0:00

You're listening to TIP. I've

0:03

had some insightful chats with Stig about the importance

0:06

of sacrifice when it comes to success, whether

0:08

that's in my personal or professional life.

0:10

Stig suggested that I check out the

0:12

book The Wealthy Gardener and after I

0:14

read it, my mind was racing. I

0:16

found myself constantly connecting the dots between

0:18

interesting ideas in wealth generation, investing

0:21

in stocks and even in behavioral finance. I

0:23

enjoyed the book so much that I figured I'd

0:25

share critical lessons with the TIP audience. The

0:28

book covers a comprehensive range of topics around wealth.

0:30

There was no way I could comment on each

0:32

one as the episode would be multiple hours long.

0:35

So I picked the topics that I found most interesting and impactful

0:37

and will be sharing them with you today. These

0:40

topics range from how to optimize your time to

0:42

generate wealth, to why it's so essential to avoid

0:44

wage slavery, why you should embrace challenges

0:46

to live a more fulfilling life, why we must

0:48

make sacrifices in life whether we pursue wealth or

0:51

not, why patience is vital to

0:53

the wealth building process, practical

0:55

lessons on setting financial goals, why

0:57

you must avoid the dangers of debt and a whole lot

0:59

more. So whether you're contemplating

1:02

building your wealth, you're in the midst of

1:04

the wealth building process or you are already

1:06

financially independent, I think you will come away

1:08

with some great takeaways from this episode. It's

1:10

not just how to build wealth but also how

1:12

to live a fulfilling life of purpose. Now

1:15

let's get into this week's episode chatting about The

1:17

Wealthy Gardener. Celebrating

1:20

10 years and more than 150 million downloads.

1:27

You're listening to the Investors Podcast Network.

1:30

Since 2014, we studied the financial

1:32

markets and read the books that

1:34

influenced self-made billionaires the most. We

1:36

keep you informed and prepared for the

1:38

unexpected. Now for your

1:41

host, Kyle Greve. The

1:51

Wealthy Gardener is a highly impactful book

1:53

by John Sephora for any investor or

1:56

person looking to improve their wealth accumulation

1:58

philosophy, thinking process, and What

2:02

stood out to me about this book was some

2:04

of the primary observations the wealthy gardener had over

2:06

his many years of life. For

2:08

instance, he noticed that many people around

2:10

him wanted to emulate him by being

2:12

financially independent. However, many

2:14

of his friends and proteges hadn't been able to

2:17

achieve his level of wealth because of their focus

2:19

on the short term. This smacked

2:21

me in the face as analogous to the

2:23

stock market and investment. We know

2:25

that investors hold stocks and indexes for

2:28

very short periods of time. The

2:30

lessons from the wealthy gardener aim to

2:32

help you see the obstacles and difficulties

2:34

that must be overcome to achieve life-changing

2:37

wealth. You'll learn timeless

2:39

principles for thinking about prosperity, wealth,

2:41

purpose, sacrifice, and many other facets

2:43

of life. Today,

2:46

I'm going to discuss many of my primary takeaways

2:48

from this book and how we can use them

2:50

to impact our own lives positively. Since

2:52

this book covers so many topics, I split them

2:54

into ones that I think are the most important.

2:57

They include time management, sacrifice,

2:59

avoiding the income equals expenses

3:02

trap, reframing of problems,

3:04

the dangers of procrastination, patience,

3:06

the seasons of wealth, purpose,

3:09

goals, compounding, risk, financial freedom,

3:11

and debt. Just a

3:13

quick note, throughout this episode, I will

3:15

refer to both John Sephoric, the author

3:18

of The Wealthy Gardener and The Wealthy

3:20

Gardener separately. Many insights come

3:22

from The Wealthy Gardener's point of view,

3:24

but John Sephoric himself also inserts many

3:26

great insights and realizations from his own

3:29

experiences that are highly valuable. So

3:31

to start off with, John Sephoric is

3:33

a big fan of time management. He

3:36

talks about it extensively in the book through the

3:38

eyes of The Wealthy Gardener and his own life

3:40

experiences. A great quote from

3:42

the book was, quote, we are

3:44

always too busy to add to our schedules,

3:46

but we either change what we're doing or

3:49

we keep what we've got, unquote. If

3:51

we want to eventually earn financial independence, we must

3:53

understand that there are only 24 hours

3:56

in each day. days

4:00

longer. So we must change what

4:02

we do with the hours that we

4:04

have. As I've taken my

4:06

own journey towards financial independence, the time

4:08

I spend each day on specific habits

4:10

has changed. When I was

4:12

in my 20s, my spare time was wasted by

4:15

watching TV and playing video games. But

4:17

as I started reading more, I realized that

4:19

watching TV was time wasted. Jim

4:21

Romes said, quote, a television costs you about

4:23

$40,000 a year, not

4:26

to own it, but to watch it. What

4:28

else could you do with that time? How about working,

4:31

earning or learning? Time wasted

4:33

is money lost and wealth

4:36

abandoned, unquote. That is

4:38

precisely how those who want to build wealth

4:40

should see time. I'll say

4:42

it one more time. Time wasted is money

4:44

lost and wealth abandoned. Many

4:46

listeners of this show will be familiar with

4:48

one of Charlie Munger's most potent quotes. Quote,

4:51

in my whole life, I have known

4:54

no wise people over a broad subject

4:56

matter area who didn't read all the

4:58

time. None, zero.

5:00

You'd be amazed at how much Warren

5:02

reads and at how much I read. My

5:05

children laugh at me. They think I'm a book

5:07

with a couple of legs sticking out, unquote. While

5:10

there are some wisdom to be drawn from great works of

5:12

art and film, it pales compared to

5:14

what we can learn from reading an excellent

5:16

book. As Munger says here,

5:18

the wise read all the time. So spend

5:21

as much time as you can reading, not just to

5:23

read, but to really deepen your

5:25

understanding of whatever you're most curious about.

5:28

If you aren't reading about things that you

5:30

find curious, you will find it challenging to

5:32

take away essential insights. I

5:34

like the mental model of reading to solve a

5:36

problem. This way, your reading is

5:39

more intentional and you'll actively think about how

5:41

you can implement what you read to make

5:43

improvements to your own life. Another

5:45

crucial area is ensuring that whatever we

5:47

spend our time on moves us towards

5:49

our goal. Sephora writes,

5:51

quote, an impact hour is 60

5:54

minutes of doing the right things that lead

5:56

to a critical outcome. An Impact

5:58

hour is the opposite of. The hollow our

6:00

moving towards or golf. It.

6:03

Is an hour of effort that as

6:05

the great volume of work that is

6:07

required for achievement. Unquote. This.

6:09

Makes me think a lot about investing in

6:11

using the time that we have every week

6:14

to invest as widely as possible. Everybody

6:16

suspend is ours very judiciously. When I

6:18

first started investing, I would go off

6:20

on a whole kinds of tangents. Reading

6:23

about investments that I wouldn't touch with a

6:25

ten foot pole today. When. Warren Buffett

6:27

discusses his too Hard pile. I think he's talking

6:29

about a few different things going in a we

6:32

this in here. So. First is simply

6:34

too hard, and now he's categorized whatever

6:36

he was reading or learning about in

6:38

that way. And secondly, and

6:40

I'm speculating here, he knows that if it's

6:42

in the too hard pile. And

6:44

he has no desire to learn more about that

6:46

subject. He can easily spend as little time on

6:49

it as possible in the future. For.

6:51

This alone has multiple part effects.

