child myself and to watch him grow up and protect him. And that was just amazing. When people have children, what happens is the money will come because you're going to get fitter. Are you going to be a nicer person, more patience? Are you going to work harder? Are you going to save, asset allocate accordingly? These are the defining moments in your life, a financial crisis, having children, someone dying, right? These are the wake up moments that force you, I think, encourage you to get your finances in order.
Ryan:
[16:50] Yeah, I think a lot of people maybe find their why is basically their family and the loved ones in their life. I mean, that was certainly the case for me of why I had been on a grind in a lot of ways, both earlier in my career and now more lately as well. That breaks to mind, though, that this question of like, when we use the term financial independence, what does that really mean? Is there like a crisp definition of that? Maybe it varies depending on your circumstances or who you are. But, you know, five years after you quit kind of your banking job, would you have considered yourself financially independent? Was that a threshold that you met? And how did you know?
Sam:
[17:27] Yeah. So there's various definitions of financial independence. One of the most common definitions is the 4% rule, taking the inverse of that. So the idea of the 4% rule coined by Bill Bengen is that if you would draw at a 4% rate of return, 4% rate for your investment portfolio, you won't die with nothing. You'll have enough to live for the rest of your life. If you retire at a traditional age of around 60, 65, I've taken that a little bit, a little step further. So as the inverse of the 4% rule is 25. So take your annual desired household expenses times 25. This is like a baseline for being financially independent.
Ryan:
[18:06] Okay. So if you're spending $100,000 in your household, then you have to have $2.5 million in net worth?
Sam:
[18:13] Investable assets. Investable assets. Investable assets, excluding your primary residence, which saves you on rent if you have no mortgage. But it's generally investable assets. So in general, that's the way to go. That's a baseline. But I've taken it a little bit a step further, and I have a multiple of gross income. Now, why do I do gross income versus expenses? One, it's harder. It pushes you further. So as you make more money, it makes you focus on your savings and investing. So let's say you make $100,000. So it's still 2.5 million, right? But let's say you're only living off 50,000 of it, right? So you could actually cheat your way to financial freedom by just slashing expenses down to ramen noodles and just living off 25,000 a year, right? And then times it by 25. you can have a much lower number. But if you focus on income, as your income grows, as most people's income grows over time, that threshold gets higher and it forces you to continue to save and invest. What I see most commonly on the path to fire is undisciplined, undisciplined saving and investing over time. You just kind of get lazy. You just get comfortable and you don't push yourself. And I think that's a real, real dangerous situation to be in. Okay.
Ryan:
[19:29] So tell me more about this, the net worth guidelines, because I noticed some
Ryan:
[19:33] in, you know, one of the earlier chapters of your book. And I think if I'm understanding you correctly, Sam, you like basing some of the net worth targets on multiples of income, right? So let's say, you know, I think you have a 10X salary type rule. If you've been at work for, you know, 10 years, then your net worth should be about 10x your income so would that mean if if i if my income is a hundred thousand dollars per year i've been working like you know 10 years i should have my goal should be to have about 1 million in net worth and investable assets is that kind of a proxy.
Sam:
[20:08] It's it's not so much 10 years it's not 10 years because that would be pretty quick for the average person yeah but the proxy is once you get to a 10x gross average income multiple okay That's when you start feeling financially free.
Ryan:
[20:22] I see. Okay. And then when you feel financially free, I guess that's kind of a spectrum, is it not? So, I mean, because there's also, it's interesting you use that word feeling as well, because sometimes the feeling can just continue to be out of reach. Even though you hit an earlier target, you still, for whatever reason, don't feel like you're financially independent. Are there other soft aspects of this, aside from kind of a net worth number, that are key to feeling financially independent?
Sam:
[20:54] Yeah, so another definition of financial independence. So 10x is kind of the baseline multiple. And I believe once you get to 20x, 20x your average gross household income, you are financially independent. And you should feel... Completely free.
Ryan:
[21:08] Cause that's a flywheel at that point. You're just, you know, not able to spend fast enough. I said, well, I guess you could, but yeah.
Sam:
[21:16] But at 20 times your average gross annual income, you're, you're set. You're set. So the other definition I like is called, it's not, it's, it's basically, can you generate enough past to semi-passive investment income to cover your desired living expenses? Okay. Right. So if you don't have to really work for your money, all that dividend income, rental income, private investment income or distributions that come in, if it can completely cover your reasonable desired living expenses, you're free. You're financially free. You just have to keep up with inflation, probably plus one to 3% as a buffer.
Ryan:
[21:55] Let's talk about income then, because that's another kind of milestone or key principle in your idea and in your book here. And I think you encourage really, really cranking on income early. So this is sort of a, you know, grind when you're in your 20s type of methodology. And I think you advocate saving a large percentage of the income that you generate. So when it comes to really dialing in that income, that income flywheel, what do you advocate that people do? How do they get started here?
Sam:
[22:24] Well, I think it's important to know what service minimum wage income is like. So the minimum wage is like, it's actually high now. It's like 15, 16, $17, at least here in California is to work at a job that's terrible, that doesn't pay well, that you're consumer facing. You got to help people like think about working at McDonald's and knowing the pain it is to work those types of jobs at such little level. And that gives you the motivation to not take whatever job you do have that makes more than minimum wage, right?
Sam:
[22:55] So I think the problem is a lot of people just think about their day job income as the 100% source of all their income. But no, if that engine goes down, as we see through recessions, stagflation, global financial crisis, your plane goes down, you're done, right? So you want to try to have, think about like, maybe like three engines on each wing. So you have like six other income streams, the more the better. So when that income stream, the main one goes down, you're still flying and maybe you can still fly and float down to a safe landing where you survive, right? And so the key is to really not only be great at your job and to network and to provide more value than you cost, but to develop those side income streams after work or before work. You know, whether that is Starting your own website or business, whether it's a podcast, blog, whatever it is, before you go to work for one or two hours or after work for two to three hours. Those are the magic hours. That's when you actually are working on something you really enjoy, where if you make a dollar from there, it feels 10 times better than making a dollar for someone else.
