Speaker 1: Welcome to the BiggerPockets Money podcast where we interview Pete Adeney from Mr. Money Mustache and talk about life after financial independence.
Guest: Spending less money is not a deprivation, it’s a skill. It’s just like lifting more weight or being able to run further or whatever. So you don’t say like, oh, you know, marathon runners, how do you cope with having to run 26 miles, you know, just like, can’t you run less? And it’s it’s the opposite. It’s like, no, I’m good at running, so that’s how much I choose to run. Well, when you get good at spending, uh, efficiently, you get more for your money, like more fun, you know, you might have a way to get your, you know, through connections or like Craig’s list.
Mindy: Hello, hello, hello. My name is Mindy Jensen and with me as always is my unable to grow a real mustache co-host, Scott Trench.
Scott: Ouch, Mindy. I think I’m going to stubble to come up with a good response to that one.
Mindy: Oh, that was good. Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.
Scott: That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business, or learn about what life after financial independence looks like. We’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.
Mindy: Scott, we are bringing back Mr. Money Mustache. He joined us all the way back on episode number one and we’re going to talk to him today about what his life looks like after he reached financial independence and retired because I think there’s not enough conversation surrounding this. There’s all sorts of conversations talking about the journey to financial independence, but there’s not a lot of people describing what it’s like to be retired.
Scott: Yeah, I think I think that’s that’s true and, you know, it it seems hard sometimes to find folks who are truly living the fire lifestyle. Um, even after all this time, all all this stuff we talked about with this, Mr. Money Mustache is one of the original folks to have accomplished this. He’s a pioneer with his thought leadership and he’s a personal inspiration. So, way back in 2013, 2014, when I was starting my career and journey, I was very heavily uh influenced by two websites, platforms, right? Mr.moneymustache.com and biggerpockets.com. Um, and so, you know, my philosophy still to this day is really a hybrid of those kind of two approaches to uh, to money. This this kind of uh, um the skill of spending as we’ll discuss with Mr. Money Mustache today and then the uh, um, the concept of real estate investing and and that that’s a big part of my life and my portfolio. I highly encourage anyone and everyone to go to Mrmoneymustache.com and there’s a a new 50 series uh boot camp email email series you can you can sign up for, that’s awesome, or you can just start with the first post and start working your way through. There’s there’s only like a maybe 100 or so, maybe 100 to 200 posts and they’re they’re really a college level course in personal finance.
Mindy: Yeah, I had a great time talking with Pete today and it I think it’s really fascinating to see how his plan for financial independence started off and how it ended up and how he approaches his journey to financial independence, his journey to enjoying his life now. Uh, I think it’s a lot of fun.
Mindy: Before we bring in Pete, let’s take a quick break.
Speaker 1: And we’re back.
Mindy: Today’s guest is Pete Adeney, also known as Mr. Money Mustache. He needs no introduction, but it’s my show, so I’m going to do it anyway. Pete runs this tiny little blog that nobody’s ever heard of where he talks about spending money willy-nilly. Uh, which I think is so funny because he doesn’t. He runs this ginormous blog called Mr. Money Mustache. He is kind of the reason that most people that I’ve ever met on the path to financial independence have discovered financial independence. Pete, welcome to the Bigger Pockets Money podcast. I’m so excited to talk to you today.
Guest: Thank you. It’s exciting to be back for my second guest appearance here.
Mindy: You’re right, right. I I should say welcome back to the Bigger Pockets Money podcast. We actually spoke with you a few episodes ago on episode number one. It’s now, what did you say, Scott? 378 episodes later. So, um, I’m glad you I’m glad you could join us.
Guest: Yeah.
Mindy: What have you been up to?
Guest: Congrats on the huge success of this show. I’m a big fan myself.
Mindy: Oh, thank you.
Guest: I’ve been up to the usual stuff, like um, building things, helping to manage and be the janitor at our shared headquarters facility, co-working space. And uh occasionally typing some into the computer as well. Same as most years, I would say. Oh, and raising a boy, of course, that’s the main job.
Mindy: Let’s talk about a few years ago before you were financially independent back when you were actually still working. Why did you start pursuing financial independence? Because I know so many people who started pursuing after reading a blog post on your blog, but clearly that wasn’t how you got started. Where did you start?
Guest: For me, I think it was just being a quirky uh thinker, just like the standard engineer who doesn’t really notice or follow what other people are doing. So I just noticed like, whoa, this is way too much uh money they’re paying me for a 22-year-old or whatever. Like, what should a person do if they have extra money. So I just learned about investing and did the investing and then I thought, well, what do you do if your investments are growing and they eventually end up being able to cover your living expenses. Well, of course, you’d want to quit your job then. So that was like the basic idea, but then the bigger thing is like at that age, we were looking towards having a family eventually, right? Like the end of your 20s and early 30s like many people and um I didn’t want to be a worker and try to split my time with like the intense job of being a dad. So that was an extra like super boost to the motivation is having like two stay-at home parents for a young kid at the time.
Scott: Where did you turn to for uh information during that period? Because there was no um Mr. Money Mustache blog to kind of inform the strategy. Um, how how did you figure all this stuff out?
Guest: Yeah, I I just like I didn’t know about the concept of financial independence. And in fact, the uh the whole idea of this 4% rule, I didn’t make it up either. But I uh just read about it on other blogs and books like long after I’d already retired. So that was kind of secondary for me. My primary source was just reading normal investing books, you know, like stock market history and, you know, these old John Bogle books that talk about index funds and why they’re better than individual stocks and things like that. So I used to go to the library and look in the investing section and just pick books based on their title because I was so interested in money. And this goes way back to when I was a little kid. I was interested even then. So it’s pretty much just stumbling upon it. And I didn’t start writing about it until after I was already retired for something like six years. And of course that was 12 years ago as well. So I’ve actually been a retired 18 years. So a lot of this is really a bizarre bit of ancient history now.
Mindy: Okay, so let’s look back into the way back machine. What was your plan for early retirement and how did it actually shake out?
Guest: So the plan was to just enjoy unlimited weekends and more or less it did work out that way except a few times when I stumbled into committing to projects that I should not have and then I temporarily had a job again. Um, and then I realized that wasn’t a good goal for a retirement. And numbers wise, um since I didn’t know about the 4% rule, we had this different concept of just thinking, okay, how about have the house paid off so there’s no mortgage bill and then an additional um I think the number was $600,000 of investments to generate the dividends and capital gains to fund the rest of life like the groceries and the fun and the travel and child raising expenses. So what that worked out to, if you now think about it through the lens of the 4% rule, it’s like having really cheap housing plus an additional $24,000 a year of pretty reliable investment income. And remember this is like $2005. So you can kind of almost double that with today’s post inflation numbers. It’s like having, you know, $40-ish thousand dollars to live off and on almost free house, which I think most people could still do today as long as they, you know, have control on a lot of their life, their life uh expenses.
Scott: And, you know, one of the things that I um, because obviously you were a huge inspiration on my um personal journey here. I I kind of uncovered Mr. Money anstache and bigger pockets around the same time. But one of the things that really attracted me to your philosophy was also this concept of very simple keeping your expenses low um, on that. And and 24,000 at the time or even 40,000 today, I think would feel very low to to some folks, perhaps even with a paid-off house. What would you say to those folks and how did how did you kind of go about um creating a life that was comfortable at really much less than that level of of total spending?
