JL Collins Part 2: What Happens When You Don't Need to Work Anymore?

29:43It's an interesting time. When my dad's generation came of age, if you were lucky, typically, you came out of school, you got a job, you worked for the company for 40 years, you retired with a gold watch. For my generation, and this describes my career, you came out of school, you found yourself in an industry, in my case, it was magazine publishing, but you probably went to a variety of different companies within that industry. In my case, whoever would pay me more money, okay, I'll join you. And that was it. And that made it interesting because I got to work for different companies. I think today what's really exciting for people younger and like my daughter is they're going to have multiple careers in multiple areas.

30:32And I see Jessica doing that already. So who knows what her next phase will be. I mean, well, right now she's in her next phase, but what follows that? And if it starts throwing off significant money for whatever reason, then she's going to shift back her allocation into that growth phase, that accumulation. Let's say that she, in a year or two, says that she wants to start a business, but she's going to need some startup capital for that business. How would you recommend that she allocate that amount of money that she would need as startup capital as it relates to her overall portfolio? Yeah.

31:07So first of all, if you're in the position that she's in where you have enough that you can step away, you have capital. And now the question becomes, do you want to use your capital? Do you want to find outside financing? In which case you've got to give up part of your company and those are tough decisions. I would also say you want to be very, very careful because you worked hard to put yourself into a very strong financial position. And starting a company can be a wonderful thing to do, and it can be extraordinarily lucrative, but it's also risky. A lot of companies fail. So think long and hard before you take that step and how much of your money you pull out of your portfolio to support it, understanding that if it doesn't work, you've rolled a very good situation back and you're going to have to rebuild it.

31:58So there's no really easy answer to that question, but it's an important one to give long, deep thought to. But if she answered, let's say she thought about both and her answer is, yes, I want to bootstrap this myself in order to retain full control. And I do want to go through with it. What should the parameters be when it comes to balancing the public equities or public bonds portion of the portfolio, public markets investments, as opposed to a company that you yourself are starting? So if I understand you correctly, the first question I'm going to ask is, well, how soon are you going to have cash flow?

32:34How soon is this company going to be providing money for you to live on? If the answer to that is, well, it's going to take a while, then I'm going to hang on to my bonds because I need that to smooth the ride. If the answer is no, no, this is – I've got customers. I've got product or service. I've got customers right now. Day one, I'm going to have cash flow, and I'm going to divert a lot of that to grow the business, but I can take some of that to live on. Then I'm probably going back to all stocks. Did I hit your question right? Yeah. Okay. Yeah. And to your point, a lot of companies do – because you mentioned both product and service.

33:10Yeah. Yeah, a lot of companies, especially if they're bootstrapped, will start a service in order to create the cash flow and then use that cash flow to develop product. That's what I did. Start a service and then later develop product. Yeah, you're a classic case of what we're talking about. Yeah, yeah, exactly. That's actually why I ask because that's something that I think about a lot is how do I balance my overall portfolio with regard to the real estate portion, the private business portion, and then the public equities portion. Yeah. I have a little bit of the same experience because when I quit my corporate job back in 2011, and that's just when I happened to start the blog, I happened to start this journey.

33:51But I didn't start the blog with the idea of it being a business. And I had no idea of doing Chautauqua's. I had no idea of writing books. I was just trying to archive this information for my daughter because I'd managed to turn her off to hearing it. And I wanted to make sure it was there. and so the fact that the blog started to grow and then suddenly was making money and then i wrote a book that turned out to be well received and suddenly i'm getting royalties i still own bonds from when i left that corporate job and one of the reasons is this all feels very temporary to me so i keep thinking okay it's been great it's a great ride but it's going to go away and i still need my bond allocation there was a guy oh i'm drawing a blank on his name i bet you met him because he and his wife came to several chautauquas and nice people we stayed friends and my memory is just shot but in any event and every time i gave a talk at chautauqua in the q and a section he would raise his hands and he'd say how come you still own bonds because based on what you're telling us you should be 100 stocks and he was right and i'd say well you know i just you know this kind of thing i just said now and then the next year he'd show up and you still have those bonds well i still have them today to this day and i should have dumped him a decade ago but there you go and that goes back to your earlier point when you say people who retire especially if you retire young or early, often are highly engaged with the world.