Ryan:
[23:55] In order to do that, you really have to spend a lot of hours at this thing. And I think you advocated doing this earlier in your life, in your 20s. What's kind of magic about this period of time? I think we have a lot of younger listeners and, you know, I don't, I don't know that there's lots of other things that you could do with your time, right? In your twenties and maybe more enjoyable things than, than being on the grind. What, like, can, can you advocate that position? Why should people focus on this?
Sam:
[24:21] I'm telling you, so I'm 40, I'll be 48 soon. And I wish I worked harder in my twenties and thirties. So I was working 60 hours a week. And then I went to business school part-time for 20 hours a week. So that's 80 hours a week. and I was thinking I should have gone more I should have started Financial Samurai sooner in 2006 when I came up with the idea not 2009 once the financial crisis hit and the reason is when you're in your 20s you don't know how much energy and freedom you really have in your 20s until you're not in your 20s right 30s and 40s when you have children you have aging parents to take care of that time you have available after about 35 40 it shrinks tremendously and And when you look back and you look at how much time you had in your 20s to actually build a business, to work harder, to come in earlier, to work longer than your bosses at least, it's kind of a joke. But you don't really know that. So hopefully people can just look at the people who are older, you know, 10 years, 20 years ahead of you and just listen to them because they've already been through where you've gone. And I'm telling you, folks, if you save and invest aggressively in your 20s and 30s, you're going to be so happy in your 40s and 50s when you have less energy and less time. Here's an interesting point. So the personal saving rate in America, the national saving rate in America is about 5% right now.
Sam:
[25:40] So that means you have to work 20 years to save one year of expenses, to cover one year of your expenses. That's crazy. No wonder why everybody's like working forever. But here's the shocking thing. During the pandemic, March 2020, when the stock market fell 32%, the personal saving rate actually shot up to over 30% in March, April, and May. So in other words, we have the ability to save if we want to. We're just choosing not to because we're not good at forecasting our misery in 10, 20 years. And we're not good at forecasting our health and our time. But I'm telling you, folks, the more you save, the more freedom you'll have later on.
Ryan:
[26:21] Yeah, these are the two sides, right? It's like grinding very early and then also saving the excess of that grind. I want to come back to saving in a second, but I want to plus one and agree with you on kind of the virtues of doing this, working very hard in your 20s. Because what I found in my 20s was I was taking time away from things like, you know, building my World of Warcraft, you know, character to like getting that character to level 20, right? I was taking from my video game time and I was applying that to work. In my 30s, if I were to work equally as hard as in my 20s, it was taking my time away from like my kids and my family. And that is like far more valuable time. So you really do have a lot of time wealth in your 20s that can go towards this. Let's talk about the saving side of this equation, right? So you advocate saving as much as a 50% of your income. And I guess maybe this varies based on how much income you're actually generating and what your expenses are. But like, okay, 50%, that's a lot more than most people are saving. Justify this. How can you, where do you come up with this number?
Sam:
[27:27] So I think it's pretty straightforward. Every year you save at 50% means one year of freedom you save. So if you work 10 years, you'll save at least 10 years of freedom. And we all know that time is more valuable than money, because time is finite and money is endless. And we all die. Median age, life expectancy is 80. But again, people don't really think about that when they're younger. They think they're going to live forever. They don't think about that, right? The other thing is it's really easy to save 50% if you just think about your paychecks, for example. Most people get paid biweekly, so every two weeks. So all you got to do is save one paycheck, save and invest that one paycheck, and just try to live on the rest. So we know about hedonic adaptation where we get used to living with more wealth, more income, right? Hedonic adaptation goes in reverse as well. The more you save, yeah, you have less free cash flow, but you get used to living off less income as well. So I always have the saying when I tell people on Financial Samurai, I say, if the amount of money you're saving each month doesn't hurt, you're not saving enough because you're not forcing to change your habits. You're just winging it. And too many people, and I've run Financial Samurai for 16 years now, Too many people, 10 years later, they wonder where their money went. They're like, well, where'd it go? It's just like going out in San Francisco or New York City. Where did my cash go? Where did my money go? It's because they're not diligently saving and investing.
Ryan:
[28:52] You have a number here that you advocate in your book.
Ryan:
[28:55] And by the way, when you talk about saving, it's saving and investing is the key. We'll come back to investing and like what to invest in later. But you have a number in your book, $250,000. And you say, set a goal to hit 250K. Why this number? What's the significance?
Sam:
[29:14] So I was thinking about this a lot because, you know, sometimes people will be like, well, I'm starting at zero. A million sounds so far away,
Ryan:
[29:22] Right? It is far.
Sam:
[29:22] So you want to think about little baby steps first. Maybe it's the first thousand, then 10,000, then 50, 100. But $250,000 is the magic number that I think where just compounding really takes off. And it's very noticeable because for most people who work, they have potentially a 401k or 403 plan. And in 2025, you can save pre-tax $23,500 into that plan. So step one is to try to max out your 401k, all your tax advantage accounts. And so at $23,500, that's a lot of money. But if you get to $250,000 portfolio, and we know by history, the stock market returns about 10% on average since 1926, and we know that there's a 75% chance you're going to make money from the stock market any given year. If your $250,000 portfolio has a greater chance of generating more than you can contribute in a year. So in other words, 10% times $250,000, $25,000, right? And if you contribute $23,500, suddenly you're making more from your investments than the amount you can contribute to your 401k, right? And so that is where the compounding magic really starts taking off. So that once you get to that $250,000, you stay diligent in your contributions and in your investing. It's only a matter of time before you're going to get to a million dollars.
Ryan:
[30:45] So the compounding is active this entire time, but you really start to notice it once you get closer to the $250,000 number. Because then you're like, wow, I just made in one year the same amount that I actually invested in like my, you know, tax-free accounts. And that's kind of magic. Once you see the compounding at work, then you start to compound and you even want to save more.