Guest: Yeah, well, the thing is, I thought, I naively thought that I had a super, super fancy huge lifestyle. Like, that wasn’t cutting back, that was pretty much the most I could spend. Um, and the reason was because like we were a double income professional couple at the time, both engineers, right, making tons of money. So money wasn’t a problem. Like if if we wanted to spend more, we would have and then just set our annual spending needs higher, like 80,000 or whatever the number ended up being. So to me, that was like what, you know, the most you could imagine needing and then just cutting out the waste. So the way I encourage people to think about it is, um, spending less money is not a deprivation, it’s a skill. It’s just like lifting more weight or being able to run further or whatever. So you don’t say like, oh, you know, marathon runners, how do you cope with having to run 26 miles, you know, just like, can’t you run less? And it’s it’s the opposite. It’s like, no, I’m good at running so that’s how much I choose to run. Well, when you get good at spending, uh, efficiently, you get more for your money like more fun, you know, you might have a way to get your, you know, through connections or like Craigslist, you can get like the same fridge that your friend might have to pay $3,000 for, you can just like snap your fingers and the same fridge appears in your kitchen for $1,000 because you have more skill at spending money on that particular thing. And the same applies for all these categories of life like transportation and food. There’s like, there’s usually a really inefficient way to do it and then there’s like a spectrum of efficiency. And it’s not till you get really, really hardcore that things get difficult at least probably because I have less skilled than some of these other early retirement authors like Jacob, the early early retirement extreme guy to use the classic example. He’s really, really skilled. So he can spend like, let’s say $100 a week on groceries easily. Whereas for me, I have to spend $300. I mean, actually these numbers are are too dated. He could spend like $30 a week. I could do $100 a week and we’d both eat the same amount of nutrition and quality. He’s just better at it than me. So I encourage everybody to think about it like that because instead of thinking, oh, I don’t want to shrink my lifestyle, I just tell them, no, you just have to grow your skills at learning how to buy stuff and how to, you know, meet your needs. Not even buy stuff, but it’s like meeting your needs. Um, and then the cost goes down and that’s actually, it’s more fun just because it’s a more empowered way, you know, you don’t just have to purchase everything from other people if you can source some of it from an inside your own skill set.
Mindy: Let’s look at how you left employment. You didn’t do the the 4% rule FI number that a lot of people are doing now. But you did at at some point decide I have enough money, I’m going to quit my job. What did that process look like? Because there’s, you know, the one more year syndrome. And I think that people who retire based on the 4% rule, I mean, I’m a huge fan of the 4% rule. We’ve talked to Bill Bangen on the show. He’s his numbers don’t lie. I of course, there’s all past performance is not indicative of future game, blah, blah, blah. But I I think the 4% rule has some pretty solid foundation behind it.
Guest: Yeah, it’s pretty conservative. It’s not like a best-case scenario. It’s like a middle worst-case scenario.
Mindy: So, how did you leave your job?
Guest: Oh, well, I just sent an email saying that I would like this to be my final two weeks of work. I actually, I did a, I did a bit of a trial program. I I started by going down to four days a week instead of five in my engineering job for the last year of my career. So, um, so that was in exchange for a 20% pay cut. And that was kind of nice because it was training wheels, like my income was reduced and my leisure was increased by like 50%, right? ‘Cause I had three-day weekends. And then I realized, yeah, I really like this. I’m ready to go to 100% after that. And it also gave me an extra year. That was my one more year syndrome is to like still saving a lot of money at 80% salary, but not quite as much. But in exchange, I got to start like the the retirement a little bit earlier.
Scott: Yeah, I think this is like a real problem for folks in in in kind of actually pulling the trigger. There’s just like they they add on to the pile and all that kind of stuff. Um, and I I was worried for a second there that I was just going to be like, well, I just sent an email. Uh but but no, it sounds like um even for you going through this, there was a there was a one-year trial period and kind of some training wheels to easing into uh early retirement. And would you recommend that folks kind of follow that same path instead of just cutting cut and all at once um and going straight into full-time retirement, taking a year or six months or some period of time to ease into it if they’re kind of on the bubble?
Guest: Yeah, I mean, it’s nice if you have that option. It totally depends, of course, right? Like, if your job is super bad, you might need to just get out of it as soon as possible. Or if you have like twins on the way and you want to be able to spend time with these newborn babies, you know, don’t don’t mess around with four days a week. But But yeah, if you’re uncertain about either the what would I do with my time aspect or the am I going to have enough money aspect, then it’s certainly a nice thing if you have a career that allows that kind of thing. Then, yeah, why not?
Scott: When when when I think you know, we’ve we’ve talked about the 4% rule in uh, in the personal finance community uh ad nauseum, right? Like this has been really, really thoroughly debated here. But I find that in a practical sense, I I meet very few retirees, early retirees who are truly living off of the 4% rule, specifically those who are actually selling off portions of their their equities in um, in their portfolios to actually fund early retirement. Most folks tend to have some sort of other ace in the whole. And I wonder if this is something you’ve experienced and what I mean by that is they might have a large cash position. They might have rental property income. They might have a side business or part-time work that they do or something like that. Um, do you believe, is that consistent with what with the folks that you know in the in the space? There’s very few people who are actually selling down their portfolios? And if so, is there any any takeaways from that for for folks that are aspiring to early financial freedom?
Guest: Yeah, well, two separate things because the um, I definitely know a couple of people, you know, maybe 5% of the early retire. Um, it it really varies because it depends on the personality type. Um, some people really just want to be retired and not do any more work and those are the ones who choose to live off of their portfolio, you know, like dividends, you know, keeping some larger cash reserve and selling shares occasionally if the dividends aren’t enough. But maybe 90% of the early retirees that I’ve met, first of all, they’re really young relative to conventional retirement age and that means that they have a lot of energy and entrepreneurial ideas. So they’ll still have income from things that they do because it’s kind of hard not to make money if you’re out there creating valuable things and interacting with people. Like that’s just how our money and society works. So, um, first of all, rental house, I mean, that’s not really the same as holding shares in a company. It’s like you own an asset and then it pays you dividends in the form of rent. Um, and then sometimes you hire out the management entirely, so it’s entirely passive. I I like to encourage people to remember that there’s no real difference between a stock and a rental house other than a rental house requires more work sometimes, but they’re both assets that pay you. And yeah, in my own case, I guess, it varies, you know, I’ve ranged from living off of stock investments, uh, to losing a whole bunch of money like wasting my retirement savings by starting a money losing house building business in like the mid 2000s. That was my biggest mistake of my life probably. Then recovering from that, getting rid of that company, and then then back to no income and focusing on child raising, and then starting uh a blog, which was no income for a while, then I had a period of making lots of income like way more than I needed. And then now that’s back down to a much lower number. So it’s like kind of a roller coaster ride and I think of it as independent of my actual retired status because like that nugget of the original savings has always just been in there in the index funds and sometimes it’s shifted over to owning a house, you know, more or less, like paying off a mortgage. But in general, um, I it was kind of just a psychological crutch. This is true for a lot of people like sometimes you don’t even really need your retirement savings after you so-call retire, but it certainly helps people get the courage to quit their job. And uh, there’s no real harm in doing it. It’s a nice safety margin that gives you the confidence to do the rest of stuff in your life.
Mindy: Okay, so what is your net worth now versus when you retired? You had that period of uh heavy income from the blog which has gone down dramatically. Are you, do you have more money now than when you retired?