35:32And because generally you're interested in things, you're intellectually curious, you're highly engaged with the world. Oftentimes you end up kind of accidentally making money. Yeah. And that, and I'm an example. I'm a perfect example of what you just said with one exception. I wasn't young. I was 60 when I pulled the trigger, but yeah, I had no intention of ever having an income again. And yet here we are. It's almost impossible for it not to happen if you stay engaged. And it's fun. Well, and arguably, you're 74. Arguably, you're still quote unquote working. Absolutely. If you consider talking to me a job.

36:13And how much better can a job possibly be than sitting here and talking to my friend? And I mean, it really is, in one sense, it's work, but it's joy. I mean, we were talking to each other. Well, I don't know. Maybe the blog was making money by then, but it wasn't making enough for me to get rid of my bonds. So I was doing this before it threw off money just because it was fun. Yeah. The fact that it's throwing off money makes it more fun, but yeah. It gives you the capital to reinvest. Like the fact that it makes money gives you the capital to allow it to grow. which is, to me, that's been like the really, the fun part is for me, it's been building out that team, building out that support, like really being able to invest in the growth of this.

36:58And I imagine you can also relate to what I'm about to say from your Chitakwa experience and having your one-on-one sessions. But another thing that would commonly happen is I'd have a conversation one-on-one and they would show me their numbers and they would be financially independent and not have to work anymore. And they say, but I love my job. I don't want to quit. Well, there's nothing that says you have to quit. Being financially independent just means you get to choose. And so if you want to quit, go ahead and quit. If you love what you're doing, then keep doing it. I was talking to a young Chautauqua just last week that we've stayed in touch with.

37:39He and his wife are quickly closing in on being full FI. He's an engineer. He loves what he does. And he said, you know, JL, what financial independence means to me is not that I'm going to stop working at my job, but I'm going to be much bolder in the way I approach it. And that's probably going to take me further in my career because I have that FU money that allows me to make those bold choices because I'm not dependent on the check. Right. Yeah. And you will probably do even better. There's so many reasons to walk this path. Exactly. A point that I often like to make is the people that we think of as conventionally, quote unquote, wealthy, the majority of them are financially independent.

38:26Justin Bieber. I don't know what his spending is like, but I assume he's probably financially independent. Taylor Swift. Taylor Swift. One would hope. Yeah, exactly. She didn't go on the Aeros tour because she was worried about paying the rent. Warren Buffett, right, who just announced his retirement at the age of 94. A slagger. Yeah. These people who we think of as conventionally wealthy, they're all financially independent, right? So no one's going to drag you kicking and screaming away from your job. And in fact, it gives you the opportunity, as you said, to be bolder in the decisions that you make, to take bigger risks, to reinvest in growth, just to be louder, right?

39:08Like you just get to be louder. And have more agency. The running thread through all the people you named, and this includes you and me and probably a lot of people listening, work is not the problem. People love to work because it makes them productive. It gives them great satisfaction. The problem is when you have to work and you don't have agency. All of those people have agency. That's what makes the difference. If you're working in a job, paycheck to paycheck, because you have to pay the rent, you no longer have agency. It may still be a good situation. You may be working for a company you love and be lucky enough to have a good boss.

39:52But that can change. Your boss can go take another job or get promoted. And now suddenly you have a boss that's not working out for you so well. That's the critical difference. So a lot of people, because they get in these soul-crushing jobs, think, man, work is just terrible. Work sucks. It's not the work. It's the fact that you're working without agency. And everybody you described has enormous autonomy over what they do. They can choose to spend out their time. They can choose to whether go on tour or not. You can choose, in your case, how many podcasts to do, how many guests to have. I can choose how many I go on.