Sam:
[31:07] Right. And just look at 2023, 2024, the S&P 500 went up 23% a year. Amazing. That's crazy. So like if you had 250,000 there, 20%, that's $50,000. Your portfolio return double what you could have contributed to your 401k. And that's a baseline start. I mean, once you get to that 250, and I know everybody can who's listening, the magic really starts compounding. This is one of the things that I think surprises many people on their financial independence journey. You can punch in the numbers in the calculator and you say, well, in 10 years at a 7% compound rate, you'll have this amount. And you look at that number, most people look at the number and they're like, wow, that's impossible. That's crazy amount of money. But what I'm telling you after 16 years is those numbers are real. And oftentimes they go even further than you expected.
Ryan:
[31:58] Can you talk about debt for a second here? Because you might also be talking to some folks who actually have some debt and maybe we'll put aside mortgage debt and talk about that when we talk about buying your first home and that sort of decision. But other types of debt, maybe it's student loan debt, maybe it's car loan debt, maybe it's credit card debt. Before you start on this saving and investing track, does it make sense to pay that off?
Sam:
[32:23] So I've got a great framework for this as well. It's called the debt and investing framework. Now, debt is not necessarily bad unless it's credit card debt, consumer debt, and you're buying stuff you don't need. That's bad, right? Not even the great Warren Buffett can outperform the average credit card interest rate of about 18%. That's crazy. Please pay off your consumer debt immediately.
Ryan:
[32:42] So that's just first. Just do that first before you start investing.
Sam:
[32:46] Credit card debt, you got to focus on getting that down. If you don't crush that credit card debt to zero, you're going to be in a world of hurt. But here's a more important framework that I think people should think about. It's called the debt and investing ratio. So the idea is you take your debt percentage, your interest rate percentage, let's say you have 8% loan, multiply that by 10. And so you get 80%. You take 80% of your savings or your free cash flow to pay down that debt, and the remaining 20% to invest. So this way you're winning generally, you can't lose. You're paying off your debts, you're winning. It's guaranteed 8% return. 20%, you have a chance of winning with your investments. Now, once that debt interest rate gets to 10%, you allocate, so 10% times 10 is 100% of your free cash flow to paying off that debt. Why? Why 10%? Because we know that the historical rate of return on the stock market is about 10%. So you might as well just go all in and pay off that guaranteed 10% rate of return to pay off your debt. Now, if the interest rate was at 3%, very cheap debt, right? Inflation is about 3%. 10-year bond yield is about 4.5%. That's cheap debt. You probably don't want to pay that off, but you should still pay off your debt because it's debt. So you can say, well, 3% times 10% is 30%. Take 30% of your free cash flow, pay down the debt, 70% to invest and go forward from there.
Ryan:
[34:10] I love that. I love boiling this down to kind of formulas and process and basically like a science because then that does something we were referring to easier. Like earlier in the episode, which is it creates the habit and the default temperament towards doing this, right?
Ryan:
[34:25] Everything's on autopilot. And so when you talk about savings, I imagine you take 50% of savings and invest that. You're talking about just dollar cost averaging everything in, right? Like from basically from your paycheck, I would imagine, just making that a regular discipline. Don't touch it. You don't have to make a decision. Every time you invest, you just dollar cost average into your portfolio assets. Let's talk about what to invest in and some ideas that you have around that. So is the basic methodology here that you advocate, of course, like this is a crypto podcast. So we have some hot takes on crypto as an allocation of this portfolio. But the basic FIRE type concept, this would be low cost index funds, I would imagine, real estate, that sort of thing.
Sam:
[35:09] So bread and butter, stocks, real estate, invest in what you know well. And if that's crypto, great. We have a long track record for both real estate and stocks, right? And so you want to figure out an asset allocation between those two and then within those two. So for example, stocks, you could go 100% stocks if you're in your 20s and 30s, but maybe as you get to your 40s and 50s, you want to dial down that asset allocation based on your age, maybe your age into bonds or different allocations. And I talk about this in the book. In terms of real estate, I think it's very important for most people to get neutral real estate. And what's neutral real estate? That is to own your primary residence. If you own your primary residence, your neutral real estate, because you're going up and down with the market, you're not a price taker anymore. You're not at the mercy of your landlord raising rents.
Sam:
[36:00] Largely fixing your living costs. You're only really long real estate if you own more than one property because you have to live somewhere. And so these are the things and decisions and the asset allocation you have to think about that match your financial goals and target going forward. And in terms of crypto, I consider it as an alternative asset. Seems like it's definitely the train is heading forward and going to go bigger because of the new administration. And so I like to allocate 10% to 20% of my investable assets in alternative investments, whether that's crypto, whether that's venture capital. I'm investing aggressively in private AI companies because I think they're going to destroy the future and put us all out of work and our children. So I might as well get rich doing that. Sure.
Sam:
[36:45] And if they don't, if it's all hype over bubble blown out of proportion, then our children will have jobs and a future that they can develop financial independence with as well.
Ryan:
[36:54] Yeah, I guess that's a win either way. Can we talk a bit more about first home kind of real estate? So we're talking about that plan of you're increasing your income, you're saving a large portion of that. How do you know when it's time to kind of buy a first home? And when it comes to a mortgage, like, I mean, how much house should you buy? How large should your mortgage be? How should you think about saving for a down payment? Is it even a good idea relative to just investing in your kind of portfolio of, you know, stocks and alternative assets and the rest of it?
Sam:
[37:29] So I think wealth is something that's tangible that you can enjoy. So real estate is something that is tangible, that you can enjoy, make memories, raise your family. So I think it's a very valuable asset. And so I think you have to figure out as soon as possible where you want to live and what you want to do with your life. The sooner you figure that out the easier it is to buy a home if you're a vagabond who just can't can't can't just don't know what you want to do it's going to be very tough to buy a home you just can't do it you shouldn't do it but if you see yourself living there for five preferably 10 years then you should probably buy a home because the history shows that real estate generally outperforms inflation by about one to three percent a year so if inflation is at two percent it goes 3% to 5% a year. And then when you have leverage, when you put down 20% and you borrow 5X that amount, those returns really start compounding after 10 years. And so for the average person, I think you really need to figure out what you want to do, where you want to live, 5, 10 years, and buy that primary residence. And during that process, before that process, you want to be aggressively saving and investing for that down payment. And that's where your stocks come in. And hopefully your stocks do well. But then you have a process where when you know, okay, I want to be buying a home in the next 12 months, definitely six months, you're going to start de-risking your down payment. Otherwise, what if you end up with not as much as you hoped for, and then it's a competitive bidding situation, and then you're
Ryan:
[38:58] Kind of screwed. So you want to de-risk your down payment, but ultimately you're taking that down payment out of your assets that you have invested in the market. Yeah, that kind of thing.