Guest: Yeah, yeah, definitely. So there was like a period initially 2005 retirement and then house building company where we made a little bit of money initially, then lost a whole bunch because the housing market crash happened right then. And the stock investments also went down at the same time. so that would probably be like the worst period of my net worth maybe in 2006. Then I chose to do a bit of extra work and so did my wife at the time. Um, you know, to like kind of rebuild our savings. So in a way we came out of retirement, but only in a very part-time way because we really wanted to stay devoted to parenting. And then um, yeah, then there was a flat period and then the blog went up and then I got did some philanthropy because it was a lot more money than I needed. So the amount I gave away from the blog income is actually like much more than I spent, you know, more than 10 years or maybe even 20 years of my personal spending. Uh, but I didn’t give it all away because I’m not that courageous. So I still have some of that nest egg stored. So the end of that crazy story is that I have like a few times higher net worth now than um at the moment of retirement. And also we split, you know, like um Simi and I got a divorce a number of years ago, so we split our big nest egg pile. And so we were each financially independent at that point. And then so I still felt fine, but I think mine has grown a little bit since then just because of the natural earning more than I spend and the stock market has continued to go up as it does over time. So yeah, I’m more relaxed than ever. Um, don’t really think about money to be honest, like in in my own context because my spending, it never seems to go up all that much no matter what, how much I feel like I’m splurging. So that’s the real cool cool part about money in early retirement is you just lets you forget about money entirely and you focus on the other stuff in your life.
Scott: Yeah, you you have a metaphor buried in one of your blog posts somewhere about hey, money money should be like clean drinkable water from a tap. Like Yeah, yes, it’s essential, but once you have enough of it, it ceases to be something that is a focal point in your life. Um, and so I think that’s a really healthy end goal for folks when think about their relationship with money.
Guest: Right, and it can be hard because money earning money and stashing it is a bit of an addictive thing because people are like, you can never have too much money, right? So I’m just going to do a bit more, a bit more and there is like, you know, some dopamine and reward stuff going on that you can truly get addicted to. And it’s okay in a way if it as long as it’s not hurting any other area of your life. But many people um who are super wealthy, you know, they might have $10 million of wealth, you know, all these properties and stuff and they’re still just trying to get one more investment property even they totally don’t need it, they don’t want it, they just want the money and they like the so-called game. But it’s hiding um a lot of other aspects of their life from them because they’re they’re pretending it’s important and then thus they’re neglecting other more important things like their relationships maybe with their children or their loved ones or maybe it’s their health, you know, like, oh, I don’t have time to work out because I’m managing my 100 rental properties. So that’s a really big thing to watch out for. Um there’s this concept of mindless accumulation and a really neat psychological study on it that I read somewhere where humans are naturally prone to just piling up that they don’t need. It’s a little bit like um if you have the clean top water just like I’m going to pour myself a glass of water and another one just in case and another one and then like you fill up the countertops in your kitchen with clean glasses of drinkable water and then you start filling up the floor and the tables like you know, never know, I might get thirsty later. This tap might stop working. So I’m just going to and then they kind of wreck their lives just by filling it up with glass of the water. That’s what happens if you’re um, you know, overly focused on money when you already have enough of it.
Scott: So what what could you walk us through what your day-to-day life looked like in the months or what what did you like in the immediate aftermath of retirement? What did it look like and what does it look like today? What what can you give us a glimpse into the the day to day?
Guest: I think the best way to imagine is it just looks like a weekend, like it’s always Saturday. And that can be bad for some people because if you use your Saturday semi destructively like, oh okay, work was so hard, so I’m going to just spend Saturday drinking beer and watching sports on TV, then, you know, that’s not something to aspire to. However, my weekends were always like just filled with work and projects. Like I would always be renovating my house or doing some stuff, you know, like a trip to the mountains with friends or or hiking or whatever. So it just lets you do more of that. And of course, in my case, the last 17 years almost have been pretty strongly defined by just raising our son, right? Because it takes a lot of work to raise a kid. So that has been the first activity. Um it’s not like you’re, you know, constantly just hovering over them all the time. So there’s a lot of free time to do projects. And so I’ve done all kinds of fun things since then. But it’s nice to just have that as your, you know, your main thing when you’re a parent just to be like, yeah, it’s doesn’t take a lot of time, especially as they get older, but I like to be there for the key moments and be able to just say no to everything else if there’s a key moment, like your kid is going to be in a concert and you got to help them be in, you know, just like the the key moments of life where they need your help or you want to stay up late and read books with them. It’s so nice for me, that was like by far the number one thing for retirement. And that job is almost over, you know, like he’s actually in the next room here and he doesn’t, he’s doing his own thing all day, I’m doing my thing right here with you guys. So I got to figure out something else to do for the next stage of my life pretty soon, actually, because I’m not going to be the active parent for that much that much longer.
Scott: Awesome. Um you know, in addition to the the family um activities there, how have some of the other pastimes changed over the last couple of years? What were some of maybe the the the focuses in immediate uh immediately after retiring and what are some of those today in addition to of course the number one job.
Guest: This is definitely just me because everyone has a different preferences and I happen to love like my number one love in my free time is just construction, strangely enough, like manual labor. So I like building stuff, building new kitchens, renovating houses. And I’ve just done years and years of that with friends like, you know, in my free time. So when we had a baby, it would be like during the nap, I would go over and just do two hours of construction in the neighborhood and so because of that, my friends and I have renovated, I don’t even know, maybe a dozen or more old houses right here in the neighborhood and built a couple from scratch, maybe a few. And um so that’s number one. And then I I got into writing, of course, so that’s how that Mr. Money Mustache blog started to exist. And during the early years of it, like 2012 through maybe 2016 or 17, I worked on it quite a bit. So it was, you know, like a couple, maybe an hour or two per day on average. That’s like having a really small job. Uh now I don’t do that as much and I I do more construction and probably should add some new activities. I mean, we started this coworking space of which Mindy is a co-owner and that’s been pretty nice as a side job, too. Like it varies. Sometimes I’ll work really hard on it, like especially when there’s construction, I guess. We’re we’re into the building, but we have great events there and, you know, it’s a great place to meet friends as well. And that’s, you know, it’s been a really lucky decision that we stumbled into because it it brings a lot to all of our lives and hopefully to those of the the members and the attendees as well.
Scott: What what advice would you give to somebody who’s who might be listening and saying, well, well shoot, I I don’t I spend my Saturdays drinking beer and watching football, um, and I do not spend my Saturdays renovating my kitchen um, or my friend’s, you know, bathroom or anything like that. Would I even be productive in early retirement? How how could I how could I begin reframing that to be really confident that I’m going to have a wonderful early retirement instead of um getting into some really unhealthy, you know, pastimes if it’s always Saturday?
