9 Principles to Achieve FI Series 3 of 3 | Military Money Manual Podcast Episode 5 Show Notes

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Military Money Manual Podcast Episode 5 Transcript

[00:00:00] Jamie: Welcome to another episode of the military money manual podcast. I'm Jamie. 

[00:00:04] Spencer: And I'm Spencer. 

[00:00:06] Jamie: And today we're going to finish up part three of our series of nine money principles to live your life by. 

[00:00:11] Spencer: So today we're going to go over three of the principles, the last three, seven, eight, and nine. Those principles are keep your investments low cost, automatic, diversified, and simple, or like I rebated in the book, “LADS”. That's one of the principles we're going to talk about today. We're also going to talk about principle number eight: spend your money on what matters most to you. Which is something that at any income level, we need to be reminded about. And then principle number nine: buy income producing assets, which gets back to principle number seven as well, which is keep your investments low cost, automatic, diversified, and simple. Jamie, do you want to go over the first six principles that we went over the last two episodes? 

[00:00:48] Jamie: This is part three so if you haven't listened to part one and part two, as much as we are grateful you're here with us today, you should stop, go back, and listen to part one and part two first. But quickly let's review the first six principles that we talked about previously.

The first one: spend less than you earn. It is pretty basic, but a lot of people have to be reminded about that, and that really impacts your financial abilities and status as well. Number two: don't accumulate debt. Number three: pay down your high interest debt as soon as possible. Number four: save a three-month emergency fund. Number five: maximize your tax advantage retirement contributions. Then the last one we've covered so far, number six: remember that savings rate beats investment return, and all these are coming out in the book, which I'll turn it over to you, Spencer, to talk about that.

[00:01:34] Spencer: So been working on this book- actually published I would say the first draft on Amazon back in 2017. It was called “The Intelligent Military Investor” back then. Since then, I've been working with this really awesome editor and we're going to self-publish it. The files went to the printer today, August 28th, 2021. Hopefully we'll have hard covers printed and available for purchase by Thanksgiving of this year. A little bit delayed if you listen to some of the previous episodes. I think I promised an in August release date, but I've definitely learned a lot about the publishing industry since going through this process and the new book is completely revised. 

It's had a lot of great feedback from beta readers, my editor, from Jamie, you were one of the first people to get a look at it. I'm really excited. I'm really happy with the way the book turned out and the cover looks beautiful. I've seen the mockups and I think it's going to be a really nice addition to anybody's library, any military service member who's interested in achieving financial independence sooner rather than. 

[00:02:36] Jamie: It's a really good book, easy to read, short and quick read, and it looks sharp too. It's just a lot of practical wisdom in there. Remind us again where we can find that and where we should be looking for it?

[00:02:48] Spencer: The best place to find it, you can actually go pre-order it right now on “militarymoneymanual.com/book. You can pick up a pre-order eBook, audiobook, hardcover book, or the best deal is you can get all three versions for a really good price directly through my website. And then for those of you who want to support our corporate overlords, it will be available on Amazon as well eventually. But the best place to get it right now is on “militarymoneymanual.com/book.” 

[00:03:21] Jamie: That's great! We're really looking forward to that and excited for that. Let's dive in now to the last three principles in our part three series number seven. 

[00:03:32] Spencer: Number seven: keep your investments low cost, automatic, diversified, and simple. One of my beta readers had the great feedback when he was reading through this was “you can make an easy-to-read acronym that LADS.” I thought that was pretty cool, so I went with that in the book. We'll take them one at a time and these are just investment principles and principles of investing that if you read just about every single investment book out there, they're all going to boil down to essentially these four concepts. One thing that you'll find when you do the deep dive research into books like “A Random Walk Down Wall Street,” or “The Little Book of Common Sense Investing” by Jack Bogel, or you look at any of the research of passive versus active mutual funds, is that the lower you can keep your costs, the better your investments perform. And that's just because of the sheer mathematical reason that when you have higher costs, that means your gains are going to- the person selling you or managing the product for you, the investment for you.