Sam:
[39:07] Usually. So yeah, exactly.
Ryan:
[39:10] One of my favorite instruments, actually, that's available to home buyers in the US is the mortgage and particularly that 30-year fixed rate mortgage. And the reason I like mortgage, you know, it depends on the rates. There's a certain amount of very fortunate individuals among our US listenership who's kind of locked in like nice 30-year fixed rate mortgages at like 3%. And man, that looks really sweet when inflation's raging at, you know, 5, 6, 7, 8% because you're effectively, you're making money on the government loan to you as well. What are your thoughts on kind of like a mortgage and how large of a mortgage to get in general and kind of the terms to lock in? Do you have any takes on this?
Sam:
[39:52] Well, I do have a home buying rule and it's called the 30-33 home buying rule. The three is the most easy to understand. It's the most memorable. It's basically to try to buy a home around three times your annual gross income. Okay. Now, it's very conservative. I think most people have to stretch to about five times, but this is a multiple where you're like, okay, I'm going to buy a home. It's going to be nice and I'm going to sleep well at night and not worry that I'm going to lose my job and stuff. In terms of the mortgage, it is always important to compare the mortgage rate to what the expected return is of any other asset class you own and also the risk-free rate of return, which is the 10-year bond yield at right now about 4.5%. So if you are paying a higher rate, then you're paying a real interest rate. And if you're paying a lower rate, you're paying a negative real interest rate.
Sam:
[40:42] Mortgages, I use mortgages aggressively in my 20s and 30s to build wealth. I just all in, let's go. And it's backed by real asset. And the funny thing is, it's much easier to leverage up 5X with real estate than to leverage up with stocks. And why is that? Because stocks provide no utility. It goes up and then goes down 20% the next day and you have no idea because of a tweet, a random tweet, oh, down 20% in a month, you're screwed. So you have to use mortgages wisely And the problem now is obviously at 6.5%, 7% 30-year fixed rate mortgages, it's very difficult for the average person to buy a home. But here's the thing. This is very important for folks who don't travel overseas or anything. And that is U.S. real estate, especially compared to the income generating potential, is cheap. We have one of the cheapest real estate in the world. If you go to Paris, Vancouver, Toronto, Hong Kong, Singapore, Beijing, the per capita income is much lower and the real estate is higher.
Sam:
[41:50] And so I think there's a big shift here where people need to know that foreigners look at US real estate and the crazy amount of wealth that's being built because of entrepreneurship and all that. And they see us and like, wow, it's so attractive and they want to buy. So if you don't want to buy your own piece of America, foreigners will buy it for you. And then once they buy it, then we're going to be even more priced out. So this is a long-term trend people need to be aware of.
Ryan:
[42:18] Yeah, I agree with that. I would plus one that. I would also add that not only is real estate fairly attractively priced, again, I know it's gone up a ton. So people listening to this might be like, what the hell are you guys talking about? Real estate has just skyrocketed. It's now more expensive than ever. But look at it relative to other countries. But also not just that, it's also the lending terms that Americans can lock into are very favorable. So I have family in Canada. The thought of Canadians getting a 30-year fixed rate mortgage, it just doesn't exist. They've got like five-year rotating. It's all variable. And the U.S. benefits from this because, of course, treasuries are the global reserve asset, the asset that everyone around the world buys. And so we have much more favorable lending terms as well. We can get mortgages at more attractive rates to actually purchase this property. So for me, as bullish as I am on other asset classes like crypto, that sort of thing, it totally makes sense to grab the low hanging fruit of kind of like real estate where it exists. Now, whether you scale and you do more than kind of a first home and a second home, that kind of thing, that case will vary depending on what asset class you're investing into. But pick up the low-hanging fruit, guys.
Sam:
[43:34] And it's also interesting if you look at historical interest rates. Look back to 1982. We've been going down, down, down, down since, and I believe we're going to revert to trend over the next three to five years. And so be patient. I don't think we're going to go skyrocket high inflation rate forever. These are blips due to trillions of dollars pumping into the economy to come back COVID. It might happen again, but the long-term trend is down, so I would take advantage. It's it's really for the average person one of the best ways to build wealth because not only does housing tend to go up with inflation plus one or one to three percent you are leveraged to that and you're also enjoying your time there and you're also having a forced savings account where you're just paying down your mortgage so it's it's in the reverse where 10 years from now you're like oh man i'm way richer than i i could have imagined versus the person who would just rent which is fine. But just like how shorting the S&P 500 over the long term is not a good idea, renting real estate is like shorting the real estate market long term. It's also not a good idea. There are moments in time when you should rent, you need to rent. But when you are settled and you see yourself living here for five, 10 years, you should lock down your primary residence.
Ryan:
[44:52] Not a good idea to short scarce assets, everybody. That's something that- Long term.
Sam:
[44:58] It's not going to work out.
Ryan:
[44:58] It's not going to work out.
Sam:
[44:59] Short term, it could definitely work out, but yeah.
Ryan:
[45:02] Let's talk about more advanced real estate because I know you've allocated a lot of your portfolio, kind of your investable asset portfolio in real estate. Maybe this is beyond the kind of the first home, but a lot of wealthy people like real estate. Can you explain why?
