ChooseFI
448 | July Roundup: Working Backwards Into FI
Mon Jul 31 2023Description
This episode of ChooseFI covers a wide range of topics related to financial independence. The hosts discuss the importance of values, shifting perspectives, and digging deeper into what we truly value. They also explore optimizing spending and investing for financial independence, as well as the role of optimism in real estate investing. The episode concludes with insights on Roth IRA contributions, spousal involvement in finances, and the importance of not always optimizing for maximum return. Overall, this episode provides valuable insights and practical advice for those on the path to financial independence.
Insights
Shifting Values
The hosts emphasize the importance of focusing on values that need attention at different stages of life. People can change their minds about things, which can be freeing and move them forward.
Digging Deeper into Values
Figuring out what we value is an experiment that requires action. Cutting things from the budget and slowly adding them back or adding something new and reflecting on its value can help us determine our true values.
Optimizing Spending and Investing
Balancing saving and spending is crucial for a healthy financial independence journey. It's important to avoid saving addiction and focus on optimizing spending at the beginning of the journey. Investing in index funds is a simple and effective strategy for building wealth over time.
Optimism in Real Estate Investing
Optimism is often seen as naive, but it is the right approach in many cases. Relying solely on leverage and assuming everything will go well is risky. Matching the market with low fees through index fund investing is a recommended strategy.
Prioritizing Peace of Mind in Real Estate Investing
Focusing on the fewest number of rentals needed to cover life expenses and prioritizing peace of mind can lead to a low-stress real estate portfolio. Understanding history and planning for a rainy day are important in real estate investing.
Return on Hassle in Real Estate Investing
Real estate investing involves a higher level of hassle compared to index funds. It's important to consider the return on hassle when deciding whether to invest in real estate.
Roth IRA Contributions and Flexibility
Roth IRA contributions can be withdrawn penalty-free if needed, making them a flexible option for emergency funds. Donating appreciated stock can help avoid capital gains tax.
Spousal Involvement and Optimizing for Life
Explaining the advantages of opening a Roth IRA can help get a spouse on board. When breaking up with a financial advisor, it's best to have the new institution lead the transfer process. It's important to identify areas where optimization may not be necessary or worth pursuing.
Chapters
- Introduction
- Shifting Values and Changing Perspectives
- The Fire Movement and Digging Deeper into Values
- Optimizing Spending and Investing for Financial Independence
- Optimism and Real Estate Investing
- Real Estate Investing and Prioritizing Peace of Mind
- Return on Hassle in Real Estate Investing and Roth IRA Contributions
- Spousal Involvement in Roth IRA and Optimizing for Life
- Not Optimizing for Return but for Life
- Conclusion and Call to Action
Introduction
00:00 - 07:00
- ChooseFI is the largest financial independence community in the world
- The podcast aims to harness the collective wisdom of the community
- They are bringing back the roundup episodes to summarize their biggest takeaways from each month's episodes
- Ginger, a listener, suggested this idea and will be joining as a guest for these roundup episodes
- The show is not just about entertainment but also about education
- The host shares updates from listeners regarding Hyatt rewards and all-inclusives
- Hyatt now has a new award chart with peak, off-peak, and normal charges
- There are more options for all-inclusive stays after Hyatt purchased several properties
- The host created a top 10 travel rewards cards page on their website to provide valuable resources for the community
- Using affiliate links on their website supports the show while benefiting listeners with free or discounted travel
Shifting Values and Changing Perspectives
06:32 - 12:55
- Carl Jensen's values have shifted from financial security to valuing time with friends and family
- The podcast hosts discuss the importance of focusing on values that need attention at different stages of life
- They highlight the fact that people can change their minds about things, which can be freeing and move them forward
- The hosts mention Carl's changing perspective on giving money to his children, indicating a shift in his thinking
- They emphasize that regular people, like bloggers and podcasters, are just trying to figure out life as they go along
- The hosts appreciate examples of people changing their minds about things as it encourages action and growth
The Fire Movement and Digging Deeper into Values
12:27 - 19:25
- The fire movement is often sensationalized and misunderstood.
- The fi community has worked to make the movement accessible and not extreme.
- The fi movement is based on value, freedom, autonomy, and purpose.
- Figuring out what we value is an experiment that requires action.
- One approach is to cut things from the budget and slowly add them back to determine their value.
- Another approach is to add something new and reflect on its value.
- Sharing recommendations with others can indicate what we truly value.
- Three ways to dig deeper into our values are cutting and noticing what we miss, adding something for reflection, and paying attention to what we talk about with others.
- Saving addiction can be unhealthy; optimizing spending at the beginning of fi is important.
- Eliminating some items from our lives is a quick way to start saving.