6:53

One. It to spend more time

6:55

learning about what he already knows and expanding

6:57

a circle carpets who he improve. The efficiency

6:59

of the time that he spends on is

7:02

learning. And three, he can spend

7:04

more time researching topic that is serious about

7:06

and know that he enjoys learning about. So.

7:09

Another high impact area that the best and

7:11

best spent time in his in thinking. Morgan.

7:13

Housel Rights and the psychology of money

7:16

Quote. Rockefellers. Job wasn't

7:18

to drill wells, a load trains, or

7:20

move barrels. He. Was to think

7:22

and make good decisions. Rockefellers.

7:25

Product is deliverable. wasn't what he did

7:27

with his hands or even is worth.

7:30

It. Was what he figured out inside of his

7:32

head. To that's where he spent most of

7:34

his time and energy. Despite sitting quietly

7:36

most of the day and what might

7:38

have looked like free time or leisure

7:40

hours to most people, he was constantly

7:42

working in his mind sinking problems through

7:44

unquote. You'll see the steam

7:46

in many of the most successful people.

7:49

They are profound thinkers and their value

7:51

lies in the fact that they regularly

7:53

use their brains to forbid biggest problems

7:55

at their customers have. Ordinary.

7:57

people can spend their days thinking about their own

7:59

issues While these issues may not be as

8:01

big as the problems that a Rockefeller, Jobs, or

8:04

Musk has encountered, we still need to make sure

8:06

that we are thinking about the problems that we

8:08

need to solve in order to continue to reach

8:10

our own goals. Sephoric writes,

8:12

quote, I saw that only a

8:14

few actions earned tangible rewards, and

8:17

so I rearranged my schedule for

8:19

the best activities, unquote. Each

8:21

person needs to arrange a highly customized

8:23

range of activities. For most people

8:25

with a day job, much of their daily life is

8:27

centered around their job and getting that done. But

8:30

Sephoric emphasizes in his book that what

8:32

we do with the hours outside of

8:34

work can really catapult us towards the

8:36

goal of financial independence. If

8:39

we maximize our use of our spare time, we

8:41

can get a lot of things done. Sephoric

8:44

writes about his personal experience with

8:46

how he changed what he called

8:48

his impact activities. What happened

8:50

during this time? I changed my activities

8:52

as follows. I eliminated

8:54

alcohol and entertainment, spent time

8:56

in solitude and meditation, maintained

8:59

an upbeat attitude, exercised

9:01

daily, adhered to a

9:03

perfect dietary regimen, wrote

9:05

specific money goals, drew images of

9:07

my goals, made a vision

9:10

board of my clippings, vividly imagined

9:12

patients calling me. He was a

9:14

chiropractor, used affirmations

9:16

nonstop, listened to personal

9:18

development audiobooks while driving, planned

9:21

my days, expanded my business hours,

9:23

spent time with my family and

9:26

revitalized my mind and body during

9:28

non-work hours. Only

9:30

you will know what you need to spend your

9:32

time on. But many of Sephoric's points above seem

9:34

like a good use of time. Eliminating

9:37

waste of time, in his case alcohol and entertainment for

9:40

anyone else, this could be different. Exercising

9:42

and taking care of himself physically, eating

9:45

healthy which also counts as caring Goal

9:48

setting, utilizing positive visuals,

9:50

using positive affirmations, investing

9:53

time in personal development, spending time

9:55

with family, and spending time on

9:57

recovery. These all sound like things

9:59

that most people do. to do immediately to

10:01

help them lead a more meaningful and prosperous

10:03

life. To wrap up this part

10:05

on time management, I leave you with a great

10:08

quote from Michael de Montaigne. That's the forex shows

10:10

in his book. The

10:12

value of life lies not in the length of days but

10:14

in the use we make of them. A

10:17

man may live long but get very

10:19

little. So no

10:21

matter what you decide to spend your time on,

10:23

realize that the best results will occur when your

10:26

time is optimized towards reaching your goals. Time

10:28

spent doing other things that aren't helping you

10:30

reach your goals is time wasted. It's

10:33

also important to realize that having some spare time

10:35

to spend doing nothing might be a part of

10:37

your physical and mental well-being. So if you

10:39

require that, then don't be afraid to allocate some time

10:41

if you think it will be beneficial. If

10:44

there's one aspect of reaching financial independence

10:46

that the wealthy gardener will teach you,

10:48

it's the importance of sacrifice. The

10:51

forex says, quote, we pay the price

10:53

for an extraordinary life or we pay

10:55

the regrets of an average life. An

10:58

extraordinary life requires a sacrifice of

11:00

our leisure hours, but an ordinary

11:02

life requires a sacrifice of our

11:04

cherished dreams. It

11:06

depends on what is most wanted in the

11:08

garden, unquote. I

11:10

think this transitions very well from the points

11:12

on time management as well. If we want

11:15

to live an extraordinary life, we must pay

11:17

a sacrifice. In this case,

11:19

our leisure hours. If we want to live

11:21

an ordinary life, we must also pay a

11:23

sacrifice, which is our cherished dreams. No

11:26

matter what your choice is, there is always going

11:28

to be a sacrifice. Reading this

11:30

really made me think about how much Buffett sacrificed

11:32

to get to where he is today. He

11:35

sacrificed many relationships with his family to get to

11:37

where he is. I don't think

11:39

anybody can just pick and choose to

11:41

sacrifice everything to obtain a ridiculous amount

11:43

of wealth like Buffett has. But

11:45

when I look at Buffett's relationships with his family,

11:47

it's apparent that he's given up a lot to

11:49

earn the success that he has today. When

11:52

I ask myself if I would give up the

11:54

same thing, the answer is a clear no. I

11:56

would take a fraction of his success if it

11:58

meant being a better father. husband. A

12:01

critical aspect of becoming financially independent that

12:03

the wealthy seem to understand well but

12:05

the poor do not is how important

12:07

it is to live beneath your means.

12:10

After reading plenty of books on financial

12:12

independence, I can say that understanding this

12:14

has been one of the most potent

12:16

ways I improved my own understanding of

12:18

building wealth. The millionaire next door taught

12:21

me that wealthy people can come from low incomes

12:23

just like people with little to no wealth can

12:25

have high incomes. No matter what

12:27

your income is, it's important to

12:29

never fall into what Sephoric intelligently

12:31

calls wage slavery. Then the

12:33

wealthy gardener, the wealthy gardener is talking to

12:36

his protege, Jimmy. Jimmy says,

12:38

what if people have a ceiling on

12:41

income and what if their monthly income

12:43

barely covers their fixed living expenses? The

12:46

wealthy gardener responds, then they

12:48

are chained to a life of financial

12:50

insecurity. They are prisoners

12:52

of wage slavery. They live to

12:54

meet living expenses and to pay

12:57

taxes. I

12:59

spent a lot of time thinking about this and it's

13:01

such a powerful concept. They

13:03

live to meet living expenses and to pay

13:05

taxes. This does not sound like a

13:08

productive use of my time so I personally have decided

13:10

to simply not take part. Here

13:12

is the exciting part. Most people

13:14

assume that the only way to generate wealth is

13:16

to earn a higher income. And while I do

13:18

agree with the premise that making a higher income

13:20

can result in accumulating wealth more quickly and with

13:22

less pain, we also need to look

13:25

at some very simple real-life examples. One

13:27

of my favorite examples is to look

13:29

at professional athletes. Sure, there are some

13:31

professional athletes out there that are billionaires

13:33

today. Great examples are Michael Jordan, Tiger

13:35

Woods, Cristiano Ronaldo, LeBron James and David

13:38

Beckham. But we must never forget base rates. The

13:41

National Bureau of Economic Research concluded that

13:43

15.7% of NFL players have filed for

13:45

bankruptcy 12

13:48

years after retiring. A Sports Illustrated

13:50

article reports that 78% of NFL players and 60%

13:52

of NBA players face

13:55

serious financial hardships after retirement.