[00:04:34] Jamie: Wait, so you're saying that a fairly expensive fund at an expensive firm with a lot of overhead does not generate more income?

[00:04:43] Spencer: Yeah, actually. If you look at the bet that Warren Buffet did in 2008 or 2007, he bet a group of hedge fund managers on a simple S and P 500 index. So, you think of SPY it’s one of the big ones or at Vanguard it's VOO. An index fund like that, where it just has the largest 500 companies in America- all the companies you've heard about- Microsoft, Apple Google, Tesla, and you just take a fund that doesn't actively buy sell or trade, it just invests in those 500 companies over a 10-year period after fees. The S and P 500 fund would do better than the hedge funds and that's exactly what happened.

 In fact, it was so bad that the hedge funds called the bet off after eight or nine years. They didn't even get to the full 10 years just because the S and P 500 was averaging 13% a year. Now it was right after the 2008 stock market crash, so it was a really good time to be invested in the S and P 500. But if the simple index fund is making that return the hedge fund should have been making even more. But at a hedge fund, for instance, most of them do a fee structure called two and 20 where they have 2% of your invested assets are taken its fees every year and then 20% of your profits. That's just insane to me. I don't know why- I do know why a lot of people invest in there is because sometimes they do have pretty good returns and it sounds sexy, but at the end of the day, it's been proven time and time again that the low-cost simple index funds. Tend to outperform the actively managed funds. 

[00:06:19] Jamie: So, people might look at a one in a million person who- there might be someone out there that beats the stock market, but it's probably not you. And the likelihood of you getting wealthy off of relatively safe index fund investing compared to you, trying to time the market pick the next big Amazon, or Netflix, or Game Stop or whatever else is not likely that you're going to pick well. But if you just do the index fund, you will succeed and it might not be as sexy as you said, you might not get 4000% returns like you might on a big risk investment, but you're going to do well in the long run. 

[00:06:54] Spencer: It's like that book that we just recently read “Psychology of Money,” where Morgan Housel, the author was saying, “I can afford to be an average investor but I can't afford to be a below average investor.” and when you buy the index funds, you're guaranteed to make the average market return, because that's all an index fund can do. Is just returns the average market. But if you look at the average return for the average investor over the past couple of years, it's averaged 3% or 4% when the stock market has done 7% or 8%. And so, you have to wonder, why is the average investor not even meeting the average return? And that's because they're making dumb decisions, they're buying high and they're selling low and they're not buying and holding the low-cost stock market index. 

[00:07:40] Jamie: So, there's a lot of ways that they get you, not just taking a percentage of your profits or a percentage of your annual portfolio. We can talk about ex comparing expense ratios, we can talk about front load fees, and remember even in a down year, if you pay them 1% of your portfolio, even if your portfolio is down 10% that year, they still take 1% of that out, so it just kicks you while you're down. So, there's a lot of ways, even the tax impacts of high turnover in the account, depending on who's managing it and how often they're buying and selling. So, it's just a very consistent way to make it work well at a low cost. 

[00:08:16] Spencer: And that's the thing with the high fees that when I started doing the research and this was something that I picked up when I was still in college, the difference between high fee funds and low fee funds. If you look at the returns that are captured over a 40-year period, if you're paying just 1%, which is like a typical mutual fund, expense ratio per year versus a Vanguard fund or a TSP fund, which is doing 0.05% expense ratio. You're losing almost 30% or 33% of your returns to the fees. You don't think about that initially because you've only got a thousand dollars there or $10,000 in there. So, 1% doesn't mean that much, but compounded over years and years it adds up so fast and it just really- there used to be a great chart and I actually put it in my book from Vanguard where they show the difference between 0.05% and 1% fee. And over a long enough period of time, it starts adding up a lot. 