Sam:
[45:17] Oh, yeah. It's because it's a tangible asset that you can enjoy that's less volatile. And there's no daily ticker symbols telling you how much you've made or lost. And so I think for people who build a lot of wealth, they focus on what they're good at in building wealth. And a lot of that is entrepreneurship and focusing on the business, building something that has nothing specifically to do with investing, right? And so when you can focus better, you're less distracted and you can probably make more money. So real estate is something that every single wealthy person I know who's worth over $10 million, $20 million, $100 million, they have huge real estate portfolios. Not only their primary residence, but vacation properties. And they just spread it around. It's almost like it's just asset allocation where they know that if the worst comes to happen, they're at least going to have their properties. And it's interesting also real estate because it's kind of a hedge against a recession in a way. Because when people are freaking out about stocks, they tend to buy bonds, treasury bonds. And then when you buy bonds, the yields tend to go down. Yields going down means buying real estate becomes more affordable. And so wealthy people like to park their money in real estate for these reasons.
Ryan:
[46:28] Let's talk about active and passive income again, because real estate, of course, for some people can be a source of passive income. Although, you know, sometimes it's hard to tell how passive it is. I guess it depends how much you're doing as a landlord, if that's how you choose to do it. Although you can buy things like REITs and that can be a source of passive income, I guess, dividend income, that sort of thing. Anyway, when you think about active versus passive income, you're like, which is better? And I feel like the obvious answer to that is passive, but maybe not always. In which cases is passive better? And how do you build passive income?
Sam:
[47:02] Yeah. Passive is better if you don't want to do anything, right? Truly passive income is dividend income, CD income, treasury bond income, truly passive. And then there's risk-free passive income versus risk-required passive income. Risk-required passive income, stocks, real estate. When you're a younger person, 20s, 30s, you can afford to take more risk-required and more activity-associated passive income. So in other words, rental properties, for example, sweat equity, you're dealing with tenants, burst pipes, whatever it is. But as you get older and wealthier, you want to really transition more to passive income. And passive income is all about figuring out what that yield is, that interest rate is, that income level is compared to a risk-free rate of return. So nobody would ever invest in any risk investment if you didn't think it was going to return greater than the risk-free rate of return. So the risk-free rate of return right now is the 10-year bond yield. It's always been about 10-year bond yield and it's about 4.5%. So you wouldn't invest in stocks, real estate, anything. If you didn't have a strong certainty, you're going to earn more than 4.5%.
Sam:
[48:11] And the idea is you want to build a large enough capital base to have the option, the optionality of converting that capital into generating more passive income. You don't need to generate passive income to be financially independent. You should have the optionality to do so because you can always sell stocks or real estate or crypto to pay for your life, but you need to have that optionality.
Ryan:
[48:33] Say a word about cars, if you will, Sam. I feel like you've got an axe to grind on cars here because this is a common mistake investors make earlier in their financial progress, but they overspend on cars. Talk about this.
Sam:
[48:47] Oh, I think cars is probably the number one personal finance killer in America. We have a love affair with cars. It's like 95% of us own cars. And my rule is the one-tenth rule for car buying. I introduced this back in, I think, 2009, 2010. And I think it is a very popular rule, and that is spend no more than one-tenth of your annual gross income on the purchase price of a car. So if you make $100,000, buy a $10,000 secondhand Toyota Corolla. Amazing. Reliable car, won't break the bank, nothing. If you want a $60,000 car, don't buy it if you don't have at least $600,000 in household income. And if you want that, try to get that $600,000. You'll be amazed at how motivated you can be by tethering your wants with your activity. You got to earn it. Try to earn it. And that's kind of a mindset in the Financial Samurai community. Don't buy things you haven't earned yet. Earn it. I like that.
Ryan:
[49:46] I really like that. I guess, I mean, does this preclude leasing? Is it never a good idea to lease a car? Oh, no.
Sam:
[49:52] So it would be like if you wanted to lease a $50,000 car. Okay. Yeah, you got to get that $500,000. Just convert it? You can lease or cash. Leasing, there's obviously benefits as well. I like to just buy my cars with cash and then just hold them for 10 years. There's a lot of
Ryan:
[50:06] People who live in urban environments where maybe they can defer a car purchase like for a long time. Maybe indefinitely. Just Uber, you know.
Sam:
[50:13] Yeah, New York City. I wouldn't own a car in Manhattan. I would just take the subway, take the Uber and hitch a ride with friends who want to go out of town.
Speaker2:
[50:22] Binance is the world's number one crypto exchange. Over 275 million users already trust their world-class security. Binance makes starting crypto as simple as it should be, whether it's learning about crypto on Binance Academy or browsing hundreds of assets and viewing your newly created portfolio in a clear, easy to track dashboard. Binance helps you go at your own pace. For hardcore traders, Binance Pro opens up industry leading services for trading professionals with fully bespoke trading products, along with a suite of white glove services for VIP and institutional clients. Need support? 24-7 customer service is on hand whenever you need it. And with some of the lowest fees and deepest liquidity in the market, it's no surprise why over 275 million users trust Binance for everything crypto. Download Binance today and get started in minutes. Binance is not available in certain countries, including the United States. Check its terms for more information.
Ryan:
[51:10] Imagine if your checking account and DeFi wallet finally spoke the same language.
Speaker2:
[51:13] That's Mantle Banking, an all-in-one fiat and crypto account. It lets you save, spend, and invest all from one dashboard. Swipe for coffee, stake ME3 yield, or even use virtual cards for payments through Apple Pay. So it feels Web2 simple, yet stays Web3 sovereign. For allocators, meet Mantle Index 4, the S&P 500 of crypto. A tokenized, institutional-grade fund, seeded with $400 million from the Mantle treasury, and balanced across Bitcoin, Ether, Sol, and yield-enhanced stables. One asset, broad exposure, pure DeFi composability. The momentum is real. ME faults, FBTC bridges, and a $2.4 billion community treasury are all powering the next phase of on-chain finance. Mantle brings real-world access, yield, and utility to digital assets. Ready for the next era of on-chain finance that actually belongs in 2025?
Speaker2:
[51:56] Explore Mantle at mantle.xyz or follow mantle underscore official. Mantle, bridging TradFi and DeFi so you don't have to.