Guest: Yeah, it’s tricky. I mean, I I probably should dig into more success and failure stories in that department because I can’t really fully relate to what’s going on in such a brain. But I do think that the longer you keep a job, the more likely that condition is to happen because a lot of times people will, you know, your brain is plastic and it changes the more you do something. So if you have the same job or a career that just goes for decade after decade, by the time you get to my age, like 48, I could have potentially been working for 28 years or something. So my brain would have just like molded into the identity of, you know, I’d probably be like an engineering manager or something at this point, director of engineering. So like all I would be able to think about is design specs and teams and deadlines and goals and I would have poured so much into that. My the rest of my brain with side entrance, uh, interest might have kind of atrophied a little bit and I maybe really just would want to relax on the weekends because my job was so intense. So if you’re in that situation, you have to like kind of wean yourself off the corporate world. Like either stay in it forever, which is a valid choice if you enjoy it, or like wean yourself and do less work and strike up new interests on the outside. You can only do, you can only figure it out by just trying things, I guess, right, and interviewing your friends if you have successful friends who do have big interests outside of work. Um try that, but I think most people in that situation, they like the idea of being creative and solving problems. So that’s why watching sports is not going to be a sustainable program for most people because you’re not creating anything, you’re just consuming it. So find, you know, could even be a side business or like could be a volunteer situation, but something where your brain is actually solving problems and a little bit of difficulty, it’s more likely to to be a path for a good retirement.
Mindy: I think that’s a really important question, Scott, because people who are maybe not pursuing financial independence for the they’re not pursuing FIRE for the FI part, they’re pursuing it for the RE part because they work for a horrible boss or they just hate their job or whatever. They are Oh, I can’t wait to quit. But they don’t really have any plans for quitting. I think this is not uh just for early retirement. I think this is for any retirement. What is it, uh, death by retirement. You you retire and I don’t remember what the statistic is off the top of my head, but like so such a high percentage of people who retire are dead within a year. Like traditional retirement, not early retirement, but and the reason they are is because they have no plans. They sit around and watch TV because that’s what they do on the weekend. So I think it’s a really valid point. Whatever you’re doing on the weekends right now is what you’re going to be doing when you retire. So if you don’t like what you’re doing on the weekends, like if you don’t like that person, don’t be that person. I think that was a great piece of advice, Pete.
Guest: Yeah, and then that um dying shortly after retirement. I mean, some people use that as an argument against early retirement because they’re like, you’re just going to die. but I think that’s incorrect. I think of it as more of a cautionary tale of retire while you’re still young enough to come up with a healthy retirement because if you wait too long then you’ve destroyed your brain and your body and then there’s nothing to retire to. There’s no life waiting for you there. So, um, yeah, think early and and build and build your freedom while you still have this nice active brain and body to enjoy because it is a lot more fun. It’s a lot more varied and it makes your life seem a lot longer too. Like I feel that I’ve I retired uh more like 100 years ago. You know, my career was somewhat monotonous because you’re going doing the same thing every day. But once that ended, I’ve just had so many crazy things happen just like one year is different from the next year and there’s child raising years and pre child raising during and now post and it just gets longer and longer. Like I feel that not only is it sort of like I’m living in some bizarre version of man heaven, like it seems improbable that life could actually be this good and prosperous. But it also feels like it’s just really, really long and if I were to die right now, if I found out I was dying I’d be like, well, at least I had a good 200 year lifespan with a lot of experiences like that was totally worthwhile. What a ride. So I think it helps me be more grateful for life and more appreciating of it.
Mindy: So is early retirement what you expected or is it different? Is it better? Is it wor, I mean, I kind of think it’s better than you expected. But how how is it how is it better than you expected?
Guest: Um, I think it’s mainly better because of the variety that I just mentioned. like I thought it was just going to be leisure and you know, projects and vacations and good child raising and then that’s about it. But the fact that you can always meet new people and to be honest, like this writing situation, Mr. Money Mustache has been very helpful for me because I can be a bit of an introvert and you know, retreat to my workshop a bit too much and by being like forced out into the world to meet a whole bunch more people and going a lot more trips than I would have and be exposed to a lot of new ideas that I wouldn’t otherwise have seen. Um it’s made my life more full and of course not everyone is going to be a blogger or a podcaster because that’s just not everyone is interested in that. But it was my quitting of the regular job that allowed this to even happen. Like I wouldn’t even considered taking up writing even though I’ve always enjoyed writing since I was a little kid. I would not have done it as a a blog while I had a job at the same time because that’s just not my the way I work. I don’t want to try like doing two difficult things at the same time in my life. So I needed that space created by the lack of career to feel like I had time to try my hand at writing. So I got really lucky there.
Scott: How about relationships? Um, you know, I I think a lot of um, uh, American men, perhaps women as well, have a lot of trouble forming new friends after, let’s call it high school, college, um, in in the workforce. Um, you, however, seem to have built a really strong community. Would you say that, you know, early retirement is has aided in helping you form form friendships in ways that wouldn’t have been possible in the in the in the work world?
Guest: Right, like it let me explore new things that I wouldn’t have otherwise had time to explore. So first there is friendships from, you know, college, university days and then the next round of friends for a lot of people including me is uh through child raising, you become friends with all of the parents of your kids friends or like the other kids from the elementary school or whatever. And that’s a great community here in our neighborhood like a lot of us are still friends like the dads and the moms and their kids are all like still neighborhood parties all the time. And that’s excellent, but um to go beyond that, it’s it’s kind of nice to have something beyond and one way to do it nowadays, I’m realizing is just we we run a meetup group for FIRE people just on that website meetup.com. And so that’s a common interest. It’s a bit of a quirky interest, but it brings out very interesting and smart and fun people. So for me that’s been great source of community and everyone who’s part of our meetup group which has like 1400 and something people now. I think it helps a lot of them too. Um so anyone who’s looking to expand their own social circle whether you’re retired or not, I think using a service like meetup is probably a good idea because then you can broaden and find people with interests that aren’t just parenting or other things that you’re thrown together with by default and you might have more in common with these people. And I think that’s really like the spice of life for friendships is getting adult friends that you really pick yourself, like you really enjoy spending time with them rather than just, you know, having to be friends with the people who live closest to you. As good as that is, you know, it’s good to have a bigger search net if you have, you know, if you really want to spark intellectual spark in your life, I think. So, having having more money and more free time or at least a lack of money stress, I think can be good for personal relationships because you’re not pinching your friends or in in the case of married people, you’re not pinching your spouse and trying to nag them about money or worrying about your debt, your shared debt. So in my case, we went through a divorce um a number of years ago, like five years ago, and some of the allegations that came through like blog comments were like, ah, this FIRE stuff doesn’t work because you guys broke up because you were too cheap, which is funny that you know, I can see how that line of thinking would happen, but it’s actually the opposite, right? We had, um, surplus of money from the for the whole time and in a way that was really, really good for for parenting and loves you to devote your time to parenting. It lets you not fight over money as a couple. And even if, you know, if you do have to go through a divorce, it makes that whole process way less bad because you’re not fighting over the scraps of, you know, and feeling defensive like, oh, if she takes the money, then I won’t have it and we’ll both be poor. We have to give up the house, but we have car leases, like all that stuff is eliminated if you’re if you’re better off financially and especially like if you’re spending needs are lower. So that was a huge blessing in our case. Um, you know, the relationship itself as, you know, has nothing to do with with money or one way or the other. It’s just, you know, not everybody is compatible for an entire lifetime relationship and I encourage people not to think about that in form of shame if that is what’s happening to them, too, because it’s not, you know, our our society likes to heap shame on people and make a sin to like to ever get a divorce and I think that’s not a healthy way to think about it. So, you know, money didn’t keep us together in our part, but it certainly made everything better, you know, during and after the relationship and it’s still, you know, better now. And I think the fact that we’ve become friends, really, really good co-parents and very cooperative friends is partly because there’s no money worries around the whole situation.
Scott: Makes makes sense.