40:35I can choose whether to keep writing or not. That makes all the difference. Right. Yeah. Mastery, autonomy, and purpose are the three biggest predictors of workplace satisfaction. Well said. Yeah.

40:53This Friday, the NBA on Prime tips off with their debut doubleheader. First up, Boston brings the action to the garden. as the Celtics face the New York Knicks. Then out west, it's a battle of the superpowers as the Lakers try to poster the relentless pace of the Minnesota Timberwolves. The Celtics and Knicks, who has the most hustle in defense? This game will come down to who wants it more. And the Timberwolves and the Lakers, it's two Western Conference heavyweights going toe-to-toe. Buckle up, folks. This one's going to be electric. Celtics, Knicks, T-Wolves, and Lakers. Coverage starts Friday, 7 o 'clock Eastern, only on Prime.

41:38This episode is brought to you by Progressive Insurance. Do you ever think about switching insurance companies to see if you could save some cash? Progressive makes it easy. Just drop in some details about yourself and see if you're eligible to save money when you bundle your home and auto policies. The process only takes minutes, and it could mean hundreds more in your pocket. Visit Progressive.com after this episode to see if you could save. Progressive Casualty Insurance Company and Affiliates. Potential savings will vary. Not available in all states. Rinse takes your laundry and hand delivers it to your door.

42:12Expertly cleaned and folded. So you could take the time once spent folding and sorting and waiting to finally pursue a whole new version of you. Like Tea Time U. Mmm. Or this Tea Time U. Or even this tea time you So did you hear about Dave? Or even tea time, tea time, tea time you So update on Dave It's up to you We'll take the laundry Rinse, it's time to be great

42:46We'll close out kind of on what we were just talking about Autonomy mastery purpose On this question Which also comes from Chen Again, advice on the spending phase. What advice do you have on the spending phase? Especially if it's a big pot of money, if you have lived below your means all of your life. Right. This is the important piece. And if you have philanthropic thoughts. So another question I love, because this is a topic that has been pretty hot in recent years in the space. and it's been a hot in a way that i object to and what i mean by that is the push recently seems to be if you have money spend die with zero yeah not the only but the classic example is die with zero there's a lot in that book to love and there's a lot of that book that makes me uncomfortable what i would say is a couple things first of all the idea that money in general or that spending money specifically is a key to happiness is a fallacy, right?

43:53Money can do a lot of things. As we've already had in this conversation, it can open magnificent paths to you that wouldn't exist otherwise, great opportunities. I'm an advocate of accumulating and having money for those reasons. Money solves money problems, as somebody smarter than me once said. It's not the key to happiness. So if you think spending money is necessary to be happy, I would suggest that you do a little soul searching. Okay. Now, having said that, if I'm talking to somebody, and again, it takes a certain frugal mindset to set aside the money to invest to get to where we're talking about.

44:34When you've arrived, when you've become wealthy, when you're financially independent, that what served you well to get you here is not necessarily what's going to serve you well going forward. I would never say spend the money just because you have it. It's not what I do. But if you said to me something along the lines of, man, flying has just become really uncomfortable. And I could afford to fly first class and that would make it a little less miserable, but I just can't bring myself to pay what they charge for that. I'm going to say you're making a mistake. I find first class everywhere I go now because it makes life a little less miserable.

45:17I'm a little appalled at the premium they require for that, but I'm happy to pay it and my life is a little better. I don't drive a fancy car. I could easily afford it because I just don't care. And just because I can easily afford a fancy car doesn't mean I'm going to go out buy one, although I think there are people out there who would say, oh, yeah, you should do that. In fact, not only does it not appeal to me, these days, luxury cars are defined by having more and more complexity, more and more computer, more and more screens. Last thing in the world I want. When I go to buy a car, I walk in and say, what's the most basic car you have that has the least technology in it?