13:58

There is a laundry list of poor investors. The officer

14:00

made resulting in bankruptcy. Now.

14:02

I'm not here to pick on athletes.

14:05

I misread a point out that as

14:07

a cohort, they are highly touted up

14:09

playing sports, not necessarily talented in accumulating

14:11

wealth. And. It's you are

14:13

not mutually exclusive. The. Overarching

14:15

point is that you can make a lot

14:17

of money, but even if you have a

14:19

seven figure income, if you have a seven

14:21

figure lifestyle and you aren't saving anything to

14:23

buy your financial freedom in the future, This

14:26

is why people with low paying jobs can retire

14:28

early and live a life of financial freedom while

14:30

people with very high paying jobs are forced to

14:32

work until they are well into their sixties. There.

14:35

Are two schools of thought I've come across

14:37

when looking at the wealth building equation. If

14:40

we think of wealth as equals to income

14:42

minus expenses and we can build it into

14:44

s. Number One. We. Increase

14:46

or income. And. Number two: we decrease

14:48

our expenses. If we look at

14:51

our day to day life, assets and liabilities

14:53

are bought with our income financial independence as

14:55

an asset that must also be bought and

14:57

com bounded over many years. If

15:00

we make a hundred thousand dollars a year and

15:02

have one hundred thousand dollars in expenses, we have

15:04

zero Well for the end of the year so

15:06

we can either increase or income or decrease our

15:08

expenses. Let's. Say the next year we

15:10

make a hundred, Twenty thousand but keep our expense that

15:12

on And thousand. Now we have Twenty thousand dollars that

15:14

we can use to invest to a future. Or

15:17

if making more money than the question

15:19

we can decrease our expenses. In

15:21

that case, we're still making a hundred thousand dollars

15:24

but are able to remove some expenses that

15:26

aren't may be adding value to our life. If

15:28

we can get those expenses down a thousand and

15:30

we still have twenty thousand dollars to invest into

15:33

a future. The. Wealthy garner believe that

15:35

we should spend our time not only living

15:37

below are means, but also increasing our income.

15:39

Growth. I learned that income.

15:42

Equal. To expenses is precarious and

15:44

the pursuit of excess money

15:46

is wise and necessary. Unquote.

15:49

John's. The for a came up with what

15:51

he called a savings day. Is. Our

15:53

it. After

15:55

a lot of soul searching and deliberation, we

15:57

chose to sell my practice. For. eighty

15:59

thousand doll dollars and change everything. We

16:01

left Chicago and moved to my hometown

16:03

near Pittsburgh. This area was

16:06

more rural, less metropolitan and far

16:08

less expensive. We saw

16:10

less cement and more trees and

16:12

the equation for profitability was much

16:14

better. In this new location,

16:16

I eventually opened a new clinic. I still worked

16:18

six days a week, but Saturday

16:21

was my savings day. Every

16:23

dollar earned on this weekend day was

16:25

financial excess money for saving that

16:27

has been missing in my Chicago life." Now

16:31

this strikes me as a very interesting concept,

16:33

having one extra day of work that is

16:35

used exclusively to buy your future freedom. Other

16:38

ideas for this might be using a portion of

16:40

your bonus incentives, etc. to invest in the future.

16:43

The big takeaway here was that anybody

16:45

is susceptible to becoming a wage slave.

16:47

You can be making below average income

16:49

or above average income and still become

16:51

wealthy if you live below your means.

16:54

If you can never live below your means, you

16:56

will end up a wage slave and be relegated

16:58

to working to pay the tax man and expenses

17:00

for the majority of your days. If

17:03

we decide that we do not want to work

17:05

just to get by, we need to learn to

17:07

live below our means and reframe the inevitable problems

17:09

that will arise on our journey. John

17:12

Sephoric discusses some affirmations that

17:14

he cites daily as himself. I

17:18

do not expect or desire a

17:20

problem-free existence. I seek strength and

17:22

wisdom, not ease and comfort." This

17:26

reminds me a lot of a stoic

17:28

tool where we reframe problems as opportunities

17:30

to build strength and wisdom by solving

17:33

life's inevitable problems. If you

17:35

want to learn more about the subject, I'd highly

17:37

recommend listening to TIP, episode 617 where

17:39

I interviewed Vitaly Katzenelson about the

17:42

subject. We should not think about life

17:44

as being problem-free. The road to building

17:46

wealth will be full of problems. After

17:49

all, Charlie Munger famously said, and I'm only

17:51

using the PG version here, quote,

17:54

the first hundred thousand is a pain, but

17:56

you got to do it, unquote. When

17:58

he referred to getting this money to he didn't

18:01

necessarily mention all the problems that would be

18:03

involved with accomplishing that feat. But

18:05

it's important to point out that once you reach

18:07

that number, things do become a lot easier. We

18:10

can argue over what this number would be today. Maybe

18:12

it would look more like a million dollars if we

18:14

adjusted for inflation. But either way, we

18:16

have to accept that savings will be difficult and

18:18

it will test us at times. But

18:21

our ability to pass this test and

18:23

keep moving towards our goal when others

18:25

are buying fancy trinkets will be vital

18:27

to generating wealth. Let's take a

18:29

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21:33

right, back to the show. The

21:35

Wealthy Gardener has many different views on problems

21:37

that we'll face over our lives. Quote,

21:40

regardless of our capabilities, there's no

21:42

escaping from our problems. The

21:44

only question is, do we have a vision

21:46

of winning the day? Do we

21:49

have the mindset to stay the course and endure

21:51

problems? Do we show up with

21:53

the warrior's mentality to battle and maintain

21:55

our direction? End quote. This concept

21:57

of maintaining direction is just so

22:00

important and really stood out to me. If

22:02

we save for a few months, that's a great

22:04

start. But the best part

22:06

about compounding is that we can expedite it

22:08

even faster by adding more to our pile

22:11

of money over time. And that's in

22:13

any aspect of life, not just money but also

22:15

in wisdom. A problem I've observed

22:18

and had myself was the problem of basically

22:20

spending all the money that you have coming

22:22

in and then deciding, oh, you know, if I

22:24

have a little bit of money left over, I'm going to save that.

22:27

But this just didn't work at all for me.

22:29

It permitted me to spend all the money I

22:31

had and maybe even go into debt. This

22:33

meant I could spend, spend, spend, but not save.

22:36

I got a great chance to speak with J.L.

22:38

Collins who told me that he didn't consider the

22:40

problem of saving money as deprivation as someone once

22:42

referred to it. He felt that

22:45

every dollar he saved was simply purchasing

22:47

his freedom at a future date. I

22:49

think this is a great way to reframe the

22:52

problem of saving for people who find the idea

22:54

of saving as depriving yourself of your current satisfaction.

22:57

And for a great quote, a good garden

22:59

will always have weeds that keep us working.

23:02

Happiness is not found in a life without

23:04

problems, but in a life of overcoming problems.