[00:09:16] Jamie: Think about when we talk about front load fees, some of them are as high as 5% or probably more out there, but five percent's kind of a common front load out there. So, if you have a lump sum of $10,000 to invest in your kid's 529, or retirement account, or generic investment account. You put $10,000 in there and they automatically take that 5%, which would be $500 off the top before they invest it. So, you're automatically losing $500 and then that's $500 less in there to grow with compound interest in them.

[00:09:47] Spencer: The front load fees are just really terrible for the average investor. I think one of the most notorious ones for me is First Command. A lot of military service members have heard of them, and they've had some pretty predatory practices in the past selling wholly unsuitable life insurance products and investment products to military service members. But if you look at a lot of their funds, they have 5% front load fees, that means you have to make 5% right off the top, right off the bat. You're already behind.

[00:10:16] Jamie: So, what are some tangible numbers we should be looking for as we look at a fund? Whether prospectus or a company, what companies should we be looking at and are there a certain percentage where it's unacceptable? Because everything costs something, even the TSP. What are some good numbers or funds companies to look at? 

[00:10:32] Spencer: If you look at the TSP, they publish their expense ratios every year, and it's usually a bit later in the year, summer, and it's the ratios for the previous year. So, it's a bit hard to have a real time indication of what the TSPs fees are. Traditionally, the TSB has been one of the cheapest and lowest expense ratios that you'll see on any fund. I remember when I first came into the military, I think they were 0.03% and they ticked up over the years, another .04 .05. But they say that a lot of that is because of the BRS and some additional paperwork that they've had to do. Still, anything under 0.05% you can basically neglect. It is so minuscule. The difference between 0.04 and a 0.03 is not going to make or break you. However, the difference between 0.05 and 0.25 compounded over 40 years can be a substantial amount of money. 

But a lot of times the .25 .3% Vanguard offers a personal advisory service. And that's at 0.3, percent or 30 basis points and then Betterment which is another popular, robot advisor, you can get that, and they'll build a portfolio for you for .25%. So, with the Vanguard and the Betterment, that's kind of my baseline, the 0.3 .25%. If you have anybody who's helping you pick funds, or is robot advising you that's my benchmark there, if you're paying more than that- I know personal capital is .79% 0.8% that's getting pretty high. I don't know what personal capital is offering that Betterment or Vanguard can't offer, right?

[00:12:04] Jamie: I just looked up the TSP as of today, what's on their tsp.gov, the C fund total expense ratio, which is net admin plus investment is 0.051%. The S fund is a little bit higher .068% so the S fund is the highest at .068% total expense ratio. 

[00:12:25] Spencer: Those are historically pretty low, the Vanguard total stock market index funds, which I talk a lot about my book, but that's the benchmark index fund for me. They have, down to 4.03% on the VTI or the Admiral shares, VTSAX. Anything under 0.1%, it's fine. Fidelity, Schwab, I know Fidelity has some zero index funds, they're probably losing a little bit of money on those, using them as lost leaders, trying to get some more capital over to Fidelity. That's fine. You as the consumer, you're still paying 0% for it, and the Fidelity total stock market index fund is not going to perform that much differently from the Vanguard total stock market index fund. 

[00:13:02] Jamie: So VTSAX we're comparing 0.04% to a 1.25%, or sometimes 3% for an expensive investment advice. So, 0.04 compared to 1.25% or higher.

[00:13:16] Spencer: If you're paying more than a half, a percent, more than 0.50 or 50 basis points, you really have to look at that investment and see, why is your expense ratio so high on that, and what are you getting for it? If it comes with an investment advisor, okay. But maybe you can just hire a fiduciary investment planner for 300 bucks a year, and once every quarter he takes a look at your portfolio and gives you some advice on it rather than- if you went to go buy a car and they said, “okay, you can have this car, but we're going to take 1% of your net worth for the next 30 years.” You would say, you're crazy, that's insane. There's no other product that we buy that's based on how much money you have. 