Ryan:
[52:03] Let's talk a little bit about the entrepreneurship side of things And particularly, you have this line, which is equity is what will make you rich, not your salary. I think specifically you're talking about kind of your own business equity, some sweat equity here. When we say business, we're not necessarily talking about a Silicon Valley funded startup. We're talking about any small business. A side hustle even can qualify on this. Can you explain, you've got another 333 rule, I think, for entrepreneurship and businesses here. And like just starting something. Maybe this is something that you followed in your life. What is this? How does someone get started on the entrepreneurship track and start building their own thing?
Sam:
[52:43] I think if you look at the U.S. economy, it's made up majority of small businesses. But obviously, the big businesses get all the headlines and CNBC and so forth.
Sam:
[52:52] You have to think about why you're employed. You're employed because supposedly you generate more value than your cost. Otherwise, you wouldn't be employed. And if you are employed and you're not doing that, you're going to soon be unemployed or eventually. And so as a business owner, it's you're building equity in the business, which trades at a multiple when you finally sell it, if you sell it or if you never want to sell it. And so if you own a business, you can generate income for your salary. But every single dollar you bring into the business, let's say your business in your field sells for 10 times earnings, right? Every dollar you bring in, you actually bring in $10 of equity. Right? The S&P 500 is trading at 22 times forward earnings. These are obviously best-in-class companies in America. You're not best-in-class company, so you probably traded less. But you could be, like if you're a hot AI company, you could trade at 100 times earnings. The idea is you want to build a business and build your own equity. So not only are you building equity that trades at a multiple, you're also building income. And that's the win-win scenario that everybody needs to think about. And so for me, I decided to start Financial Ceremony in 2009, not so much as business, but as a way, a cathartic way out of the global financial crisis. And then when I left in 2012, I was like, oh, I could actually try to grow Financial Samurai into a web property that generates regular supplemental income.
Sam:
[54:15] And so I spend about 15 to 20 hours doing that. And it is a business. It's valued at a multiple of earnings or revenue or operating profits. And I've had many people over the years say, I would like to buy Financial Samurai. And I always say no, because I I don't really care about that exit because, you know, if you're, if you have a baby, you never sell your baby or what kind of father or mother are you, right? I want to do this because I enjoy doing it.
Ryan:
[54:39] Is there, is there a rule for this? Like three years moonlighting, trying to cover 30% of your expenses? Yeah. What's the rule here?
Sam:
[54:46] There's not a rule, but there's a guide. So everybody should start some type of business. You don't even have to know exactly what you're doing. The key is to just start, start your own website, come up with an idea, and then you can pivot and brand. I mean, you can pivot accordingly. But you know what? After three years, after three years of not generating a livable income stream, you should probably not focus on that business so much. You got to get a face to music. And everybody should start a business while they have a secure day job. Remember, you only need to work 40 hours a week. That's crazy. I don't know a single person who's worth over $10 million, $100 million, who's working less than 40 hours a week. They're working way more and they don't have to. So I would say the rules of business, start a business while you have a day job. Check it out. Try it out. Build your brand online. Try to do it for three years. and try to make, yeah, try to replicate at least 30% of your day job income before you consider taking that leap of faith and leaving your day job behind.
Ryan:
[55:46] Sam, when you were talking about like kind of businesses being worth a multiple of revenue, multiple of earnings, something like that, does this imply that you should think about businesses that, you know, that you can sell? Because it strikes me, there could be some businesses that are harder to sell than others, right? So, you know, in the case of a business, that's just like, you are the sole person in the business, you are the brand, you are the operator, that might be a bit more difficult to sell without some sort of handcuffs than a business where you've got kind of a fleet of workers and it's very process oriented and there's like kind of a liquid market for it. Does that factor into the analysis at all in terms of like the type of business that's able to be sold?
Sam:
[56:25] I think it's important to figure out what you would like to do first, what you like and want to do. So for Financial Samurai, I love to write. I love to connect and I love to learn from people from all over the world with different perspectives. Now, if I wanted to focus on the money aspect, right, then I would hire a lot of writers. I'd leverage the brand and I'd have different people and all that, but I just like to write, but I know I have the optionality to leverage up the brand and the business. And when that time comes, maybe I'll do it. Maybe I'll hire someone for the Financial Samurai podcast or have a diss column or whatever. I can do it. It's very easy and obvious to do it. But the key thing for me is I just want to write. Just let me not manage people. Let me just write. Lifestyle business. Lifestyle business. So it's really, you want to focus on your lifestyle business or you want to focus on the money. I feel a lot of people who take that, you know, maybe the venture money and try to really blow it up are maybe a little thinking too much about the money. Whereas ultimately I just want to have the freedom to do what I like, earn some extra income and just be free and happy.
Ryan:
[57:31] Yeah. This is one thing I realized about, you know, startups and taking funding is that can be another form of boss. Your VCs become your boss, your investors become your boss. There are cases where your customers, if they're large enough, even become your boss. And so there are some benefits to keeping kind of a leaner lifestyle business that you just thrown off cash, you enjoy doing it. It's a small team, small operation. Yeah. So that's a road less traveled, but certainly a valuable one if people are thinking about freedom.
Sam:
[58:01] Back in 2010 or 11, maybe it was 12 when I left, I had a crossroads. I was sitting at the poker table with my buddies and I asked them, would you be willing to do 15 to 20 hours a week for a lifestyle business? Maybe you make 250 grand a year enough to live a decent, happy lifestyle or work 80 hours a week for two years with a 20% chance of making a hundred million. Yeah. Or maybe the windfall is like 50 million. But then if you don't make it, then you're left with nothing. except for your memories and experience. And so every single one of the people at the poker table said, oh, I would definitely go for glory, you know? I mean, this is San Francisco after a while, and we're betting big bucks. And then as the night wore on, and the one who was most adamant about going for glory, $100 million, $50 million, whatever it was, and he lost a huge pot. It was like $600, $700 bucks. He just lost all his money. And then he looked at me and said, you know what? Maybe the lifestyle business wouldn't be so bad after all.