23:07

We need only to maintain an upbeat attitude

23:10

to face challenges and do our work of

23:12

sowing to reap a harvest. A

23:14

life without challenge is a life

23:16

without a worthy contribution. This

23:20

can be a more challenging concept to accept. Of

23:22

course, we want to live a life where problems do

23:25

not arise. But if we pursue

23:27

strength and wisdom, problems will be one of the

23:29

best ways that we can advance ourselves. Charlie

23:31

Munger was a master problem solver. In

23:34

his 1996 piece called Practical Thoughts

23:36

about Practical Thought, he said, quote,

23:39

In a long career, I have assimilated

23:41

various ultra-simple general notions that I find

23:44

helpful in solving problems. Five

23:46

of these helpful notions I will now describe. Unquote.

23:49

So these five notions were one,

23:51

decide big no-brainer questions first, two,

23:54

numerical fluency, three, invert, always

23:56

invert, four, think in

23:58

a multidisciplinary manner, and 5,

24:01

never discount Lollapalooza effects. Now,

24:03

it's important to remember that these notions

24:05

weren't necessarily in direct relation to building

24:07

wealth at the individual level. I've

24:09

used this framework to discuss how Coca-Cola was

24:11

built from a $2 million business into a

24:13

$2 billion business. But I think

24:16

the first three notions do work very well for

24:18

wealth building if we think hard about them. If

24:20

we think about the no-brainer question for building

24:23

wealth, it's how do we generate

24:25

the funds needed at some point in the future

24:27

to allow us to live the lifestyle we want

24:29

free of obligations? Let's say we need

24:31

$3 million. Next, we

24:33

need to use numerical fluency to work

24:35

backwards to determine how we achieve that

24:37

number. Since I'm talking on a

24:39

podcast, it doesn't lend very well to doing complicated

24:41

math. But if we assume we can compound

24:43

at 8%, we double our money every

24:46

9 years. Lastly, we can use

24:48

the principle of inversion to figure out how

24:50

we go backwards from that $3 million number. We

24:53

have $5 million, $750,000, $375,000, $187,000 and that's half. So

25:00

about 36 years. So

25:02

if we have $187,000 today, we can expect to have about $3 million in

25:04

36 years provided that

25:09

we compound at 8%. We

25:11

can make this faster if we add each month as

25:13

well. You increase the amount we'll

25:15

have at the very end if we continue to

25:18

contribute to our savings each month as well. But

25:20

I'm not going to go into the details of

25:22

that as it'll get super complicated without having a

25:24

visual. And there we go.

25:26

We basically solved the mathematical problem of

25:28

obtaining a specific number somewhere in the

25:30

future. Of course, additional problems

25:32

will arise. How do we build the

25:35

initial capital needed to invest? How do

25:37

we ensure that our lifestyle doesn't get more expensive

25:39

as we move up the income bracket? How

25:42

do we try to avoid keeping up with the Joneses? And

25:44

most importantly, how do we achieve all this while

25:46

living a life of purpose? The

25:49

Wealthy Gardener, as usual, has an answer for this.

25:52

The work is fighting the daily forces

25:54

of entropy, chaos, and disorder. But

25:57

master gardeners know that gardening is about the

25:59

saddest satisfaction of labor. It's about

26:01

staying engaged in a pursuit that

26:03

pleases the soul despite its many

26:06

problems." To save money,

26:08

we must accept that we may have to do things

26:10

that we don't always enjoy. In

26:12

the wealthy gardener's reality, this is gardening. You

26:14

put a lot of thought into the

26:16

art of gardening and understand that it

26:19

can be sweaty, uncomfortable, and back-breaking work.

26:21

But in order to become a master of your

26:23

craft, you must find satisfaction in the labor.

26:26

In a perfect world, we'd all be like Warren

26:28

Buffett, who tap chances to work every day. In

26:31

reality, as we age and gain responsibilities, it's

26:34

not possible to always work on what

26:36

we are most passionate about. For

26:38

the younger members of our audience, Buffett's

26:40

advice here is priceless. Quote, Find

26:43

your passion. I was very, very lucky to find

26:45

it when I was seven or eight years old.

26:47

You're lucky in life when you find it, and

26:49

you can't guarantee you'll find it in your first job

26:52

out. But I always tell college

26:54

students that come out to Omaha, take the

26:56

job you would take if you were independently

26:58

wealthy. You're going to do well at

27:00

it. Unquote. I think the final

27:02

part of this passage is most powerful. I

27:04

think you would tell people to take the job that

27:07

they are most passionate about over the job that pays

27:09

the most or gives them the most potential to increase

27:11

their earnings down the road. I

27:13

think the biggest problem with this advice is understanding

27:15

what job you would want to do in your

27:17

early 20s if you were independently wealthy. I

27:20

can only talk from personal experience here, but I had

27:22

no idea what I would have wanted to do if

27:24

I was independently wealthy in my early 20s. But

27:27

for those people who have a wide array

27:29

of experiences and know specifically what they are most

27:31

passionate about, this advice is great. Another

27:33

great Buffett quote on career advancement is, quote,

27:36

People ask me where they should go to work, and

27:38

I always tell them to go work for whom they

27:40

admire the most. It's crazy to

27:42

take a little in-between jobs just because they look

27:45

good on your resume. Do what you

27:47

love and work for whom you admire the

27:49

most, and you've given yourself the best chance

27:51

in life that you can. Unquote. This

27:54

advice is very powerful for maybe people who are

27:56

working in a job that they're not super passionate

27:58

about. Even if you are doing a

28:00

job that isn't your dream job right now, you

28:02

can still learn a lot from your superiors if

28:04

they are people that you admire. Additionally,

28:06

you can learn a lot from working for

28:09

them and hopefully you can leverage that wisdom

28:11

into future opportunities. John Sephora

28:13

writes that, quote, a purpose

28:15

is a goal or aim, especially one

28:17

that transcends selfish ends. A

28:19

purpose for wealth beyond hoarding it is

28:22

vital to sustain the ongoing persistence

28:24

needed to acquire it, unquote. The

28:27

wealthy gardener also believes that our lives need

28:29

purpose and if we have that purpose, we

28:31

can have that dogged persistence that helps us

28:34

acquire wealth. Whether you work

28:36

for yourself or on an employer, you need

28:38

to understand that rewards will be earned by

28:40

the value you give. Rewards

28:43

are simply not given away. Earl

28:45

Nightingale said, quote, one thing I

28:47

do know for sure is that your rewards in

28:49

life will be an exact proportion to your human

28:51

services. If you want more

28:54

rewards, you'd better throw more logs on the

28:56

fire in the form of more service, unquote.

28:58

Sephora adds, quote, we need to

29:00

offer more services or we may need

29:03

better strategies, more training, or even a

29:05

new career altogether to produce more heat

29:07

from the same fire, unquote. It's

29:10

essential that we try not to put off

29:12

our purpose for too long. Otherwise, we

29:14

can live our entire lives with minimal

29:16

purpose. John Sephora talks about

29:18

a friend he had named Greg. Now

29:21

Greg shared his dream of returning to Florida one

29:23

day with John. He'd lived there before,

29:26

but now he had a bunch of

29:28

responsibilities, a family, mortgage, three

29:30

cars, a job. He could

29:32

no longer pursue his dream of getting back to

29:35

Florida because he didn't want to uproot his family

29:37

and his life. Now John had

29:39

maintained this friendship for over 20 years with Greg.

29:42

Whenever he pushed Greg to move back to

29:44

Florida, Greg would always put it off, saying

29:46

someday. As his children had

29:48

all graduated and had little else holding him back from

29:50

living his dream, John unfortunately just

29:52

stopped asking about it. John writes, quote, in

29:55

the end, Greg was unable to pull the

29:57

trigger and he just kept going to work

29:59

each day. while the dream

30:01

slowly faded and died. The days

30:03

passed and turned into years. Few

30:06

of us can accept the pain of saying no to

30:08

our dreams. So we cleverly

30:10

deceive ourselves with the thought of going

30:12

for it someday. Someday

30:14

is an excuse to avoid the

30:16

immediate discomfort and anxiety of change.