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Guest: so having having more money and more free time or at least a lack of money stress, I think can be good for personal relationships because you’re not pinching your friends or in in case of married people, you’re not pitching your spouse and trying to nag them about money or worrying about your debt, your shared debt. So in my case, we went through a divorce um a number of years ago, like five years ago, and some of the allegations that came through like blog comments were like, ah, this fire stuff doesn’t work because you guys broke up because you were too cheap, which is funny that you know, I can see how that line of thinking would happen, but it’s actually the opposite, right? We had um surplus of money from the for the whole time and in a way that was really, really good for for parenting, love you to devote your time parenting. It lets you not fight over money as a couple. and even if, you know, if you do have to go through a divorce, it makes that whole process way less bad because you’re not fighting over the scraps of, you know, and feeling defensive like, oh, if she takes the money, then I won’t have it and we’ll both be poor. We have to give up the house we have car leases, like all that stuff is eliminated if you’re if you’re better off financially and especially like if you’re spending needs are lower. So that was a huge blessing in our case. Um, you know, the relationship itself as, you know, has nothing to do with with money or one way or the other. It’s just, you know, not everybody is compatible for an entire lifetime relationship and I encourage people not to think about that in form of shame if that is what’s happening to them too because it’s not, you know, a society likes to heap shame on people and make a sin to like to ever get a divorce and I think that’s not a healthy way to think about it. So, you know, money didn’t keep us together in our part, but it certainly made everything better, you know, during and after the relationship and it’s still, you know, better now. And I think the fact that we’ve become friends really, really good co-parents and very cooperative friends is partly because there’s no money worries around the whole situation.
Scott: you know, on an on another um, topic of personal relationships, you know, perhaps with with previous friends. Um you know, I I think some folks maybe may go through the the journey to financial independence and hey, if if you want to do that, you’re going to live somewhere that’s much cheaper. You’re going to work on the skill of spending as you as you talked about it earlier and and uh be a lot more, you know, get get a lot more uh, uh, per per dollar spent. You’re going to over a year or two rack up perhaps tens of thousands of dollars on a median income. Um, you’re invest and you you invest that in properties. And that’s unrelatable, right? If two people, you know, perhaps it was unrelatable to some of your colleagues when you first started out working, right? They perhaps lived substantially different lifestyles than you on the same income and they don’t understand why are you doing this? How is that going? I’m I’m I’m extrapolating here that could have been different in your case, but that would be that was true for for me in some situations. And then and then all of a sudden it says, well, how did you buy a how did you come up with 100 grand to buy a rental property two years later, which is also totally unrelatable. There’s no way they can they can relate to kind of coming up with that kind of liquidity and they don’t perhaps see those connections. So did you find that the path to to fie had perhaps some impact in perhaps creating distance between previous friends in any cases? Do you think that that’s something that that folks who are pursuing this go through to a certain extent?
Guest: It definitely affects some people and probably if you have a lower income, uh, you might have to make more difficult choices, you know, like I can if you’re trying to become financially independent on like a Target salary, for example, working at Target, um, you might have to forego like all restaurant meals and like all car ownership or something, right? And it might make you very different from your friends and then they might be like, oh, Pete’s no fun because he all he ever does is stay home and eat beans and rice, right? There there’s some situations where that might be true, but as soon as you get a little bit higher on the either the income scale or like being willing to stretch out your savings a little bit, um there is really almost no difference in the perceptible lifestyle. Like as an engineer, I still got to do all the stuff like the trips and the snowboarding and like I had a nice bike and I had a car and I had a beautiful house and it was kind of funny because the stuff I stripped out was just it was almost invisible and so I was cutting out the waste but not the fun. And and that still allowed the lifestyle to be like $24,000 plus plus housing. And just as an example, you know, like I had chose, when it was time to buy a house, I was like, okay, my job is here, where’s the closest house that I can afford? And I picked like pretty much almost the closest house. And because I worked in Boulder where it was really expensive, I had to be like just outside of the town, eight miles away. Thankfully, still within biking distance, right? So that’s my choice. Beautiful neighborhood, I got to bike to work. And then my colleague who worked in the next um, you know, the next cubicle over, he lived 23 miles away. He bought a house in a big suburb. Um and he’s like, yeah, I kind of like the views out there and it’s quiet and um the house was like roughly the same size as mine, but um he had to drive, you know, he had to spend like $100,000 per decade on commuting that I did not have and I got like hundreds and hundreds of hours of bicycling exercise over the same period of time. So you can take the starting points and then you fast forward 10 years, the difference is like, you know, one person’s body is wrecked and they have like they’ve destroyed three vehicles from driving so much and spent like hundreds of thousands of dollars on on the driving. And then the other person is is more fit than when they started. They still have the house and they have more free time because they’re not, you know, driving or having to buy as many cars and maintain them. So it’s funny, like little choices like that and like what type of car you buy and, you know, what what you do with your leisure time, it’s like almost seems invisible at the time, but the the butterfly effect of those decisions over a 10 and 20 year period becomes really huge. And that’s why I tried to, that’s why I’ve had to write so many blog articles because you can’t just have a single thing saying like spend less money. You have to have, you know, if if the people haven’t thought of it themselves, um it helps to share ideas of like, here’s exactly how to get a vacation for less, or here’s exactly how to get your transportation for less money. And uh, I’m just thankful, I happen to be sort of like I’m like a different version of Warren Buffett. I’m the Warren Buffettt of frugality where it’s just like really fun for me and I can’t help but do it regardless, you know, like regardless of the money, it’s just fun to figure out how to optimize stuff for me.
Mindy: Well, let’s look at your cell phone. What kind of cell phone do you have?
Guest: Yeah, that’s a good question and it’s pretty much a perfect example. So I have a a Google Pixel phone right here. And it
Mindy: What number?
Guest: um, what number? Oh, it’s the 4A. It’s going to be upgraded pretty soon, but this phone cost me uh, I think like $220 something, two years ago. It takes pictures exactly as good as the iPhone of that same era and um, which was $1,000 or something insane. And I’m using on the Google Fi phone service, which is like $20 something dollars a month. So normal people like including people’s teenage children will have like the iPhone 13 Pro Max on a Verizon $100 a month plan and I have uh this I’m a professional photographer sort of, right? Like I I have a platform where I make money for posting photographs and and image and content. and even I have like a phone that costs five times less than a teenager, but the photos are just as good. It’s just weird that um that these decisions are not more widespread. Like Apple as a company, as smart as they are and as pretty as their products are, they they shouldn’t even exist because they they make these profits by charging five times more for the same quality, but people are attracted to the brand and they’re like, oh creative people use Apple stuff. So good place to be business, but not a good thing to do as a consumer.
Scott: But don’t you feel that your credibility is completely destroyed by not showing up in text chats in the blue of Apple instead of the green of your Google Pixel?
Guest: Well, I like to do the opposite. I’m like, oh, so you’re one of those iPhone people. I’m sorry to hear that. Haven’t you heard of uh non-Apple phones?
Scott: I have an Apple I I have an iPhone, so I’m I’m a little embarrassed here after this one.
