Transcription
So, a lot of people think money needs to look something like this or this. But actually, what if it looks more like this?
If there's one thing I learned going from $100,000 debt to millionaire, it's that the boring little habits that aren't even that hard to do are what make the biggest difference for your finances. Starting with habit number one.
I invest before I flex. See this? This is the passive income from my investments that paid for my Louis Vuitton bag. Now, this LV bag is my one designer bag. And I didn't buy this with my paycheck. My investments bought it for me. So, a long time ago, I learned that you can either work for money and use that money to then go buy nice things or you can work for money then invest that money so that that money is working for you and then with that money you can go buy nice things.
This is what Robert Kiyosaki talks about in his book, Rich Dad Poor Dad. Like, if I make $10,000, I can either spend that on a nice trip, cars, clothes, so money goes in, money goes out. This is actually what most people do. Or you can be smart and you can take that $10,000 and buy assets with it. It's the difference between money coming in and then straight back out or money going into permanent wealth into your asset column which then generates income and from that you can spend on things that you want.
For example, you could buy $10,000 worth of VTI. It's one of my favorite stock funds. This gives you exposure to all of the major US companies. Now, I know that quietly transferring money into your investment account isn't anywhere near as sexy as posting about a new handbag or a European vacation on Instagram, but every dollar that you invest is like an employee that you put to work is working for you 24/7 to make you even more money and provide you with handbags and European vacations for a lifetime.
Ever since I started thinking about money this way, it completely blew my mind and it completely changed how I think about my buying decisions. Now, don't get me wrong. I still splurge here and there. I like my bougie things. But if you were to come over my house, you'd see an old but cozy home with affordable rent. You'd see a Toyota Corolla because it's super reliable. Some tasteful secondhand West Elm furniture that I got from Facebook Marketplace. And truly nothing that screams wealth. It's not sexy, but it works.
I watch out for lifestyle inflation. So, there's this concept from the book Your Money or Your Life by Vicky Robin that completely changed how I think about money. It's called the crossover point. Now, the crossover point is where the passive income from your investments crosses your expenses. In other words, when your investments generate more than you spend, you are financially free. That's it. That is the game. Because once you reach that point, you never have to work another day in your life unless you want to.
Problem is, most people never reach this point. Why? Because of lifestyle inflation. Lifestyle inflation is when you get a raise, you get a nicer apartment, you get a bonus, you get a car. Every time your lifestyle inflates, that crossover point gets pushed farther and farther away. Let's say you live on $3,000 a month. To be financially free, you would need your investments to generate $3,000 a month. And using the 4% rule, which is the common rule of thumb used in financial planning, that means you would need $900,000 invested to reach your crossover point. Now, let's say you got used to more of a $5,000 a month lifestyle because you moved to a nicer apartment, you started going out to eat more, etc., etc. So, instead of now needing $900,000 to become financially free, you need $1.5 million. You see how lifestyle inflation keeps moving the goalpost, so you never really get there. And most people stay on this hamster wheel their entire lives.
Now, there are elements of lifestyle inflation that I love. I love that I'm able to afford going out to eat more, a lot more than we were able to as a kid when I was growing up. We really didn't have that much money. Or maybe you move from a really dangerous, shady part of town to a safer, nicer neighborhood. There's elements of lifestyle inflation that are necessary and good. But I'm talking about the kind of unintentional lifestyle inflation that just creeps up on you and keeps moving that goalpost further and further out.
So before I let anything become a habitual expense, I always ask myself two things. What feeling am I really seeking by spending this money? And then two, can I get this feeling by not spending that money or is it really worth spending that money? And often the answer is I can get that same feeling by not spending money or in a much cheaper way.
Like I used to get my nails done for at least $150 a month. So, when I thought about my crossover point and the fact that I would need $45,000 more invested to sustain that habit, I decided to reassess. I realized that what I'm really seeking when I go get my nails done is the ability to express myself, let out my artistic creative side a little bit with different colors, patterns, designs. And instead of spending to get that done, I could have some fun with it and do it on my own at home. So, I got my UV lamp and all these little supplies. And it's actually really fun and it cost me almost nothing. So, I'm getting the same feeling. I'm still romanticizing that ritual. I still have really nice looking nails and I'm going to reach my crossover point faster. That's how you get rich and stay rich.