30:19

Someday leads to passive inaction so

30:21

the regrets of abandoning our dreams

30:24

are not immediate." Now

30:26

I think this is just a great

30:29

wake-up call to avoid complacency. As the

30:31

great Andy Grove once said, success breeds

30:33

complacency, complacency breeds failure, only

30:35

the paranoid survive. Once

30:38

we have established a purpose, we will

30:40

encounter yet more problems. This

30:43

problem is one of trying to obtain one

30:45

of the hardest intangibles a person in the

30:47

financial world can possess. This is

30:49

patience. Along John Sephora's

30:51

journey to financial independence, he wrote,

30:54

quote, To accumulate wealth, I

30:56

adopted the conviction with an attitude

30:58

of patience. I'll pay any

31:00

price for as long as it takes

31:02

so that my daily efforts have time

31:04

to compound into meaningful and life-changing crusades,

31:06

unquote. For all listeners who wish

31:09

to accumulate wealth, the lesson here is simple. You

31:11

must decide what price you will

31:14

pay to achieve financial freedom. For

31:16

those of you thinking that you can succeed

31:18

in any endeavor without paying a price, I'll

31:20

challenge you to seriously rethink that. In

31:23

the psychology of money, Morgan Housville has an

31:25

excellent example of the price we pay to

31:27

succeed in the stock market, quote. Now

31:29

here's the important part. Like the

31:31

car, you have a few options. You

31:34

can pay this price accepting volatility and

31:36

upheaval, or you can

31:38

find an asset with less uncertainty

31:40

and a lower payoff, the equivalent

31:42

of a used car. Or you can

31:44

attempt the equivalent of a grand theft auto.

31:47

Try to get the return while avoiding the

31:49

volatility that comes along with it, unquote.

31:53

When we look at some of the best investors

31:55

of all time, they paid a price for the

31:57

success that they had. And Robert book,

32:00

The Warren Buffett Way, he explores the

32:02

super investors of Buffettville. These

32:04

five super investors were John Maynard

32:07

Keynes, Warren Buffett, Charlie Munger, Bill

32:09

Ruane, and Lou Simpson. All

32:11

five of these investors ran concentrated

32:13

long-term funds and were very, very

32:15

successful. However, this success came

32:18

at a cost. Other than Buffett,

32:20

all these investors underperformed the index about a

32:22

third of the time. Other

32:24

than Buffett, they each had multiple years of

32:27

underperforming the index. Lou Simpson only had one

32:29

consecutive year but the rest had two or

32:31

more. Lastly, besides Buffett, they

32:33

all had a worse relative performance than

32:35

the index in various years ranging between

32:38

negative 15% and negative 37%.

32:41

If you decide to clone the tenets of

32:43

Warren Buffett and decide to invest in a

32:46

concentrated way, you will have to make sacrifices

32:48

for your portfolio's long-term success. But

32:50

even if you choose to go the diversified

32:52

way of holding index funds, there's still a

32:54

price to pay. As Hausl

32:56

muncheons above, to succeed at index investing,

32:59

you have to pay the price of

33:01

a withstanding volatility. If you can

33:03

do this, you'll make 8-10% returns that the S&P 500

33:06

offers. If you decide not to

33:09

pay the price, you will not earn the

33:11

rewards. It's just that simple. And this is

33:13

what most investors do. In Morningstar's

33:15

Mind the Gap 2023 report, they

33:17

reported that over the last decade, the index has

33:19

returned 7.6%. However, investors had

33:23

only compounded their capital at 6%

33:26

per year. So what explained

33:28

this underperformance? It's quite

33:30

simple actually. Investors chose impatience and

33:32

overactivity which resulted in leaked returns

33:35

versus the index. Now,

33:37

in the summary part of the Wealthy Gardener,

33:39

the 8th lesson is patience. The

33:41

Wealthy Gardener writes, quote, after

33:44

my money once vanished and risky investments

33:46

with the promise of high returns, I

33:48

never again lost money due to impatience.

33:51

As my patience matured, I gained

33:53

a reverence for 5-year intervals, unquote.

33:56

So you can see here that even the Wealthy Gardener,

33:58

who was by no means a The

34:00

master investor used these longer periods

34:02

to evaluate potential investments. Instead

34:04

of trying to make a buck as quickly as possible, but

34:07

running the risk of financial ruin, he simply

34:10

looked at which investments would yield the best

34:12

results in a five-year time period. The

34:15

wealthy gardener sums up the savings and investing

34:17

portion of wealth building very well saying,

34:19

quote, saving money must be

34:21

urgent and that investments must

34:23

be given patience without interference

34:25

or meddling, unquote. I

34:27

remember listening intently to William Greene's Richard

34:29

Weiser Happier episode number 35. Where

34:32

is guest? Chris Davis discussed the concept of 30,000

34:34

days. And

34:37

before I forget, since we were talking about

34:39

it right before we got on, talk to

34:41

me about this idea of our

34:44

30,000 days because it's such a beautiful idea and two

34:46

hours from now I'm likely to have forgotten that we

34:48

talked about it. So discuss the

34:50

significance of this before we get started on anything

34:53

else. Well, I'm

34:55

going to start...I'm going to go back to my days

34:57

as an accountant because this is actually when I first

34:59

sort of started thinking about it. I'm not much of

35:02

a birthday celebrator. But

35:05

one of the things I'm particularly struck by is the

35:07

ones that are hallmarks tend to be tied to,

35:09

you know, 10, 20, 30, 40,

35:11

50, 60, so on. Not

35:15

a lot of life changes around those

35:18

sort of random decades. And

35:20

when I was working back at State Street as

35:22

an accountant, I had the worst

35:24

job, which is I had to...one part

35:27

of my job was to calculate the

35:29

NAV of money market and bond funds.

35:32

And that meant accruing the interest by

35:34

the day. And so, you

35:37

know, Lotus 123 had just come

35:39

out. And

35:43

so I was using that to write a little

35:45

program to make it easier to calculate bond interest

35:47

and count all the days and so on. And

35:50

when I was testing it, I put in my own birthday and ended

35:52

up I was at the time something like 9,500 days old.

35:57

And that was sort of the genesis of this

35:59

idea where... I started thinking, you know, we live about

36:01

30,000 days or generally have

36:03

30,000 really productive

36:06

days. And our

36:09

life divides much more naturally

36:11

on the 10,000 day increments. So

36:15

after 10,000 days, you're about 27 or so,

36:17

28, somewhere in there. And

36:20

you often think that first 10,000 days

36:23

is about going wide, experimenting,

36:25

trying new things, new places,

36:27

new professions, new people, new

36:29

towns. It's a time of

36:32

exploration. And

36:34

21 years old doesn't capture it or 20. And

36:36

by the time 30 comes around, usually

36:39

you're already into what I would call

36:41

that second phase of life. So right

36:43

around 10,000 days, I then

36:46

usually, on average, people have decided

36:48

what they want to do, where

36:51

they want to do it, who they want to do

36:53

it with. And instead of going wide

36:55

as they have for the first 10,000 days,

36:57

it's about going deep. You

37:00

know, just the depth of relationships

37:02

that comes through marriage, through family,

37:04

through your vocation, your profession, your

37:07

colleagues. You sort of have 10,000

37:09

days to execute, 10,000 days

37:11

to accomplish and

37:14

build what in many ways will

37:16

be the sort of monuments of

37:18

your life, your family, your kids, your

37:20

profession. And then right around 55,

37:22

56, 50, somewhere in this 50s range,

37:24

what would happen? Your

37:29

kids are grown and beginning to leave.