Mindy: Let let’s look at this. I know many people, I am an apple shareholder, so I have benefited greatly from all of the people who go out and buy the new Apple phone as soon as it comes out. And what is it like it used to be $500? I think they’re like $1,000 or $1,200 for the phone and that’s the phone that you’re buying now at full price to replace the phone that you bought when it came out last year or 18 months ago at full price and you’re on these higher per month choices. You were talking about these these invisible decisions that you’re making or almost invisible decisions that you’re making. I have a Google Pixel 3 because I’m more frugal than you, Pete, apparently. Um, because I don’t want to learn how to use a new phone. My I’m part of my frugality is my lack of tech knowledge. but I don’t I have a phone that works fine. Why do I need another phone? Because they came out with a new phone is not a good enough reason. Now, my camera may not be topnotch, but I’m also not taking a ton of pictures that I’m making money off of with my camera. And if I need to, my husband has a Pixel 7 because he broke his camera, or he broke his phone, so he had to get a new one. So there’s opportunity to take I mean, it still takes really great pictures. I mean, remember those the first digital cameras that were like this big and took horrible pictures. It still takes great pictures and I’m fine with it. It works for what I need. But I have a a Mint uh Mint system uh cell service that is $15 a month. So I’m I’m not paying these huge dollars on my for my cell phone service, which I could easily afford, but why spend that much money when I don’t have to? So it’s these little things that I’m getting what I need at a smaller price. It goes back to that comment you made about like refrigerators for $100. I need a refrigerator. So if you’ve got $100 refrigerators just coming out of your nose, Pete, let me know. but there’s, you know, there’s my phone service is great. It it’s uh, probably I think it’s on the Sprint network. It works perfectly fine for me. It it covers everything that I need. So why would I pay $100 for a big brand name when I can pay $15 for Mint Mobile, which is a great service. It it just it doesn’t make sense, but if you are unaware that it exists, then how do you know to go get it? which is kind of the whole reason we do this show.
Guest: Yeah, that’s the real point. If you want to summarize everything we talked about in the last three minutes, it’s like a lot of people don’t have that curiosity or the awareness of what the alternatives are. So someone would be like, oh, I rented a Chevrolet Tahoe for a ski trip once and it was nice. So then I bought one and it was $70,000 and it was like, it was nice because I was able to fit my suitcases in the back of it, not realizing like there’s 100 other cars that can fit the suitcase and use half as much gas and cost a quarter as much to purchase and have better performance and everything else. So like there’s a lack of research and awareness in people. So it really helps if you have other five people or the frugal people in your life, they make great friends because maybe Mindy, if you met somebody who said like, gosh, darn it, I wish my phone bill wasn’t $200 a month. You’re like, oh, well guess what, it can be 15 and they if they trusted you and respected your ideas, they would just do it and then suddenly they’re saving like $2,000 a year. and that stuff is contagious just as much as the wasteful spending is contagious among friend groups.
Scott: So what what is what what I’m hearing here are there’s community and there’s the skill of spending are two kind of the big takeaways that I’m I’m pulling from today. And where would someone go, first of all, I believe that spending, the skill of spending is a is a process. It’s not you’re not going to get good at this overnight and there’s a lot of decisions here and they impact your they correlate directly with your life in a lot of cases. Um, I do think that there can be some event component to that. You could tomorrow go out and switch your phone plan and 15 other things about your spending patterns, but for most people it maybe more of a process. What what’s a good way to begin that process and really say, you know, the next 12 months I’m going to up my game here. Do you have any tips that someone could take away from for that?
Guest: Well, I have a self-serving one. You could go to Mr.moneymustache.com and find the link where you sign up for the boot camp email series where you’ll just get like one email per week with sort of a program to program you to be a more efficient and wiser spender because it just has the ideas for how to handle each category of life. You know, that or finance books on other other blogs and finance books on how to optimize stuff. I really focus on spending more than other people. You know, some people are like just increase your income. Um which is fine but it’s the problem is it’s easy to spend any amount of income. Like there’s there are people who make $10 million a year who manage to still be in debt and, you know, NFL players who have an average salary of $2 million a year roughly, they 75% of them end up completely out of money as soon as they stop playing professionally even though they could have been retired like every single year, there’s enough to retire on. So they could be retired like five times in a five-year football career. So it’s easy to spend any amount of money which is why you got to learn about your spending um even more important than boosting your income and then when you do boost your income, you get to keep that money because it won’t just go up in in flames.
Scott: I just want to um second the uh uh signing up for the boot camp uh emails. I I read through all, I I I’m sure I missed one or two here, but I think essentially all of the posts that you posted on the Mr. Money anstache blog, um, when I was kind of going down the rabbit hole of financial independence and uh, that’s all that’s a great one. You can just start from the beginning and read all of them. Um, but I think you’ve created a list of them in the order that you think is appropriate for for for folks to consume. That could be very helpful. And if you’ve already, if you uh haven’t referred back to it, you can also go uh to Mrmoneymustache.com and click on random, which is one of my favorite things and there’s something something interesting pops up every once in a while when you do that as well. But I I think that’s a great a great place to go and and uh uh to to start this and you really, I think have a a a great handle on I I love the way you phrase that developing the skill of spending.
Guest: Yeah, thanks. Um I would also recommend Scott Trench’s book set for life, which I’m sure has been mentioned on this podcast at least until he’s an alley. But I I wanted to credit you because that book is really, really well written, especially considering it was like your first book or one of your first books and I heard that you have a new edition coming out too. But that book is really cool because it does talk about the spending and encourages people to have some grit uh in order to not just be like, man, I’m not willing to make any changes. He’s like, do it, you’ll be glad you did. And then and then it also goes on to the technical stuff of how to invest in different things including rental properties. And like it’s super cool to have a book that combines both, including the attitude, like I think most books don’t have enough attitude, which means people aren’t going to be really realizing that you have to make some personal changes rather than just some spreadsheet changes.
Scott: Yeah, well thank you. My my uh my uh approach in set for life was definitely heavily inspired by Mr. Money Mustache and then meshing that together with a a really real estate heavy um approach, particularly the the concept of a house hack. um, um in in in addition to, you know, trying to scale the income in in some creative ways and taking control of that. But that’s um I really appreciate that. That’s that means a lot coming from you.
Guest: Yeah, that’s probably why I like it. I’m like Mr. Money Mustache style, the only style I understand. But anyway, um I still think it’s it’s awesome and I hope it uh I hope it’s still selling well.
Mindy: Okay. Pete, last question, how has the recent market downturn affected your mental status with regards to your early retirement.