46:03That's the car that I want. If you look out there and there's a way that spending money would make your life better, and you've got plenty of money and you're not spending it, yeah, you need to adjust that thinking. But if somebody says to you, Paula, you've got plenty of money, you should be spending it on this, that, or the other thing, and these are things that you just don't value, you don't care about, or in the case of a fancy car for me would actually make your life worse, no. Now, to the philanthropic part of it, and this is a great example, I would rather give my money away than buy that fancy car.

46:43I'd rather go buy a$25 ,000 or$30 ,000 Subaru, which happens to be the car that we've been driving in recent years, over a$100 ,000 Porsche equivalent. And I'd rather give the remaining$75 ,000 away. for a couple of reasons. I think A, it does more good in the world, but B, it's just more satisfying to me. One of the remarkable things about giving money away, and maybe this isn't universal, but I imagine it's pretty close to it, is there are a few things that give you more joy with your money than giving it away. So from a purely selfish, let's suppose I've got that$100 ,000 sitting there, and I say, okay, I can buy this Porsche or I can buy this Subaru and I can give away the other$70 ,000,$75 ,000.

47:39The move that is selfishly going to benefit me the most, selfishly give me the most happiness and satisfaction, is giving that money away. I mean, setting aside whether it does any good in the world just from a purely selfish point of view and the fact that it makes the world better is, I think, part of the reason it makes it so satisfying to do. That's how I think about it. And I think that's one of the reasons that wealthy people, by and large, in spite of the stereotype, are enormously generous. And I think part of it is that they're definitely, they're just good people who want to make the world better.

48:23But candidly, there's a whole lot of satisfaction to doing it in ways that you don't get anywhere else. Yeah. We had Robert Rosencrantz on the podcast recently. He's a billionaire. And I just learned this last night, actually. He was on the Time 100 honorees list for philanthropy. He's a big fan of stoicism and the stoic philosophy. But he spoke with great passion about the same concept about taking some level of responsibility for creating the type of world that you would like to see. The only inevitable choice then is philanthropy. And he's very involved, personally deeply involved in the philanthropic projects that he funds.

49:07Right. Yeah. Bill Gates does that. Warren Buffett is doing it. And it's contagious too. I can give you just a very small example from my own life. Back when my daughter Jessica was in first, second grade, we were living in the Cleveland area and she was going to Catholic school. They were always raising money and one of the things they would do is have charitable auctions. I don't think it's there anymore, but there was a restaurant in Cleveland that we really liked called Parker's. Parker's was a fairly expensive place, especially for back in the day, but it was really, really good. Parker, the guy who owned and operated the restaurant, his donation for this auction was dinner for 12 at his restaurant.

49:53And when that came up for auction, I turned to my wife and I said, let's win this auction and gift it to the teachers at the school. I'm getting chills saying it because it gave us so much joy to do it. It also, by the way, gave us an enormous advantage in the auction because everybody was bidding against us. It's mentally calculating, okay parker's is about a hundred dollars a person so this is worth about twelve hundred dollars so if i can get it for less than twelve hundred dollars i'm going to do it that's not our calculation we don't care the bidding kept going up and up and up and up and it got up to that twelve hundred dollars and then i was willing to go over it and then it stopped and we won the auction and the problem was there were more than 12 teachers and so when i gifted it to the mother superior i afterwards in conversation i said i have one caveat and that is you can't give your spot away you have to go because i knew she would do that otherwise somebody else in the crowd who was standing around heard me say that and i think there were maybe 16 teachers rather than 12 and this person stepped up and said you you know what, I'll cover the dinner for the other four.

51:05And then somebody else heard that, and they stepped up because wine wasn't included. And they stepped up and said, you know what, I'll cover the wine for the dinner. Now, why didn't those two people bid on the dinner originally? Why weren't they bidding against me? Not because they're not generous enough. It just didn't occur to them. I don't know why it occurred to me. It just happened to. but it has a magnifying effect they had the same instincts that i had and they were obviously getting the same joy of doing it and so i think when you engage in this it inspires other people to engage in it it doesn't in my mind create generosity that wasn't there but it triggers something in them to say wow that's a cool idea and i could do that where it might not have occurred to them otherwise.