37:32

What you've achieved professionally is fairly settled.

37:34

And in a funny way, it lifts

37:37

an enormous weight off many people. I think it's

37:39

one of the reasons people actually end up growing

37:41

happier as they get to their 50s, 60s, 70s.

37:45

Because you're in a time when you can, in

37:47

a sense, go wide again. You have

37:50

more perspective. You have less of that urgent

37:52

depth of the day to day. So anyway,

37:55

I know when we started talking, we were

37:58

talking about this idea of both sort of... of

38:00

completing maybe our second 10,000 days

38:03

and now looking at how we

38:05

think about this next 10,000, this

38:07

chapter that sort of gets us from here

38:09

until, you know, around in our 80s. And

38:13

how does this affect the way that you're actually

38:15

living? Like, what is this awareness

38:19

of these three phases do to your

38:22

view of how to

38:24

behave and what to focus on and

38:26

what you're actually optimizing for at this

38:29

point? Well, this sort

38:31

of ties in with how I think about investing.

38:33

There's so much of it is about

38:36

anticipation and preparation. So,

38:39

I think a lot of people go through unhappiness

38:41

in their 30s, in part because

38:43

they're sort of thinking, where did my

38:45

youth go? I used to be able

38:47

to do all these different things and

38:49

now I'm tied down. And if instead

38:51

you have this mindset, you really look

38:53

forward to that, the privilege of being

38:55

able to go so deep to concentrate.

38:58

And I think how it's affected me thinking about

39:00

this next 10,000 days is

39:03

a little bit about this idea

39:05

of inverting it and thinking about

39:07

what would stand in the way

39:10

of this 10,000 days being a

39:12

very enriching time of life. And of

39:14

course, health is one of them. So,

39:16

it becomes as you think about going

39:19

into this next third, it becomes a

39:21

time where you think a lot about

39:23

taking care of yourself. You think about

39:25

investing in relationships. When you're raising a

39:28

family, when you're in the office every

39:30

day, when a lot of your life

39:32

and your social life are structured for

39:34

you, as you get to the next 10,000 days,

39:38

people can lose touch. So,

39:40

I think it's also been a time when I've

39:43

really invested in maintaining

39:46

invigorating, revisiting relationships,

39:51

deeply getting to know my children's

39:53

partners and spouses, making

39:55

sure that there are aspects

39:58

of friendships as people... You know,

40:01

we may get to this, but the

40:03

idea of retiring has no appeal to me.

40:05

I mean, I love what I

40:07

do. It always seems startling to me that

40:09

we get paid so well for studying something

40:12

so interesting. And it should

40:14

be a profession where we get better

40:16

over time, provided we're not creating behavioral

40:19

and psychological roadblocks. And

40:23

if that is the case, I would like to

40:25

continue as long as I could.

40:27

But of course, I also recognize that that's

40:29

not the same for many of my closest

40:32

and oldest friends. And so

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as they contemplate retirement and moving and

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going to different places, you know, old

40:38

patterns can dissipate. So I think it's

40:40

a time to really invest in being

40:43

prepared for this sort of exciting chapter

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that's in front of us. And

40:47

it may not end very well, but 10,000 days

40:50

is, you know, it's a

40:53

long time. And so I think

40:55

it certainly has, you know,

40:57

impacted how I think about preparing

40:59

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44:35

me loop this fundamental lesson from the

44:37

wealthy gardener, which is how he separates

44:39

his three seasons of wealth building that

44:41

align well with what Chris Davis discussed.

44:44

In a part of the wealthy gardener, he's

44:46

talking with his neighbor's son, Jared, about planting

44:48

an acorn that has grown into a tree.

44:51

Quote, the tree is a total loser,

44:53

said the wealthy gardener. Acorn oaks live to

44:55

be 200 years old on average,

44:57

but so far, this pathetic tree has

44:59

only managed to grow tall, survive the

45:02

winters, and develop extremely deep roots. Jared

45:05

understood. It hadn't produced much yet. And

45:08

isn't it interesting, asked the wealthy gardener. The

45:10

tree hasn't produced much yet, but it's right

45:12

on schedule. You must be aware of the

45:14

seasons of your life. When

45:16

it comes to wealth, there are seasons and cycles,

45:19

just as there are seasons for the growth of

45:21

a great tree. You're being too

45:23

hard on yourself at your stage of life. You're

45:26

just entering the summer season of prosperity.

45:29

What's the summer season? It's the

45:31

middle phase of your financial life cycle, said

45:33

the wealthy gardener. At 32, you

45:35

are leaving the survival season and entering

45:37

the accumulation season. I never said that

45:40

your life was pathetic, but I did intend to wake

45:42

you up. You need to focus

45:44

on your direction and use your potential. You

45:47

may now be entering the summer season, but

45:49

unlike a tree that grows on its own,

45:51

your wealth tree is happy to not grow

45:53

at all." I

45:55

found this part about the three seasons of wealth building to be

45:57

a really good mental model of how we go about our lives.

46:00

through life. Sephoric talks about the

46:02

three seasons of spring, summer,

46:04

and fall. The first season is

46:06

spring, where we learn to survive. During

46:09

this season, our minds are malleable and most

46:11

of what we have learned about money, our

46:13

ideas pass down from our immediate family. And

46:16

near the later part of this season, we

46:18

start to become more educated and gaining life

46:20

experience in the workforce. We

46:22

learn to be adults and all the responsibilities

46:24

that come along with that, such as paying

46:26

rent and taxes, using bank and credit cards,

46:29

creating budgets, etc. John

46:31

adds, quote, we find spending to be

46:33

thrilling at times, but we learn that

46:35

it has decreased financial stability. During

46:38

the spring of our financial life cycle, the

46:41

future is bright with an expansive time

46:43

horizon. In the spring,

46:45

optimism is highest, unquote. Next

46:48

comes the summer season. Here, we

46:51

begin accumulating more money. We've

46:53

lost some of the youthful optimism and idealism

46:55

we once had. Instead of spending

46:57

our money as fast as it comes in, we

47:00

begin to see that our futures need to

47:02

be addressed somehow. We probably

47:04

have more purchasing power and higher income since we've

47:06

now been in the workforce for a few years.

47:09

We start needing money not just to take care

47:11

of ourselves, but also our family. This

47:13

aligns with being middle-aged or Chris Davis' middle

47:15

10,000 days. Lastly

47:18

is the fall. Here, we

47:20

reap what we have sown during the summer. If

47:23

we take care of our finances, we

47:25

can see that financial independence may be

47:27

an imminent option. Our lifestyle

47:29

in the fall period will reflect what we

47:31

have done in the summer period. Were

47:34

we able to make sacrifices and accumulate the

47:36

funds needed to fuel our desired lifestyle? Or

47:39

were we more focused on satisfying our

47:41

immediate urges? This will show

47:44

up in the lifestyles that we get to live in the

47:46

fall season. In the worst case

47:48

scenario, we may have to continue working during the

47:50

fall season to continue finding the lifestyle that we

47:52

have become accustomed to. As

47:54

we go through each season, one important part

47:56

of life is setting ambitious goals for ourselves.

48:00

Acting on goals, the wealthy gardener said,

48:02

quote, I expanded the borders

48:04

of the garden, said the wealthy gardener,

48:06

by expanding the boundaries of my mind.