The TSB, you're pretty safe. There's really nothing you can buy in the TSB that's going to be expensive in terms of expense ratios. And you can see the expense ratios anytime you look at a fund it will have a little column, like in Vanguard, or in Fidelity, or in the TSB, there'll be a place that says fees or expenses and it will have the expense ratio. If you're seeing anything around 0.1%, or lower then you should be pretty good. 

[00:14:23] Jamie: So low cost is definitely important, let's transition over to automatic, and how do we set up our investment to be automatic for us?

[00:14:31] Spencer: The easiest way here, for military service members is you have to do the TSP. You set it up in My Pay or for the Marines, I think it's Pay Net. I can't remember what the Marine Corps calls their My Pay system. But you can set it up right in My Pay and the money comes out and you never even see it, it never hits your bank account, so you don't even miss it. I know a lot of people who, like you and me- were maxing our TSPs. And for me, being in the BRS, I want to stagger my payments so that I max it out by December, so that way I get the 5% match every month. For someone who's not in the BRS, then you can front load it as soon as possible.

And then you have nice fat paychecks for the rest of the year that you can throw into your IRA or taxable brokerage account. The biggest thing there, is avoiding decision fatigue. There's a bunch of psychology studies on decision fatigue- basically the reason they put the high margin items in the grocery store right by the register is because you've already had to make a hundred decisions while you're walking through the grocery store. They figure this out through trial and error, but you can put the highest margin, the gum, a pack of gum is $2, and it costs a penny to produce. By that point you've already made a hundred decisions, and you're tired, and you're like, ‘just throw the gum on there why not?’ It's the same thing at shops these days that use any of those tablets, they present you with the lowest is 18% and then 20%, the 25% tip. And then there's a low bar, where we can customize your tip.

But you've already made a bunch of decisions, you just want to click a button and be done with it. Because decision fatigue is a real thing, you don't want to have to decide every month, how much am I saving this month? You're putting barriers in your own way. If you don't set up automation. If you log into my pay and you set up the money to go into your TSB and you log into your TSB and you say, this is how I want the money invested, and you do that on the first of the year, you don't have to think about your TSB again, until the following year. And even then, if you set your contribution correctly, then you might not have to think about it for a couple years. 

[00:16:33] Jamie: After you've maxed out the TSP, and if you're using an investment account, Schwab, or Vanguard, you can still set up an automatic transfer from your USAA or Navy federal account to automatically transfer over to your Vanguard investment account at the first or 15th of the month. Whenever it makes sense in your budget. So, the TSP is very easy for us, and it can also be applied to your other accounts as well.

[00:16:59] Spencer: And the other thing too is, a lot of people talk about DCA or dollar cost averaging versus lump sum investing. And they say, how does that figure into in an automatic investment strategy where you just set it and forget it. And my response to that is usually, if you look at the research, usually lump sum investing performs better than dollar cost averaging an amount of money in over a period of months. And another question a lot of people have is what about my monthly paycheck? Should I save it up and then invest it all at once? Isn't that lump sum investing? Or am I my dollar cost averaging by investing it every month. The answer there is you're putting it to work as soon as possible if you set it up to automatically invest as soon as you get it. And that's usually the optimal solution in that way.

[00:17:45] Jamie: Maximum time in the market is a big advantage. We got low cost and we have automatic; the next part of the strategy is diversified. 

[00:17:57] Spencer: I read it on a different website, “don't look for a needle in a haystack, just buy the whole haystack.” Diversification can be across different assets; it can be across different stocks. Instead of having all of your net worth in Tesla, so the value of your portfolio swings up and down daily based on what Tesla's doing. Instead of that, you can add a little bit of diversification and buy a share of Microsoft or buy a share of Apple. And before you know it, if you take that argument far enough, then you should just buy an index fund, because now you own every publicly traded company in America. And you can even own most of the publicly traded companies in the world if you do a Vanguard total international stock index fund. The TSP is made up of five different index funds and the life cycle fund, if you purchase one of those, it automatically diversifies between stocks and bonds international and domestic stocks inside the life cycle fund. I really like that.