Guest: Yeah, so what market downturn are you talking about? Do I need to look at the stock market this year? That’s my exaggerated answer. Really, obviously, I know. I do look at, you know, finance, really economist and everything. So I prepared a few statistics for this answer just because it’s kind of fun to put things in perspective. So, a lot of people, especially in the news, they talk about uh the stock market is way down and like, oh, no one’s going to be able to retire now. But the truth of it is the uh the biggest measure of the US stock index, which is the S&P 500 is down 20% in the past year. Pretty much it started a year ago and it’s just gone, yeah, mostly down and it’s kind of been flat for the last few months. So that’s 20% down from one year ago. However, it’s actually flat from where it was two years ago. so January 20, 2021, right? And then um, so if you had just bought two years ago, at that time we thought, wow, the stock market is so high. Like I can’t believe it. Is it ever going to go up again? Like surely it’s it’s given us its next 10 years of gains up front, which is sort of true at the time. So if you had bought two years ago and held, you still would be up 4.5% now because those stocks would have been paying dividends this whole time. So that’s actually pretty good. Now, if you go back three years ago to just before the COVID crash of 2020, so January 2020, from there to now, even after our current decline, the stocks have still returned about 9% annualized including the dividends. uh which is actually really good. So even just going back three years, the stock market has been exceptional. In other words, the current decline is is a bump. Um that you shouldn’t have even noticed if you’re a proper long-term investment. And then just to make it a little bit even more um, you know, amazing to think about the power of investing. If we go back 10 years to, you know, late 20, uh 2012 or January 2013, the stock market over that period of time has returned 13% per year, compounding and annualized, including the dividends, you should always include the dividends. Um, so in other words, anyone who started investing like early in my blogging career, um has done exceptionally well, their money has just exploded even after the current decline. And the super funny part is I remember writing in 2013, the stock market had made a pretty nice recovery from its 2009 super crash, you know, from the great financial crisis. And even back then, you can dig into my articles right now and look at comments when I wrote about um stock market investing and people like, um it’s a little expensive. I’m going to wait for the dip. you know, stocks are too rich for me. I’m holding cash or gold or something. And um, people will always say that regardless of when the stock market, you know, whatever the level is, but it would be such a foolish thing to do that in 2013. And the reason is because not that stocks have become bubbly and inflated, it’s just that for the most part, the earnings of the companies have grown a little bit each year. And the American economy is a pretty wonderful thing despite all the ridiculous stuff you read in the news. So, um, yeah, it’s a better investment now than it was before. And if you are super, super fully retired and you have no other source of income and you’re living entirely off of like dividends and and stock sales right now, then you’re still fine. It’ll just hurt a little bit more because you see like a tiny, tiny fraction more of your shares are getting sold each month to buy your groceries. And hey, if it makes you feel better, like maybe just postpone a couple of luxury purchases this year and and delay them until next time the stock market is at a record high. And that’s a way of stretching out your retirement savings even more and it’s also a good mental discipline because we didn’t really need those luxury purchases in the first place. So really it’s no problem, but I’m glad the market went down because it was it was overvalued by by real math on last year, it was it was getting painful to buy shares last year because they were so high on a price to earnings basis.
Mindy: Interesting. I think that is a great way to look at it. Yes, the stock market is down for 2022, but like even just going back 10 years, did you say 13% per year?
Guest: Yeah.
Mindy: That’s I feel good when I’ve got, you know, 10%. That’s that’s even better.
Guest: Yeah, it was an unusually good decade and that’s why even now stocks are a bit more expensive than average. So instead of thinking they’re too cheap now, when is it going to go back up so I can really have the money that I deserve. You you it’s better to think they were overpriced last year, like way overpriced. Now they’re slightly more than the average expensiveness because really what matters is the price to earnings ratio. That’s the only thing that matters when you’re buying company shares uh as a whole. And um so they’re a little expensive now, it can either go down a little bit more and then it’ll be a true bargain or it can stay flat and the company earnings are going to rise over time because the companies are competing with each other and getting more profitable and growing. Either way, um in the long run, the stock prices will resume going back up, hopefully at a moderate and reasonable pace, so it doesn’t doesn’t create bubble-like uh speculative mentality like the whole Bitcoin uh craze where everything is built upon nothing. You don’t want your stock market or your economy to be built upon speculation. It should be built upon earnings and productivity.
Scott: I agree completely with your premise, but just to play a little bit of devil’s advocate and push, you know, someone listening might say, okay, I hear that, but you’re also saying right now that you feel the market is overvalued. And you’re still saying I should I should dump all my cat excess all my surplus dollars into stocks even if things are still overvalued, they were really uncomfortably overvalued last year, but they still are today. So I really still do that? Is how how would you reassure someone um maybe asking themselves that question?
Guest: Yeah, well, the thing is you never know how long, I mean, there’s no guarantee that the the price to earnings ratio is going to resort like revert back to its 200-year-old historical average. One place I like to look at this is if you go to the website multiple.com, like MU T PL.com. Uh, it has like a 200 year history of the stock market. And my favorite thing to look at is the Schuller PE10 ratio, which is basically just a super smoothed out version of where is the current price of shares relative to the earnings of the companies over the last 10 years. So that way it smooths out like the business cycle of busts and booms. And it’s cool because it helps you see if we’re expensive or cheap, but it also helps you realize that like in the modern era, stocks have been a little bit more than average because the the average is like set from what happened in the 1800s and early 1900s, so and it’s like a little bit different time now, money flows more freely. So you can’t be super stubborn and say like, I’m never going to buy stocks until they go back to the cheapness of 1929 because then you’ll never get on to the train of like dividends and appreciation and growth. Um, so the best thing you can do is not pretend that you’re smarter than the market and then just buy in in little chunks and if you want to be a little bit sneaky, you can look at these graphs and say, all right, it’s it’s over valued now relative like to any other time, like I was saying this a year ago. So if I am going to cash some out to buy another investment like a house, you know, rental property or some other thing that I needed money for, it’s a better time now than it would have been during the the pit of a crash. But I’m not going to try to be so sneaky as to say like I’m going to take it out and just hold it in cash and hope to buy in later at a cheaper price because that like I said with my 2013 blog post example, people are saying, yeah, 2013, don’t buy stocks this year, they would have missed out on these 13% annualized gains and they’re never going to get shares are never going to be back at 2013 prices in all of human history. So that person that mentality tends to lose if you try to get too clever, which is why dollar cost averaging, just dimming it down is, you know, pretty much it’s pretty much the best strategy you can get without being all knowing in um, you know, like predicting the future.
Scott: One one last question on this, um, you know, someone, someone who is, so so for example, right, I, I, I love what I do, um, and and here at bigger pockets, so most my portfolio is essentially all an aggressive allocation. You know, I don’t have any like 60-40 uh stock bond allocation with that. Um, what would your advice be to somebody who is thinking about retiring, just retired or maybe entering that year-long trial run of this in terms of moving from a a stock-only to perhaps a a more mixed bond allocation. Do you have any any thoughts around that or how to any thoughts about how you would handle that personally?
Guest: Yeah, I’m also on your camp and not even because I’m basing it on future income. I think that when I look at these charts of like expected survival rates of a stock versus bond portfolio, um having 100% stocks usually ends up better like almost always. And um there’s maybe a couple of cases in history when bond yields were really high that it would have been better to do the six 40 thing. But right now, bonds yields are low, they always seem to be low, which means you don’t get much for your money investing in bonds and there’s not much chance for them to go up in the future. So in the modern era, I don’t really see a problem with 100% stock portfolio. It’ll on paper it will be more volatile, but it doesn’t really affect your, you know, 30 year survival rate of a a retirement portfolio. Would you run it in these simulators like one of the my favorite simulator is called Cfire Sim, but the letter C and then fire Sim, you should try it for yourself if you don’t if you don’t believe what I’m saying. Basically, adding bonds kind of just lowers the overall return, it makes it a bit more stable, but it doesn’t make your portfolio survive longer if you’re trying to retire off a chunk of money because because overall the increased returns of shares more than makes up for that stability of bonds. So anyway, I’m I’m 100% stock person as well. and a nice way to to balance it a little bit is if you choose to own your house mortgage-free when you’re retiring, like pay off your mortgage, that’s like a bond that pays a guaranteed rate equal to your mortgage interest and it lowers the cash flow you need forever and it also puts less demand on your stock portfolio forever. So that’s one way to, you know, to think of balancing your retirement in a different way as opposed to saying like, well, I’m going to pay off my 4% mortgage and buy a bond that pays 3%. Like that’s a bad trade-off. You might as well just take the 4% return on your mortgage plus you have this nice psychological um reassurance of like I own this house and they can’t take it away from me and I don’t need thousands a month of cash flow to stay in my house. So that’s one way to make things feel more relaxed at retirement.