48:09

Few goals are impossible for someone

48:11

who will devote time to lifelong

48:14

learning and continual self-mastery, unquote. Now,

48:17

this resonates incredibly well with me. I myself

48:19

am on a long-term journey of trying to

48:21

learn more. I have no idea

48:23

if self-mastery can ever be achieved. The

48:26

more I read, learned, and experienced things,

48:28

the less intelligent I felt. It's

48:30

like the opposite of the Dunning-Kruger effect. The

48:33

part of this quote that really resonated with

48:35

me was about expanding the boundaries of the

48:37

mind. Now, I'm not trying to get all spiritual

48:39

with you, don't worry, but I do

48:41

think that there is something to be said

48:43

about attempting to push ourselves past our limitations.

48:46

If we use goals that make us

48:48

feel slightly uncomfortable, you'll know you're pushing

48:51

yourself and expanding the horizons of your

48:53

mind. When you mix that

48:55

with the ability to sleep a little wiser

48:57

each night, like Charlie Munger used to say,

48:59

you open yourself up to accomplishing some astronomical

49:01

things. The quote above

49:04

refers to the wealthy gardener talking about how

49:06

he grew a small garden into the massive

49:08

one that he developed over time with a

49:10

ton of hard work. In terms

49:12

of finances, there are all sorts of goals that we

49:14

can set for ourselves. One, a

49:16

target sum of money at some point in the future. Two,

49:19

a monthly savings goal. Our

49:21

financial goals should be aligned with our investing

49:23

goals. If we want to

49:25

reach a target of X dollars in 20

49:28

years, then our investing actions should move us

49:30

towards that goal. If you're

49:32

making investments that are more likely to go

49:34

to zero, then increase in value, then you're

49:36

investing in financial goals are not aligned. Investing

49:39

goals might be something like making a target

49:41

rate of return. For instance, you might have

49:43

the goal of doubling your money every 5 years, meaning you're looking

49:45

for a 15% rate of return. But

49:49

no matter what goal we have, our actions and

49:51

decision making should focus on producing that return. This

49:54

is a problem that I think

49:56

many investors have. They continually make

49:58

decisions that self-sabotage. their goals. For

50:01

instance, they may say they are long-term investors

50:03

that repeatedly try to time the market or

50:06

being impatient with the socks they hold in their

50:08

portfolio because the price won't move and making silly

50:10

decisions as a result. In the

50:13

book, An Investing Thinking Toolbox, Daniel

50:15

Jung wrote, If

50:17

the goal is to sell the portfolio in

50:19

20 years and not a single day earlier,

50:21

does it really matter if an increase in

50:23

price like a straight line swung up and

50:25

down like an upward-solting sinus curve, went

50:27

way over the target in the short run and dropped

50:30

to your end goal in the end or the other

50:32

way around, if the end result is

50:34

the same." When

50:36

it comes to work goals, there are simply

50:38

too many variables. You'll know your own unique

50:40

situation and hopefully you have some answers on

50:42

how you can continue finding purpose in whatever

50:44

you do and growing your income at the

50:46

same time. One part of

50:49

goal setting that I think is vitally important

50:51

is the concept of lifestyle creep. This

50:53

is where the goal post we set for ourselves

50:55

continues moving. In the Psychology of

50:57

Money, Morgan Housl said, The

50:59

hardest financial skill is getting the goal post

51:01

to stop moving. If

51:04

we continue to move that goal post, we

51:06

are setting ourselves up for failure because chances

51:08

are we'll never be satisfied with what we

51:10

have. The beautiful part about

51:12

goal setting is that once we understand

51:14

the effects of compounding, we realize that

51:16

our goals can be amplified on an

51:18

exponential scale rather than linearly. An

51:22

oak tree grows two feet in a

51:24

year, said the wealthy gardener, and the

51:26

change is barely perceptible. But after

51:28

five years, the oak will have advanced its cause

51:30

by 10 feet. People

51:33

want to be mighty oaks without a stretch of time

51:35

and that's not the way nature works. Every

51:38

worthwhile reward or mastery of

51:40

a skill grows over many

51:42

years. The

51:44

point here on how changes over short

51:46

periods are barely perceptible is a strong

51:48

point to consider when looking at your

51:50

wealth. I think many listeners in

51:52

the audience will have a pretty good grasp of

51:55

compounding. But for those who don't, here's just

51:57

a quick lesson. If you save 500k today, and

52:00

don't invest it, then 35 years from now,

52:02

you will still have 500K in your bank

52:04

account. But if we can

52:07

compound your money, that number in 35

52:09

years changes drastically. If we

52:11

compound it at 10%, our money will double every 7

52:13

years. That means our money

52:15

doubles 5 times over that

52:17

35-year timeline. Our 500,000 goes to 1

52:20

million, then to 2 million, then to 4 million, then 8 million,

52:22

and finally doubles

52:25

once more to 16 million.

52:29

Would you rather have 500K or 16 million? The

52:32

answer is obvious, but you'll only be

52:34

offered the opportunity to reach that number

52:36

if you understand the powers of compounding.

52:39

Another vital point about compounding is that it

52:42

works best over long time periods. We

52:44

only have so much time on this earth. In

52:46

the above example, I said it was 35

52:48

years later. But let's say we don't

52:50

have another 35 years. Let's say we only have

52:52

21 years. In that case, then

52:54

our wealth is only going to double 3 times and we

52:56

are left with 4 million. This is

52:59

why saving and compounding from an early age is

53:01

so powerful. But it's also more challenging

53:03

as the wealthy gardener discussed in the three seasons.

53:06

The spring season is when we don't have a lot

53:08

of money and spend a lot more time thinking about

53:10

the present over the future. But

53:12

you can get some truly magical results for

53:14

the lucky few who do understand compounding from

53:16

an early age. An easy

53:18

example is Warren Buffett, who has been compounding money

53:21

in the stock market since the age of 11.

53:24

But he learned a lot about compounding even before this

53:26

age. Robert Hagstrom in Inside

53:28

the Ultimate Money Mind wrote, quote, from

53:30

an early age, Warren was taught the

53:32

benefits of compound interest. More

53:35

important, he experienced the benefits of a

53:37

compounding machine firsthand when he took the

53:39

earnings from his various jobs and plowed

53:41

them back into his little business enterprise,

53:43

unquote. Of course, it would be

53:45

great to be so lucky, but very few of

53:47

us have the mental makeup of Warren Buffett. So

53:49

starting that early isn't a possibility unless you have

53:51

a time machine. For the rest of

53:53

us without a time machine, the best thing you can do

53:55

is start today. So a key

53:57

concept to understand while we compound. our money

54:00

is going to be risk. So

54:02

a key concept to understand while we compound our

54:04

money is the concept of risk. Why

54:07

is risk so significant? Because

54:09

if we accept too much risk, we

54:11

also expose ourselves to the potential

54:13

problem of unnecessarily interrupting compounding. And

54:17

as we know from the explanation above, we

54:19

do not want to interrupt compounding. To put

54:21

it more eloquently, Charlie Munger said, quote, the

54:23

first rule of compounding, never

54:26

interrupt it unnecessarily, unquote. So

54:28

where does risk play into this equation? Let's

54:31

look at risk to the lens of our savings and

54:33

our investing. We always have to face risk.

54:35

The first risk we must consider is the

54:37

risk of lifestyle creep. I've already

54:39

discussed this, so I won't go deep into it. But

54:42

if we are in a career where we can

54:44

increase our salary, the risk here in terms of

54:46

building wealth is that we are unable to avoid

54:49

increases in our expenses at the same rate that

54:51

our income rises. So let's say someone

54:53

has a savings rate of 0%. They

54:56

get a raise at work of 20,000, then decide to spend $20,000 on the downpayer

55:00

for a new vote. They haven't gotten any wealthier.