And it also gets back to the automated principle that we talked about earlier, where you just set up the life cycle fund once, and then you don't have to worry about setting your asset allocation or- am I going to buy us stocks this year, international stocks this year? You don't have to worry about any of that. It just automatically adjusts for you. 

[00:19:11] Jamie: The TSP is great. Another way to think about diversification too, is to avoid having a large portion of your portfolio in a single company. So, if you work for Enron and you own a bunch of Enron stock options from your company, that would not be a good diversification, so you may want to consider balancing that a little bit. So, we can talk individual companies, we can talk stock first bonds, and we can also talk about tax diversification, where we have maybe some traditional retirement accounts and some ROTH retirement accounts. 

[00:19:39] Spencer: So, the traditional versus Roth debate- for most military service members, you're going to be better off if you contributed to your Roth IRA and your Roth TSP, just because our tax rate is so low. But if you didn't do that and you already contributed to your traditional TSB or traditional IRA. That's fine. It might not be completely optimal, but it's okay, especially as your income grows to have some of your money in traditional accounts and some of your money in Roth accounts. And over, 20, 30, 40 years, the difference might just get completely washed out because tax rates might go up or you might have made a better decision with the Roth accounts, because you paid your taxes then and now tax rates are higher. And in retirement, based on the way that the US is going, that's a possibility. But, if you have a little bit of money in both accounts, then when you get to retirement, you can decide where you want to take the money out of, and if you don't want to pay taxes in a certain year, then you take the money out of your Roth account. And if your income is very low in retirement, then you can tap in your traditional accounts and take the money out of there. 

[00:20:40] Jamie: So diversified portfolio is good. Where are you- not to share any intention of sharing any investment advice, but at your stage in life right now, what's about your balance between stocks and bonds? 

[00:20:55] Spencer: Right now, if you go to my website and search asset allocation, I talk about exactly how I'm investing in my TSP, my IRA, my taxable brokerage, but it basically breaks down to 70% US stocks, 25% international stocks and 5% bonds. And the US stocks are just big index funds. So, it's the C fund, the S fund, the Vanguard total stock market, index fund, the Admiral shares VTSAX. I don't hold any of the international stuff in my TSP, just because the “I” fund I don't think accurately represents all the foreign stocks that are out there. For instance, for political reasons, the TSB doesn't invest in any Chinese stocks. Not getting political, but just looking at world trends, Chinese stocks will probably be a big factor in the world, if not today, then 20 years from now. My bond allocation is super low.

So 5%, it's barely noticeable. If you do any kind of back tests like portfoliovisualizer.com or any of those sites that allow you to back test, 5% bonds really don’t change anything about your returns over a long period of time. After the 2020 March COVID crash, I thought very heavily about shifting a lot more of my asset allocations to bonds. But by the time I made the decision to the market came roaring back and it was hard at that point but, one thing I am doing right now is I did shift so that all the additional money going into my TSP last year and this year is going into my G fund and F fund. So, if you look at my TSP, it's, maybe 60, 70% C fund 20, 30% S fund the small cap and the big cap stock market index funds that they have in there, but all the new money that's coming in. My contributions for this year, and my contributions for last year are all going to the GNF fund.

And that's just part of shifting my portfolio a little bit more towards bonds, but honestly, I probably won't even hit 10%, in the next year or two, even though that's the target that I'm shooting for. And that's only because if there is another big dip, I want to have a little bit of bonds that I can move into stocks. To take advantage of a big COVID like crash again. How about yourself? Where are you at these days? 

[00:23:05] Jamie: I have a little more in bonds, I'm a little closer to 20% in bonds, and then, in the TSB I do CS and I, so my overall portfolio is about 80 to 85%, stocks, not differentiating, between US and international, I do have maybe around 10% in international stocks.