51:58It activates it. Yeah. And there are a few things that I've ever spent money on that have given me selfishly more pleasure than that. You know? Yeah, I think it's a good thing to do. Excellent. Well, thank you for spending this time with us. Where can people find you if they'd like to know more? Well, first of all, it's been entirely my pleasure, Paul. Thank you for having me. I'm so glad we made this work. It wasn't easy. It took us a little time to get here. so the easiest way to find me i suppose is still the blog which is jlcollins and h.com and then from there you'll find links to my three books and i'm on x and i'm on facebook and so that's about the extent of my social media and uh there you go they still don't have tiktok yet huh and probably never will and the world can thank me for that later yeah yeah well thank you again Entirely my pleasure.

52:51Maybe we'll go back to Ecuador again sometime. It sounds like a pleasure. I would love to get back there. And if I remember the name of this little fishing village, that's where I would suggest we go and hang out. Excellent. Yeah.

53:05Thank you, JL. What are three key takeaways that we got from this conversation? Key takeaway number one, your spending rate matters more than your net worth, or at least just as much. They matter in sync with one another. Once you've reached financial independence, how aggressively you can invest depends entirely on how much you're actually spending, not just how much you already have. And so somebody with$5 million who needs$100 ,000 a year to live is in a very, very different position than someone with that same$5 million net worth who needs or wants$200 ,000 per year in order to live. the raw number that you have is only one part of the component, right?

53:49There's two components. Here's how much do you have and how much do you spend each year? So let's suppose you come to me and you say, I've got$5 million and I am spending$100 ,000 a year. Well, you are well under the classic 4 % withdrawal guideline, right? So yeah, to you, I'm going to say absolutely. If it's me, I'm 100 % stocks. That is the first key takeaway. Key takeaway number two, the 4 % rule is actually extraordinarily conservative. Bill Bengen's famous 4 % withdrawal rate was designed to survive even the worst market conditions. But JL Collins argues that it is so conservative that you might be shortchanging yourself.

54:38He would rather take higher withdrawal rates in order to escape soul-crushing work situations, particularly because most financially independent people end up accidentally making money anyway. If you look at the Trinity study, 5 % succeeds 86 % of the time. I'm in a soul-crushing job, and this is what I would tell these people. I'm gone tomorrow. I leave Chautauqua, and the day I'm home, I'm resigning, I'm going to take that risk. Because 86 % to get me out of a soul-crushing job? And then the second part of that I would throw in is, do you think that if you were uncomfortable pulling that 5%, there is a way, without your corporate gig, that you could make $10 ,000 during the course of a year?

55:30By the way, before I move on, I should add a couple of points here. Number one, Bill Bengen himself, the guy who created the 4 % rule, would likely agree with this. I don't want to put words in his mouth, which is why I hedge and use the word likely. We've interviewed him multiple times on this podcast. We'll drop the link in the show notes. He's also coming out with a new book later this year. I believe that book is coming out in August, if I'm not mistaken, and it's all about supercharging the 4 % rule. And in that, Bill Bengen, who I will emphasize, is the creator of the 4 % rule. He himself talks about how that 4%, it truly is a worst case.

56:11It's a very pessimistic rule. It's very conservative. It's designed to be a worst case scenario rather than the thing that you plan on. And that echoes, you know, when we interviewed him, and he said this, I think, in both of the interviews that we've done with him. He talks about how if you were to model a retirement and you extended human life to infinity, such that that retirement went on for infinity years, the safe withdrawal rate would asymptotically level at 4.2%. In any event, many, many retirement planning experts, including, and I don't want to put words in his mouth, but likely Bill Bengen himself would agree you can go higher than 4%.