Now, this one might sound a little unhinged, but I eat the same thing every day. I have the same oatmeal every morning for breakfast. And for lunch, I eat the same formula of a grain, a protein, and some vegetables and a sauce. But I've basically perfected my breakfast and lunches to hit all of my macros, protein, carbs, and fat to stay healthy. And then dinner is where I mix it up a little more and make it more exciting. But other than that, you are going to see me eating the same thing every day. This saves me a ton of money on my grocery bill, but the bigger thing is that it frees up a lot of mental bandwidth to let me go and make even more money.
This speaks to the greater idea of having systems for everything. I have a system for getting dressed every day. I use the same outfit formula of comfortable pants and tank or t-shirt if I'm staying at home or if I'm going out. I have an outfit lookbook that I've printed out and all I have to do is choose something and put that on. I don't have to think. I have a system for working out. I've got this whole tracker in my notes app so that I know exactly what I need to do when I wake up that morning.
Basically, a system is a setup where you automate a part of your life. It's where you make certain decisions ahead of time so that when it's time to actually do the thing, you can just get to doing the thing instead of having to first decide what the thing is going to be and then do the thing. Because decision fatigue is a real thing. We wake up with a limited amount of energy and a lot of that energy we expend making little decisions here and there. Back when I was trying to start my business while working full-time, I started creating systems for everything in my life and there is no chance I could have gotten my business off the ground if I was worrying about low value stuff like what to eat, what to wear every single day. And that is why systems are a game changer. Systems free up mental bandwidth so you can go focus on the things in life that are important to you.
As someone who talks and thinks about money all day long, I also know that one of the biggest things that will free up your mental bandwidth is when you have your money handled. So, I'm a big fan of systematizing that part of your life, too. Investing, saving, etc., which is why I'm very excited to tell you about Fruitful, the sponsor of today's video. Fruitful is an all-in-one money automation system that basically runs your finances for you. You get one-on-one guidance from a certified financial planner professional who helps you set up your entire money system. How much to save, where to invest, all of it. And then it just runs on autopilot. It's like having systems for your meals, for your outfits, but it's for your finances. They also have a fruitful cash account that pays a 4% interest rate, which is probably way better than what your bank is giving you. What I love about it is that you don't have to think too much about your money. It just works in the background to make sure that you'll have money for all the things you want to do in your life, whether that's investing for the future, buying a house, or paying for that next vacation. If you want to check them out, link is in the description. So, systematize your money, your outfits, your meals.
You probably think I'm so boring, but I promise you I'm not. I also do have some hobbies. And so, the next unsexy habit that I do is that I have cheap hobbies. Now, if you ask most people what they do for fun, the answer for most people is they scroll. And scrolling is expensive. Why? Because your phone has so many algorithms and targeted ads, you don't have a chance at resisting because they know exactly how your psychology works. They're looking at all of your data and they know what makes people buy. I used to think I was above that. I was above the algorithm. And so I would scroll TikTok and things would get me. I would buy a lot of that I ended up not even wanting when it arrived on my doorstep. That's when I realized I was seeking dopamine. And there was something about scrolling and buying stuff that was giving me little hits of dopamine that wasn't doing any favors for my bank account. And really not even for my happiness.
And so now I have different ways to get my dopamine, which is through these different hobbies. I recently started making sourdough bread. It's really fun and delicious. It only costs $15 a month in flour from Costco, and it even has the added benefit of giving me an excuse to go visit my friends to gift them extra loaves. I also recently took up reading again, also costs nothing. A book or two on Amazon, 10 to 20 bucks a month. And my latest hobby, which is fire dancing. I'm not the best at it, but pretty cheap. Fuel is like $10 for a can. And so, okay, fine. Maybe I do have a little bit of hobby ADHD. I admit that. But at least my hobbies keep me so stimulated and busy. It reduces my urge to be on this this thing because this thing this device is not designed to make you rich. It is designed to steal your time and attention and your money.