[00:23:26] Spencer: I think the home bias, you'll hear that term a lot for like why people hold more stocks of their home country and it happens in, UK citizens own a lot more UK stocks, French citizens, if they own stocks, own French stocks, US citizens tend to own a lot more US stocks. But if you look at the total global stock market capitalization, it's about 50 50 right now between the US and the rest of the world. Is that the right answer? I have no idea. I talk about that in my asset allocation post, what is the right ratio of international stocks to US stocks?

Mine right now, 25%. in international and 70% in US, so obviously I'm tilted a little bit heavier towards the us there, but who knows, if you look at the PE, the price earnings ratio, which is getting a little technical, but if you look at that for international stocks it's much lower than US stocks. So, if history is any guide, then that means international stocks are cheaper and should perform better over the next 5, 10, 15 years. But we'll see if, if that happens and or if my essential bet on the US stock market performing better, is actually true. But either way I still own tons of international stocks and tons of US stocks. So, either way, I'm going to win.

[00:24:43] Jamie: Don't let all the options out there paralyze you in not knowing what to do. Alright. So low cost, automatic, diversified, and simple. Everyone always says, never invest in anything you don't understand. What do we do as simple? 

[00:24:57] Spencer: I think if you can't explain to a kid or to your grandma, what you're investing in, maybe it's not a great place to hold most of your assets. This is a direct dig on cryptocurrencies because the concept of money itself is hard enough to explain to someone, now try to explain the concept of digital money that has, no government backing whatsoever. So, a stock for instance, we'll just take the simplest case there, you're buying a little piece of a company so now as a shareholder, as a partial owner of apple, anytime an iPhone is sold, some small percentage of that iPhone will make its way back into your pocket, whether it's through a dividend or it's through a share price appreciation. 

[00:25:41] Jamie: Is there ever a time where maybe you dabble with a little fun account or something like that?

[00:25:46] Spencer: Oh, absolutely. Personally I 

have a couple thousand dollars, in crypto right now. And we have a good friend at work who is heavily involved in the cryptocurrency world and told us about this hot crypto tip. And so, we both were like, you know what? Let's place a little bet on this and see what happens. And for the first, what, six months it went down about 40%.

[00:26:09] Jamie: But the important thing to remember is, it's not a hypocritical statement, it's such a small percentage that if this crypto hot tip did go all the way to zero, it'd be no big deal. It's almost like playing fantasy football to me- this is fun we're keeping up with a new team I've never followed before because this defense is on my fantasy roster this year. 

[00:26:28] Spencer: That's exactly right. It's such a small percentage of my net worth that I don't even factor it in when I add up my net worth. A couple years ago, my net worth got to the point where, I stopped including the value of my car. So, if my crypto investments are worth less than the value of my car, then I'm not going to include them in my net worth statement. I'm still maxing out my TSB, I'm still maxing out my, and my wife's IRA every year. The crypto thing is just dabbling, it's a small percentage. And then, for me personally, the big thing with doing any kind of alternative or alternative investments is you have to have an exit strategy. Where do you put the money? Let's say you do hit it big, and you bought Bitcoin when it was $300 a Bitcoin and now it's $30,000 a Bitcoin.

And you get a thousand or a hundred times your return- do you keep it in Bitcoin forever, or do you move some of the money out and buy yourself a house. How do you deal with that windfall, and where's your safe refuge? If you've never owned stock index funds and you've only owned Bitcoin and you're Bitcoin does amazing. You're probably going to buy more crypto and that's fine if that's what you think is the best way to go, but with how volatile the crypto market is, personally, I would definitely be taking a lot of money off the table and moving it into my safe refuge and have an exit strategy. But how about you? What would you do if you had a crypto windfall? 

[00:27:54] Jamie: I would probably tend more to take maybe what I initially invested, maybe take that, let it double and then pull it out or something where I have a big, benefit and then let the rest just play as more fun money. You see the news stories of, I think it was an NFL rookie that invested his entire first paycheck in crypto and then it exploded. And I think for every person you hear about that on the positive side, there's probably 50 or a hundred of them where it did not work out for them as well. It's definitely an important thing to have an exit strategy. There's no right or wrong answer on there, but whatever fits and if it's not going to move the needle, if it's not going to be a game changing decision for you, it's not as much right or wrong, it's just knowing what you want to do with your allocation and your portfolio.