Optimizing Spending and Investing for Financial Independence
18:57 - 25:30
- Optimizing spending on the front side of FIRE by cutting unnecessary expenses
- Recognizing the importance of balancing saving and spending for a healthy financial independence journey
- No dogma in FIRE - spend on what you value
- Saving money can become unhealthy when it becomes a competition or obsession
- Identifying triggers that indicate an unhealthy focus on optimization at the expense of enjoying life
- Dollar cost averaging into index funds recommended by Brian as the best chance for success in building wealth
- Matching the market with low fees through index fund investing is a simple and effective strategy
- The math behind investing is straightforward, but our biases and short-term thinking often get in the way
- Cutting down friction by keeping expenses low, avoiding expensive mutual funds, and minimizing taxation
- Matching the market over decades is more realistic than trying to outsmart it
- The idea of optimism and persistence in investing
Optimism and Real Estate Investing
25:03 - 31:41
- Friction and beating the market over a long period is unlikely, so it's best to match the market
- It's easier and safer to be critical than to approve of something
- Norming in grading often leads to lower grades due to criticism being valued more than approval
- Optimism is seen as naive, but it is the right approach in many cases
- People who sound smart by predicting negative outcomes are often just making things up
- The end game should not be about sounding smart, but about valuable opinions
- Optimists tend to make money while pessimists get attention
- In the FI community, focus on saving like a pessimist and investing like an optimist
- Investing in index funds is a simple and effective way to build wealth over time
Real Estate Investing and Prioritizing Peace of Mind
31:19 - 37:49
- Chad reorients real estate investing to focus on the fewest number of rentals needed to cover life expenses
- Chad and his business partner prioritize making their lives easier and reducing stress in their business
- They are willing to sell properties that no longer fit their criteria in order to strengthen their overall portfolio
- They aim to find the least hassle properties, optimizing for a low-stress portfolio
- Perfectionism should not hinder taking action; properties can be reassessed later
- Understanding history is important in real estate investing; planning for a rainy day is crucial
- Relying solely on leverage and assuming everything will go well is naive and risky
- The speaker owns two rental properties bought with cash, prioritizing peace of mind over leveraging debt
- The speaker's properties have provided good returns with minimal repairs, but they haven't purchased more properties yet
Return on Hassle in Real Estate Investing and Roth IRA Contributions
37:25 - 43:58
- The speaker has had good returns on their real estate investments, but they haven't bought any more properties despite the success.
- The discussion of optimizing for what is important and defining 'enough' in terms of real estate investing is valuable even for those not interested in real estate.
- Real estate investing involves a higher level of hassle compared to index funds, and this return on hassle should be considered.
- A tweet by Nick Mijuli highlighted the return on hassle in real estate investing, sparking a conversation about the time and effort involved versus the financial returns.
- Roth IRA contributions can be withdrawn at any time without penalty, while earnings cannot be withdrawn penalty-free.
- Considering Roth IRA contributions as part of an emergency fund can provide flexibility and potential growth if the emergency fund is not needed.
Spousal Involvement in Roth IRA and Optimizing for Life
43:29 - 50:19
- One way to get a spouse on board with opening a Roth IRA is by explaining the advantages, such as the ability to withdraw funds without penalty if needed.
- When breaking up with a financial advisor, it's best to call the new institution and have them lead the transfer process using an automated customer account transfer (ACAT). The new institution will help and guide you through the process.
- If you have appreciated stock when moving from one financial institution to another, donating the stock to a charity can help avoid paying taxes on unrealized capital gains.
- Donating appreciated stock is more cost-effective than selling it and donating cash, as selling the stock would result in capital gains tax.
- Donating stock is not complicated and can be done by contacting the charity or financial institution for guidance.
- No one regrets not optimizing on their deathbed. It's important to identify areas where optimization may not be necessary or worth pursuing.
Not Optimizing for Return but for Life
49:54 - 56:20
- One way the speaker is not optimizing is by not having paid vacation and instead creating a personal vacation fund.
- The speaker keeps more money in their checking account than necessary to mitigate stress.
- The speaker chose to invest their cash gradually over time instead of all at once for peace of mind.
- The speaker encourages listeners to share other ways they are not optimizing for return but for life.
Conclusion and Call to Action
55:55 - 58:07
- This episode was a successful experiment and will be continued on the last Monday of every month.
- Ginger can be found at Fai is Fun website (fiisfun.com).
- To get involved in the ChooseFI community, subscribe to the podcast and weekly newsletter at chooseify.com/subscribe.
- Join in-person ChooseFI local groups in over 300 cities worldwide at choosefi.com/local.
- For beginners, listen to ChooseFI episode 100 and take the free Financial Independence 101 course at choosefi.com/fi101.