56:51Again, we'll drop a link in the show notes to the two interviews that we've done with Bill Bengen so that you can hear him talk about his research around the 4 % rule direct from his own mouth. All of that said, that wraps up key takeaway number two, which is that the 4 % rule is extraordinarily conservative and you can probably go higher. Finally, key takeaway number three, financial independence gives you agency, not early retirement. This is where the media gets it wrong. The mainstream media is obsessed with early retirement, early retirement. Of course they are because it's extreme. It's headline grabbing.

57:31It's clickable. It's a little bit rage-baity, at least in some corners of the internet. It can be if you position the headline just right. So yeah, of course, it's the stories around early retirement that capture all the attention, the I retired at 35 stories. That's not what it's about. It's about having the power to choose. And JL Collins talks about this as well. He says the real value of financial independence is not the quitting your job bit. It's the choice, the optionality, and the fact that when you don't depend on a paycheck, you can be bolder, more confident in the career decisions that you make, in the risks that you take.

58:19You can take bigger risks. You can speak up at work without fear. You can start companies. You can undertake projects. You can just try various money-making experiments, and some of them will work, and some of them will flop, and that's okay. Because the problem is not work itself. The problem is working without options. The running thread through all the people you named, and this includes you and me and probably a lot of people listening. Work is not the problem. People love to work because it makes them productive. It gives them great satisfaction. The problem is when you have to work and you don't have agency, right?

59:00All of those people have agency. That's what makes the difference. I truly believe two things. Number one, I believe everyone has a calling and a calling is something that is much higher purpose than simply a career. A calling is work that you do that is intrinsically meaningful. It is the work that you are drawn to do, not just work that pays the bills. It is inherently worthwhile. You're naturally aligned with it, and it gives you a sense of contribution of meaning and purpose and a connection to something that is much, much larger than yourself. And I believe everyone has a calling. But we also have bills to pay.

59:45And sometimes paying the bills distracts us or pulls us away from our ability to pursue our calling. And financial independence, by contrast, or at least the journey to it, you don't even, it's not a binary. You don't have to hit a particular number. And all of a sudden, it's not like a cliff where suddenly everything changes. it's a gradual progression. It is a spectrum. And as you journey further and further along the path towards financial independence, you become increasingly and increasingly along that spectrum more and more capable of being able to lean in the direction of your calling. Those are the two things I believe.

1:00:31One, that everyone has a calling. And two, that financial independence is not binary. It's not yes, no. It's a progression, a spectrum. And the further along that pathway, that journey that you travel, the more freedom you increasingly have. That's what makes this pursuit so worthwhile. Thank you for being part of the Afford Anything community. If you want to talk to other members of this community, other afforders, you can do so at affordanything.com slash community, completely free. Don't forget to join our newsletter. Sign up for free at affordanything.com slash newsletter. Now, if you've enjoyed today's episode, can I ask you for a favor?

1:01:13Could you please share this with the people in your life? Share this with friends, family, colleagues, coworkers. Share this with the person at the farmer's market who runs the vegetable stall or who makes the homemade jams. Share this with the cashier at the auto parts store. Share this with the person at the hardware store. Share it with your crossing guard. Share it with your dentist's receptionist. Share it with the people who always win the chili cook-off every summer. Share it with your mail carrier. Share it with your elementary school librarian. Share it with the volunteer firefighter in the neighboring town.

1:01:51Share it with the people who run the local reptiles and amphibians expo that comes through the convention center every summer. Share this with all of those people and more, because that is the single most important way that you spread the message of F-I-I-R-E. Please, if you've enjoyed today's podcast, open your favorite podcast playing app, smash the follow button, and leave us up to a five-star review. And while you're there, please write a few words sharing what you enjoy about the show. The more followers we get, the bigger of a guest we can bring on. The bigger of guests, plural. Share this with your English teacher who taught you that.

1:02:30Thank you again for being an Afforder. I'm Paula Pant. This is the Afford Anything podcast, and I'll meet you in the next episode.