Ryan:
[58:56] That's definitely a good question to ask around the poker table. Let's talk about this. You encourage people to be where the money is. And I think you're talking in this chapter about being in proximity to a high growth network, in particular urban areas that are growing. And this can be a network that people plug into. And I think your advice is, hey, don't be afraid to move to these locations. Can you talk about this?
Sam:
[59:20] Oh, yeah. So look at the S&P 500 historical growth chart since, I don't know, 2005. If you look at the MAG-7, which are NVIDIA, Apple, Microsoft, Google, Tesla, I mean, it's like this. It's like straight up and to the right. And if you look at the rest of the S&P 500, the 493, it's almost like a flat line. It's kind of sad. It's been growing at the rate of inflation. So in other words, what's an easier way to make money to be where the 493 are or be where the MAG-7 are? And I think it's obvious that you want to go where the growth is. I think a lot of people misinterpret high cost of living areas, San Francisco, New York, as too expensive. It's just unaffordable. It's a bubble. It's going to crash. But the reason why these cities are expensive is fundamentally because the income opportunities and the wealth building opportunities are greater. They're higher. Yeah. Right? So it doesn't matter if you are like in a small town and the most valuable company there is worth $10 million, let's say, or $100 million. It's very hard to get rich. The odds are against you. But if companies are worth trillions of dollars in your city and they're hiring people and you network with all these people who are making millions and they go off to start their own companies and they might be successful, that network really grows. And just being there, just being there.
Sam:
[1:00:45] Dramatically increase your chances of building wealth and opportunity. A lot of people ask me, Sam, why are you still in San Francisco when you could save so much money and move to Des Moines, Iowa? And I love Des Moines, Iowa for the stake and it's pretty good. And it's good for like four months a year. The weather's okay. But man, here in San Francisco, yeah, it's expensive. Yeah. The median home price is like 1.8 million. And if you want a decent home, it's like 3 million. Sorry two two and a half million whatever it is but the ability to oh invest in another venture capital fund that invests in the next hot startup or to speak to just take a muni ride down 15 minutes downtown just to meet with a vc guy or a startup guy or consult is endless it's it's actually overwhelming and and so i'm actually thinking about leaving me but maybe another in five to ten years not now because there's so much opportunity especially with the ai boom Yeah.
Ryan:
[1:01:36] So be where the money is. And you talk about moving to kind of a metro area and looking up different metro areas based on kind of their growth, the companies that are in them, and not just the cost of living, right? That would be a one-sided bet there. I also wonder if you think this applies to kind of the industry that you're in as well, kind of being where the money is. So I used to be in the healthcare industry, the healthcare technology specifically. And, you know, after working five, 10 years in the space, I realized, man, you know what? The next year is pretty much going to look the exact same as the previous four or five years, right? Healthcare growth is, you know, something like three, four percent, you know, annual per year. And you compare that to something like AI, right, which is growing at, you know, 50 percent, 100 percent per year. It's literally 10x the growth of healthcare. And when I looked at healthcare, I saw a whole bunch of people who had decades of experience. And if I wanted to rise in the upper echelons of healthcare, I would need decades of experience as well. And then when I compared that to something on the tech frontier like crypto, everybody in crypto only had like, you know, two, three, four years of experience. Everyone was new and I could easily catch up. And that's the way AI really is now. I think so. So your be where the money is principle applies not just to where you live, but also the industry and the skill set that you develop as well.
Sam:
[1:02:57] Absolutely. And it depends. Absolutely right. Be intentional with what you want to do if you want to grow your wealth. Don't just go to college and just whatever. You got to be intentional. Very intentional. There are clear winners in the space, and technology will likely continue to be a winner over the next 10, 20, maybe forever. Everybody's trying to innovate, and when there's innovation, there's growth. And when there's growth, there's tremendous amount of wealth accumulation and building.
Ryan:
[1:03:22] Okay, Sam. So everything we've talked about, let's talk about another person that can be essential in terms of a plan, a financial plan to get to millionaire status, and that is a significant other. So the other important person in your life, do you have any takes on this? How do you include a spouse, a significant other in your long-term financial planning? Is it important to be like, do you have to be on the exact same page? What does this look like?
Sam:
[1:03:48] Wow. It's interesting because here in San Francisco, one of the greatest short paths to wealth is to just marry someone who's already wealthy, you know, and you see these generational wealth that happen in all the time. People, you know, they'll make decent money, but then suddenly they, they pop up and say, Hey, we've got a house warming in our $7 million home. You know, what? How did that happen? so it's easier to build wealth with two people on the same page than two people not on the same page and also as an individual you know and so when you think about you know you you meet your spouse and meta who also makes 300 to 800 grand well i mean life is pretty easy in terms of building wealth yeah but yes absolutely be on the same page when i left in 2012 i met my wife in college at the college of william and mary i was a senior and she was a freshman so she was three years younger than me. And so when I left in 2012, I said, okay, this is crazy. I'm leaving a well-paying job behind, but I want to write. I want to make no money. You okay with that?
Sam:
[1:04:48] I'm okay with that. You know, you got the severance package. Okay. We'll be good. So I told her, look, if things are okay in three years and we're not lying on the street and starving, you too at age 35 can leave your job and I'm going to help you negotiate a severance package. And she said, okay, deal. And so we had a game plan. We said, we're going to save and invest most of your income. We're going to live frugally for two and a half, three years. And let's make this happen. And we made it happen in 2015 at the age of 35. She also negotiated a severance package worth a low six figures. But that was the send off, the catalyst for us to be both early retired or both unemployed and living this strange new life. So, yes, you absolutely have to highlight your goals, talk about your goals, talk about how you're going to get to your goals and stick with it.
Ryan:
[1:05:37] Communicate, stay in sync. I guess these are the keys. And since you used the retirement word, we've been talking about it as well, right? You know, financially independent, retire early. This also gets to like, what's the definition of retirement? And I'm not sure that I figured this out for myself. Like, sometimes I wonder if I'm retired right now, like I'm doing what I want to be doing. I am my own boss. I'm not kind of, you know, working for someone else or schlepping an hour, although I do work really hard. So it doesn't feel like I'm retired. What does retirement even mean to you?