No rewards card. I mostly use my debit card. I've cycled through a lot of different rewards credit cards. I've gotten free flights, hotels, all the good stuff. I do love a good rewards credit card. But the thing is, I also realized that I would spend a lot more than I otherwise would because it was on credit and because I could justify it with the rewards. And so I actually did the math. I did some digging and research shows that credit users spend 12 to 18% more on average. And there is other studies that show people are sometimes even willing to pay up to 100% more if it's on credit. And so rewards cards usually give you around 1 to 3% of your spending back in rewards. But if you're spending 12 to 18% more and in some cases paying double, then you're actually not getting ahead. It feels like you're getting free stuff, but you're spending a lot more to get that free stuff. So in fact, you would have been better off not trying to get those rewards in the first place.
And look, I am going to miss the lounge access. There is a certain cool kids factor that comes with saying that you get lounge access. But honestly, the last few times I visited a lounge, I had to wait in line, so that wasn't necessarily fun. And it also never really made sense to me. Like, we're trying to get on the plane and get to our destination as fast as possible, right? So, I'm not going to go to the airport early to go to a lounge. I'm going to get there right before my flight. So, honestly, I've been pretty cool with not having lounge access, especially cuz I don't travel very much. Getting rid of my $800 annual fee credit card and just going to a simple cheap rewards credit card for all of my monthly subscriptions and then doing all the rest of my spending on debit instead because with all the money I saved doing that I'm going to pay for my business class flight in cash and not have to wait in line at the lounge.
Going back to debit for most discretionary purchases has helped me a lot because I definitely started getting pulled into the trap of swiping a little too much on plastic, a little too many Amazon purchases because when you can separate the pain of parting with your cash versus the instant gratification of buying the thing, that's dangerous. Now, if I don't have the cash, I don't buy it. And that's actually been really healing and liberating for my relationship with money.
And now this habit is definitely the most unsexy one, but arguably the most important, which is that I invest like a grandma. People come up to me a lot and they say, "Oh, given the recession that's coming, the world war that's happening, rates, rising inflation, and the AI bubble, how are you investing?" And my answer to them is always the same. I am investing the same way I was investing 10 years ago when I started investing. Nothing's changed. And that's because I invest like a grandma.
There's this huge misconception that investing has to be really sexy, fancy, complicated, like day trading, futures and options, NFTs, finding the next Nvidia or Palantir. But this kind of risky, sexy investing is how a lot of people end up losing their life savings. Good investing is not sexy. In fact, the more boring your investing feels, the better you'll do. Over 90% of actively managed funds failed to beat the S&P 500, which means people who do this for a living. Active fund managers weren't able to beat just sticking your money in the overall economy via an S&P 500 fund. In fact, legend has it that Warren Buffett, best investor of all time, he bet a million dollars that hedge fund managers could not beat a boring old S&P 500 index fund. And guess who won the bet? The boring S&P 500 index fund returned over 128% whereas hedge fund managers, fancy Wall Street people who do this for a living, they made 36%. So yeah, boring works.
Also, even though I don't always talk about it, I'm not always talking about what I'm investing in, I am always investing. Every month, rain or shine, I do something called dollar cost averaging. This is where you invest the same amount every single month, regardless of where the market is, 'cause you're not trying to time the market. If you keep your money invested for long enough, time and compounding is going to do all the work for you and grow your money exponentially. It's not about timing the market. It's about time in the market.
So, by now you know that my life is pretty boring. My money is even more boring. A lot of unsexy habits. Maybe my hair color is the most exciting thing about me. Nobody's going to make a movie about my Toyota Corolla or my sourdough bread. But you know what is sexy? Being a millionaire, being financially free, and being able to say yes to things and no to things because you don't have to do anything because of money. I would say that's pretty sexy. That's it for this video. Thank you so much for watching, and I'll see you in the next one. Bye.