[00:28:40] Spencer: Yeah. All right. That was a long, 36 minutes on, principal number seven there, but let's move on to principal number eight and spend money on what matters most to you. On this one, what I was trying to get the point across that hedonic adaptation, and you'll hear this a lot in the fire community is a real thing. When you get the iPhone 12, it's hard to go back to the iPhone seven, does the iPhone seven even work anymore on LTE? I don't even know. But once you upgrade your life and once you've tasted how sweet life can be, on the more expensive side, it's very easy to quickly adapt to it. If you look at third world countries, a lot of those people would be ecstatic to have clean running water in their house and a toilet. And there's billions of people who don't even have that, and here we are talking over the internet on these hundred dollars microphones and talking about how to save expense ratios.

Our life is so ridiculously blessed compared to a lot of people in the world. And if you can take time to have gratitude for that and recognize that, and then spend your money on what matters to you and not on just all the BS that's out there. I remember I fell into these traps too- when I was younger, I was like, when I join the military, I'll buy a big SUV or buy a truck or something. And then I actually joined the military, and I was like, I don't actually want any of those things. None of that is going to make me happy. I'm quite happy just to drive my little Japanese car around and get from point A to point B. But there are things that do make me happy that do cost a lot of money.

For instance, we talked about on the first episode, we went to the four seasons Lanai. And that was an experience and a trip that I got to do with good friends and my wife, and we got to eat some good food and stayed at a beautiful resort and go snorkeling and do a ton of stuff that I enjoyed doing. And it was an experience that's probably not going to be repeated for a long time if ever. 

[00:30:53] Jamie: And that was a big splurge for me, that trip. We like to tease about how I'm a little bit frugal in some ways, and then we will splurge on something big, so fun memories, experiences are great. And things that just make your life easier or bring you and your family more joy. If you hate mowing your lawn, splurge a little bit and get a lawn mowing service, and maybe skip out on some other purchase that is just trying to keep up with the neighbors. Or house cleaning service, like hiring a maid, does wonders for some people's quality of life- or their relationship with their spouse, especially if you're both working. It can really help out just to spend a couple hundred dollars a month to have someone come in and help either outside or inside the house. And that's the kind of stuff when you say spend money on what matters to you, fun memories, experiences, the stuff you do if you have kids with your kids, when you splurge. I just splurge on tickets to a Dude Perfect show I cannot believe I spent so much money on this stupid thing, but I'm just banking on the fact that my son is going to remember this for decades and decades and decades. That we went to see Dude Perfect live together. So, it doesn't really matter to me, but it does to him.

So, when you start to have kids, what matters to your spouse? What matters to you guys as a couple? What matters as a family is what's worth splurging on. And then don't worry about the fact that all your other friends have the newest Bose headphones or Air Pods or the coolest MacBook air or whatever, unless that brings you a lot of joy. And then maybe it's something worth splurging on, but your point about gratitude is spot on of recognizing that I'm in a nice house and there's cool tile floor in the bathroom over here, and I have plenty of bedrooms, and I have exercise equipment here, and I have a really comfortable bed, and I don't need some of that other stuff. Although I also have an iPhone 12. Just trying to practice that attitude of gratitude, if you will, to not be too cliche. 

[00:32:38] Spencer: There was a study recently and I can find the actual citation, but it found that when people spent money on time saving activities- like you said, the house cleaning service, the lawn mowing service- that brought them the most joy, even more so than spending money on somebody else. So just being like time rich, which is something when you're financially independent you can have almost all the time in the world, if you look at a lot of the guys who have become financially independent and they don't just sit on around the beach and do nothing. They get out there and they work on really cool projects. They produce music, or they open a coworking space. 