Sam:
[1:06:10] Yeah. So for me, I retired from finance, the grind of 60 hour weeks and stressful clients and deadlines and quotas and all that stuff. And I actually truly did retire in the traditional sense for the first six to 12 months after 2012.
Sam:
[1:06:25] I just played golf. I walked in the park. I traveled to 20 countries. It was great. And then the problem is, after you've seen one Gothic church in Europe, they all start looking the same over and over again, right? And I had this dream of writing on my laptop on a balcony on a cruise ship around the Mediterranean for months on end. But then I did that for two weeks. And then after a couple weeks, it all starts looking the same. It starts looking a little boring, and you want to have a renewed purpose. And so I think retirement has changed. People in the past couldn't work from home or travel and work and do all that. So I think to me, I would say I'm semi-retired or a fake retiree, let's be frank here. You know, I, you know, these articles, the podcasts on Financial Center, they don't write themselves, but I do it because I really enjoy doing it. And if you read any of my work, it's personal, there's storytelling, it's not like some SEO optimized article, right? And so retirement now, the definition is being free to do whatever you want because you have enough money to cover your living expenses. And that's really it.
Ryan:
[1:07:33] All right. Are you ready, Sam, as we end this for a quick lightning round? A few quick questions.
Sam:
[1:07:38] Sure. Let's go.
Ryan:
[1:07:39] All right. Question number one, the lightning round. How much money should you die with? What's the right number to die with?
Sam:
[1:07:46] The right number to die with is enough money that covers all your funeral and burial expenses and all the financial loose ends. I think the right money is enough where you have no debt left. To your heirs, and the right amount of money is an amount that is enough to keep your children Safe from being homeless, but not enough where they're demotivated to do nothing with their lives. Okay.
Ryan:
[1:08:11] How about AI job risk? Should people be worried about their income potential with AI rising up?
Sam:
[1:08:18] Absolutely. I think it's really dire, unfortunately, for younger people and currently employed people. I think AI in the next five, 10 years is going to wipe out millions and millions of jobs. So you've either got to learn how to use AI to be more productive and you need to build a brand for yourself. You got to stand out somehow. Or I think you're going to get disintermediated away and lose your job or lose a lot of income. And so the way that I'm doing that is, well, obviously I know the tools of trying to learn the tools to make Financial Samurai more productive. But I'm really aggressively investing in private AI and public AI companies. Because if they do well and crush the labor market, the investments are going to make a great return. And so my kids, 15, 20 years from now, they're not going to say, why didn't you invest or work in AI near the beginning? I'm going to say, you know, actually I invested a lot near the beginning. Here's your millions right here. I'm not going to say here's your millions, but I'm saying you tried your best, You got rejected like that kid Stanley Zhang with a 1590 SAT and a 4.0 GPA from every 90% of the schools you applied to. You can't get a traditional well-paying job. It's okay. Everything will be okay because your dad invested consistently and aggressively in AI for your future. And I think that's what everybody needs to do. You're hedged. You're either going to make a lot of money or you're not, but at least you'll have a job if you don't make a lot of money.
Ryan:
[1:09:40] What's the best asset class and why?
Sam:
[1:09:42] I think for the average person, the best asset class is real estate. It's my favorite asset class to build long-term wealth. You're paying down your debt, so you're building home equity. There's a discipline involved there. Real estate grows 1% to 3% higher than the rate of inflation. And in 10, 20 years, you're going to be much wealthier with real estate than if you weren't. And it's hard to sell real estate, which is actually a good thing. Unlike stocks, you just get all emotional. With real estate, you just ride through the ups and downs. And hopefully, I'm pretty sure in 10, 20 years, you're going to be much wealthier as a result.
Ryan:
[1:10:14] Favorite finance book besides your own?
Sam:
[1:10:16] Favorite finance book. Oh, I like The Millionaire Next Door. It was definitely an inspiration for me to write the modern version of The Millionaire Next Door. And the premise of the book is to say, look, there are a lot of millionaires out there who you just can't tell are wealthy. They live humbly. They invest wisely. They just stick the course. It's not some mythical status to have financially. So the idea is to say you too can be a millionaire, but you've got to follow these steps and stick with it long enough.
Ryan:
[1:10:46] Last question for you. What's the best bull case you've heard for crypto? Well, like, what's the thing? I know you're not like deep in the weeds in crypto, but what's the thing that you've heard that kind of makes sense to you about this asset class?
Sam:
[1:10:56] I think the biggest bull case for crypto is that the administration is behind crypto. So when you have a government entity that finally comes around to say, OK, we're going to recognize it as a legitimate asset class and then build framework, regulatory framework around it. I think that's when you know it's here to stay for the long term because the government is the richest entity in the world and it has is the most powerful entity. So if you have the government on your side, generally good things happen. It's like real estate. The government is on the side of the homeowner. 65% of Americans own a home. You've got tax deduction. $250,000 is tax free if you're single. If you sell, $500,000 is tax free if you sell if you're a married couple, right? So if you have the government on
Sam:
[1:11:39] your side, nobody can beat the government.
Ryan:
[1:11:42] That's a great point. Crypto has come a long way since internet drug money, you know, 10 years ago. So Sam, this has been a pleasure. Thank you so much for joining us today. Guys, the book is called Millionaire Milestones. Fantastic book. Highly recommend it. We'll include a link to the show notes. Also to Sam's Twitter, Twitter profile and to financialsamurai.com where you can find all of his work and writing. Sam, thank you so much for joining us.
Sam:
[1:12:06] Hey, Ron. Thanks so much for having me. It's been a pleasure. And if you want to know anything or ask me a question, just comment on one of the 2,300 plus articles I've written since 2009 and I'll see it and I'll respond. Impressive.
Ryan:
[1:12:18] All right, guys, got to end with this. Of course, none of this has been financial advice. Crypto is risky. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.
Music:
[1:12:34] Music