55:02

Their savings rate is still 0% and they

55:05

aren't contributing to the compounding machine. So

55:07

we can look at Marcus Aurelius to help here. Quote,

55:10

treat what you don't have as

55:13

non-existent. Look at what you have, the

55:15

things you value most, and think of how much you'd

55:17

crave them if you didn't have them. But

55:19

be careful. It feels such

55:21

satisfaction that you start to overvalue them, that

55:24

it would upset you to lose them, unquote.

55:27

Now I think the primary lesson from Aurelius is

55:29

that at some point in our lives, we must

55:31

be content with what we have. If

55:33

we are content with what we already have,

55:36

then any additional incremental increases in income could

55:38

theoretically be added to our savings rather

55:41

than buying additional material objects. In

55:44

that sense, we are still living a very

55:46

fulfilling life with what we already have. But

55:49

we can now increase our ability to save

55:51

and decrease our risk of allowing lifestyle creep

55:53

to eat away at potential savings. Now

55:55

let's move on to broadly discussing risk on

55:57

the investment side of things. Sephoric

56:00

writes, quote, Peter Bernstein expressed a sentiment

56:02

that should be written down and hung

56:04

on every investor's wall. Maximizing

56:07

return is a strategy that makes sense

56:09

only in very specific circumstances. In

56:12

general, survival is the only

56:14

road to riches. Let me say that

56:16

again. Survival is

56:19

the only road to riches, unquote. Now,

56:22

I love the focus on survival. Without

56:25

the ability to survive in the markets

56:27

for decades, you will never accumulate enough

56:29

wealth to become financially independent. So,

56:32

every move that you make with

56:34

your investments, whether they are private

56:36

businesses, stocks, index funds, mutual funds,

56:38

bonds, alternative assets, etc., should always

56:40

account for risk. And when

56:42

I'm referring to risk, I'm referring to the

56:45

risk Buffett discusses, not what is taught in

56:47

portfolio management theory. Robert Hextram

56:49

in the Warren Buffett way writes, quote,

56:51

Warren Buffett has a different definition of

56:53

risk. For him, risk is

56:55

a possibility of harm or injury. And

56:57

that, he says, is a factor related

56:59

to the intrinsic value of a business,

57:02

not the ongoing short-term price

57:04

behavior of the market, unquote. So,

57:07

this is just an important distinction we must all

57:09

make while investing. Over the short

57:11

term, we may get scared by the drops in prices

57:13

of our stocks or index funds. But

57:16

the fact is, the price will often drop or

57:18

go up and intrinsic value hasn't changed that much

57:20

in the short term. But we must

57:22

accept this as part of the benefits of

57:24

investing in public equities. The

57:26

forex summarizes how we can find safety

57:29

in our investing strategy. Quote, Once

57:31

you've deployed a simple strategy, the risk

57:33

of investing becomes more about bad behavior.

57:36

Risk is the result of impulsiveness

57:38

under the threat of fear or

57:40

temptation of greed. Safety

57:43

requires not selling when the stock market

57:45

tanks and not getting greedy when others

57:47

outperform your steady returns, unquote.

57:50

So once we execute our simple strategy

57:53

of saving, investing, and waiting, a

57:55

time will come when we are financially independent.

57:58

Now, this term can mean different things. to

58:00

different people. When I spoke with J.L. Collins

58:02

about financial independence, he said

58:04

that financial independence does not mean you have

58:06

to quit working. It means you

58:08

have the option to do so if

58:11

you want. This is what I

58:13

find so fascinating about financial independence. There's no

58:15

dictionary definition that you have to follow. It

58:17

can really mean whatever you want it to.

58:19

The wealthy gardener has his own thoughts on financial

58:22

independence. What's

58:24

even better than social security is

58:26

self-sufficiency. You can't be secure

58:28

when you're dependent on others or even

58:30

the government. I gave my early

58:32

life to gain the freedom I've enjoyed in my later

58:35

years. Now, I think

58:37

he's kind of echoing J.L. Collins' sentiments here.

58:39

Financial independence is self-sufficiency. Once you're

58:42

self-sufficient, you never have to depend

58:44

on another person or entity to

58:46

be secure. If

58:48

you are listening to this and have decided that

58:50

you want to become financially independent, all you need

58:53

to know is how much wealth you need to

58:55

accumulate to be self-sufficient. The wealthy

58:57

gardener simplifies it here. When

58:59

your investments pay more than you can earn at

59:01

your day job, then you will drink a freedom

59:03

that few will ever taste." This

59:06

last section I want to discuss in the

59:08

book is on debt. I saved this part

59:10

for last because debt is probably the biggest

59:12

parasite on wealth creation. If you

59:14

wish to become self-sufficient, part of that is to

59:16

avoid being indebted to anybody else. Debt

59:19

is a direct obstacle to that goal.

59:22

The forex writes, quote, there

59:24

is no worse enemy for our profitability

59:26

than debt. And without

59:28

profits, there is nothing to save and

59:30

no hope for wealth. Debt robs the

59:33

future to pay for the wants of

59:35

today, unquote. Now, that final

59:37

sentence is really the key. Curling

59:39

back to what I discussed on

59:42

sacrifice, indiscriminate debt sacrifices our future

59:44

for the wants of today. Remember,

59:47

we must always sacrifice

59:49

something on our journey

59:52

towards financial independence. Reaching

59:54

financial independence requires the judicious use

59:56

of debt. Getting into more useful advice,

59:58

it means doing things like pay for the debt. paying down

1:00:00

your credit card immediately before any interest

1:00:02

is incurred. If you have debt,

1:00:04

you're best off paying that off first and then saving

1:00:07

second. Debt also utilizes

1:00:09

compounding but in the opposite

1:00:11

direction. Let's say you have $20,000 of credit card

1:00:13

debt at 20% interest. This

1:00:16

means you owe $4,000 each year before you

1:00:18

even pay your principal back. Many

1:00:20

people have a principal that is so high that

1:00:22

they are forced to pay interest on their debt

1:00:24

for many years into the future or even

1:00:27

forever. Impressive compounding is

1:00:29

most dangerous when your principal continues

1:00:31

going up unabated. Once

1:00:33

this happens, you have a leak in

1:00:36

your ability to accumulate wealth. If

1:00:38

you can't afford to pay the $4,000 in interest,

1:00:40

your principal is now $24,000 and the

1:00:43

interest on that is now $4,800. So

1:00:46

these interest payments and your principal can continue to go

1:00:48

up as you spend more money. They can

1:00:50

get to a point for some people where they will

1:00:52

never have enough money to pay anything more than the

1:00:54

interest payments on their debt. When

1:00:57

this happens, you will never reach financial

1:00:59

independence. I'll let the wealthy

1:01:01

gardener sum up his thoughts on debt. Quote,

1:01:03

if you ever want financial freedom, break free

1:01:05

of debt. It is the

1:01:07

slave master in a free society, the

1:01:10

obligator of drudgery. Debt robs

1:01:12

the future of time and money. It

1:01:14

chains the worker to wages. Unquote.

1:01:17

And that wraps up today's episode. Thank

1:01:19

you for joining me and I look forward to catching you on

1:01:21

the next episode. Take care. Thank

1:01:23

you for listening to CIP. Make

1:01:26

sure to follow We Study Belly Mares

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1:01:35

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1:01:39

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1:01:41

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