[00:33:15] Jamie: But it's their choice. 

[00:33:16] Spencer: It's their choice. And if they want to do the dishes and they want to clean the house, then that's their time, but they have the time to do that and they're not afraid to spend money on what matters to them.

[00:33:30] Jamie: Nice. So, I think that's a good one for number eight, the last and final one of the nine is to buy income producing assets. So, talk to us a little bit about how we can do that. 

[00:33:42] Spencer: So, I don't actually like the author very much, but the guy- I can't remember his name right now- who wrote, “Rich Dad, Poor Dad”. The concepts are in a lot of other books, but I know that a lot of people read that book and it's eye-opening for them, but essentially, it's thinking about, how do you buy assets to produce income, to then buy the things you want? For instance, the iPhone 12 is- picking on iPhones here, again- a thousand dollars, right? How much would it cost to buy an asset that produces a thousand dollars a year of income, so you can buy iPhones for life. And depending on the return you're getting, say, 7% in the stock market on average, if you were to buy $15,000 worth of the S and P 500 index funds or VTSAX, you could get a thousand dollars a year of growth from that. And that would fund your new iPhone every year. It's thinking about instead of going into debt, instead of spending your income, as you receive it, it's setting your income aside, buying income producing assets and not spending all your money on things that are disposable or that decrease in value. A lot of people have the misconception that you can buy a car and it holds its value or it's a great investment. And it might be to help you produce more income, but the car itself, unless you're touring, or unless you are driving for Uber, it's not producing any income.

Let's say you get a big bonus- a lot of service members, depending on their specialty might get a 25, 30, $50,000 bonus. if they reenlist for a couple years, if you look at that as not a lump of cash that can go buy a car now. But if you look at that as that $50,000 is a stream of future income to myself if I invest it. And so that might mean buying a house and renting it out, or it might mean putting it into the S and P 500 index fund and putting into your, taxable brokerage account, not touching it for 10 years, and it's doubled. In 10 years now, and that $50,000 is a hundred thousand dollars, and based on the 4% rule, you can pull $4,000 a year out of that pile of cash right there. I really wanted to drive home the idea of not just buying- because you have to buy things, you have to buy groceries, you have to rent a place, or mortgage a place, but to also buy income producing assets, stocks 2% dividend a year, plus the, maybe 5% growth, 7% a year. If you look at rental property, that can throw off cash as well. If you look at businesses, depending on if you have the time, in the military a lot of people don't, but you could start a small business. Basically, trading your time for money and putting your money to work and then eventually becoming financially independent from that.

[00:36:37] Jamie: Yeah, that's really good. The number of things that we say that I'm getting this, because it's a good investment is 99% of the time. Probably not true at all. And like you mentioned cars, the value of a car is depreciating almost every time. And other than maybe like a weird chip shortage in the world or something like that, there's never a time where a car is a investment probably. Except in some rare cases, maybe a classic car or some outlier like that. But really be careful about what you say is, buying as an investment unless it's actually producing some income and giving you a stream of income that you can then do whatever you want with. Like you said, I have an extra thousand dollars a year now, so now I can buy a new iPhone every year. Instead of saying something's an investment just to make you feel better. 

[00:37:28] Spencer: Exactly. So, I cover these three topics in depth in my book, “Military Money Manual Practical Guide to Financial Freedom,” which is off the publishers right now, and will hopefully be available before Thanksgiving, 2021 also, hopefully before Christmas. But this was good. I think we could put this one in the can. For the listener out there, this was the first time we've attempted to do this remotely. Jamie unfortunately had a PCS away from the beautiful island of Oahu. 

[00:37:57] Jamie: Thanks for bearing with us as we tested the virtual setup. A couple times we stepped over each other, but I think it's going to sound great. Thanks for bearing with us for a little bit of a delay in between episodes as well as, my family and I adjusted to the new assignment out here. 

All right. Until next time!