Scott: Love it. Is there a rate environment where that would change some of your sentiments on this?
Guest: Yeah, I think like I can’t do the calculation in my head, but if the interest rates that you can get on like long-term bonds reach a certain percentage, you know, like five or more percent, some number like that, then then you can plug the same numbers into a future retirement calculator and suddenly you realize, oh yeah, that’s going to be a higher return than um, than having a pure stock portfolio. So it’s kind of just basic math. And there’s a book um if people want to get into this if they’re a techy mathematic investment-oriented people, there’s a a book called towards rational asset allocation. Um, I think it might be by like Burton Malkiel, the investment writer. That thing does analyze all that stuff quantitatively and um, you can see in what situations is it better to branch out from a pure stock allocation. and it basically boils down to higher, you know, the better the bonds are, the more it is worthwhile adding them into your portfolio.
Scott: Awesome. So something to watch if if rates continue if do in fact continue to rise over the next year or two, um maybe there’s an inflection point coming, but for you, not yet, super simple, straightforward.
Guest: I mean, to be honest, we’re probably we have probably already passed an inflection point where some bonds will make your portfolio be better than pure stocks like if you were to do it today, but I don’t really worry about these numbers because like I’m past that tap water stage of, you know, I don’t really want to think about and tweak my money situation that much. I’d rather focus on things I enjoy doing with my time instead.
Scott: Makes perfect sense.
Mindy: Pete, this has been so much fun chatting with you. I really appreciate you sharing your life after five journey because I think that there’s not enough people talking about what happens after you retire and it’s nice to hear a story about everything is kind of going the way that you planned and if it if it didn’t go the exactly the way you planned, it still worked out okay. And that’s really I think encouraging for people who are like, oh, what happens after the fact. So thank you so much for your time today. I really enjoyed talking to you.
Guest: Yeah, I it’s my pleasure. I can’t wait to be back to another uh 300 episodes or so.
Mindy: Maybe we’ll have you back sooner.
Scott: Yeah, Maybe maybe a little sooner than than uh than 377 more episodes, but yeah. Well, we really appreciate it and your your wisdom again was was obviously just life-changing for me, the perspective uh with all that. And I know it has been for hundreds of thousands, maybe millions of other people who have come across your stuff. And so I think that uh, uh, taking leaving the takeaways of for folks of honing that skill of spending and then kind of just thinking through that life that you want after retirement. I mean, those are just like important things to I I those are the essence of what of I think your message here and uh what people need to prioritize in their lives.
Guest: Yeah, I hope so.
Mindy: Okay, Pete, we will talk to you soon.
Guest: All right, talk to you soon.
Mindy: All right. That was Pete Adeney, also known as Mr. Money Mustache. Scott, what did you think of that episode?
Scott: I I I think it’s always just a privilege to to learn from from Pete, Mr. Money Mustache and and really kind of get, you know, just just immerse yourself in his perspective on things. He’s got a really healthy perspective on and outlook on managing money and and and life. And I think that a lot of folks, you know, certainly me, you know, um, I aspired to aspire to a lifestyle like that and I think that he’s he’s really built something special here and I think it’s really telling that he’s he’s a builder and that’s what he likes to do and he likes to do it on his own terms all day, every day, the exactly the way he wants. and he makes the most of that um and and and really tries to to build a great life for himself. And I think that’s something that you have to ask yourself a hard question about is, is that going to be you or how do you how do you get to that point so that there is something even better to retire to than um than the current situation that you have maybe at work. And I think that’s a that’s that’s an interesting question for perhaps some folks.
Mindy: I completely agree. It’s a really thought that that was a powerful example of how, you know, if you spend 28 years as an engineering manager, your brain gets wired to become a great engineering manager um, with that and I think that that was really, I think it was a really it’s- it’s a really interesting mind that he has to be able to envision that alternate parallel reality and then speak that that bluntly about like, hey, that that that would be one one place that I could get to. And there’s a training process here and it’s it’s intentional and it takes years to become the kind of future person that you want to be and to design to a life that allows you to optimize for that every single day. That is so key, Scott. Figure out who you want to be, how you want to be spending your time, and then design your life to allow you to do that. And the way you get this is to get finance out of the way. Get your money situation settled, get your finances figured out, get money out of the way so you can lead your best life.
Scott: Scott, let’s recap some of these resources that Pete mentioned today. First was C F I R E S I M.com, the calculator to help you understand how much money you’re going to need in retirement and how your finances are going to work in retirement. Um, there’s you go to this calculation and it was it was written by a uh programmer, a software developer, and it’s you just type in your numbers and you type in what type of portfolio you have, equities, bonds, gold, cash, etc. Um adjustments for things like social security and you hit run simulation and you get this this simulation of your retirement. It’s really, really fascinating and you can throw all sorts of different numbers in there. It’s a really fascinating calculator.
Scott: Yeah, we also talked about multiple.com, um which is M LTL.com, um which you can go to to get a just a very quick view at the um at price to index ratios for the S&P 500 and and um the stock market in general sense. I also want to call it early retirement extreme. I think um Pete or Mr. Money Mustache would say that if his blog is a college course on early retirement and and uh and financial freedom, that early retirement extreme perhaps is the PhD um level level program where they take it to a whole another level and and have that skill uh and and really go into that skill of spending very effectively. Um so that’s another that’s another interesting resource. Of course, we have Mrmoneymustache.com. And then lastly, I want to talk about, we, you know, you mentioned this concept of community and surrounding yourself with folks that are kind of like-minded. And there are mustachians in practice group Facebook groups that you can join. There are mustachian Mr. mustache meetups around uh that that may be going on in your local area. There might be ChooseFI or financial independence meetups. Of course, we have the bigger pockets money Facebook group which we’re particularly fond of. But immersing yourself in these communities, um starting a meetup of your own if there isn’t one locally or attending that, might help you meet some other folks that are in it together in your local area that you can go and discuss these situations with. There’s also the bigger pockets forums and the Mr. Money Mustache forums where you can go and discuss this and get advice, ask questions, you know, hey, what are people using for their cell phone plans? Or I feel like I’m stuck here and don’t have any good solutions to solve this problem with my spending, anybody have a good advice? and you will get responses from folks who have really been perfecting this craft for years or or long periods of time. In fact, that’s the favorite question folks have to answer in the in the bigger Pockets money Facebook group are questions around spending or like real life spending or or investing scenarios.
Mindy: And if you are facing a bunch of financial issues that you want to solve or you just want to have your finances reviewed, you can apply to be on the Finance Friday episode of this podcast. Go to biggerpockets.com/financereview to apply to be on the show. And by the way, that like if you have a problem that makes that you know, that you that you feel like, you know, you need help with for your money, that makes it better, not worse to come on the Finance Friday uh show, right? We don’t you know, no one no one wants to to hear about someone who’s got a perfect financial situation, right? And that’s when we’re not helping those folks. We want to help folks that that have issues that can be that are unpacked, complex issues or those types of things. So please, please do feel free to apply. Uh our goal is to help you um and and and and and help you work through those problems and get to the next level.
Scott: Awesome. Scott, should we get out of here?
Mindy: Let’s do it. That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying keep that cash, Money Mustache.
Scott: If you enjoyed today’s episode, please give us a five-star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.
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