How to Use AI to Reach Financial Independence Faster

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2:18Today, we're breaking down exactly how we use AI and how this could impact your financial independence.

2:30Mindy Jensen:Hello, hello, hello, and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen, and with me as always is my grok is his AI of choice co-host, Scott Trench. Mindy, great to be here with my gem and I of a co-host, Mindy Jensen. We haven't talked about AI very much here at BiggerPocketsMoney. I think it's kind of been overblown and underblown in the discussions around how it's going to impact finances and those types of things. I think enough time has passed now, and you and I have both gotten comfortable enough using AI here at BiggerPocketsMoney to help us power what we're doing. We can kind of talk about what we're seeing here and kind of distill the notes that we've gathered from various research and thoughts from people who are much more obsessed with the topic of AI, I think, than either of us.

3:13So I think this will be a great discussion. And I think this is a real impact to the FHIR journey. And I think there's real opportunities here for folks to use this technology to power things forward. I also think there's a lot of unknowns left that will get fleshed out over the next two or three years.

3:25Mindy Jensen:Yeah, I have historically not been super excited about technology and changes in technology. And it did take me a while to embrace AI just because I don't like tech. I did a couple of things with ChatGPT earlier in the year. I asked it a question. It's like, is the sky blue? And it's like, no, the sky's magenta or like whatever garbage answer it gave me. I was like, oh, AI has a long way to go. Like I'm not even going to bother using it. But then at FinCon this year, so many presentations were focused on AI. And I thought maybe I do need to start looking at this a little bit more. What I'm using AI for is idea generation.

4:04Mindy Jensen:Not so much fact finding because they can find a fact about anything if it's true or not. The idea generation opportunities are amazing and finessing the language that I'm using. It's great for specific things and it's really bad at other things. What are you using AI for, Scott? I'm using it almost all the time and increasing levels. One of the areas that I'm having the most fun with is like a CEO of Bigger Pocket software development was the expense center. It was really expensive. And I kind of described it to you like this, Mindy, like imagine you're trying to paint a picture, like you're an artist, right?

4:41Trying to paint a painting. And the process you're using to paint the picture is you tell somebody what you want and you put some parameters around it. And then it goes into the queue for the technology queue. And it comes out two to three to six months later. And it's kind of what you wanted, but then you need a couple of iterations. Then you go back and, and, and, you know, every two weeks you get your next cycle of iterations out of that. that's kind of like what software development used to be like for a big portion of my career at bigger pockets now that same output is literally i type in a few sentences into the ai and it spits out like what i'm asking for and it's not perfect it's riddled with errors but i can fine tune it one prompt after another and in a day i can get a working prototype that would have taken me six months and that is a truly remarkable situation the ai will then coach me on how to hook it up to a backend.

5:35The resource library is a perfect example of this. There's going to be problems with it, but it's so fast and so quick to get these things out. And then I can iterate and build from there and put in the rest of the building blocks around it. That's incredibly powerful. And I think that's just one example. Another way I'm using AI all the time is I have these theses, right? So I think we've talked about how I'm obsessed with Denver office lately. Like something's going on. How can you buy a building that sold for a hundred million bucks for$7 million dollars, you know, a hundred million bucks a couple of years ago, just for$7 million today.

6:06Well, it's because they're all empty. But like, what does that mean? So I can type in my thesis to the AI and get feedback. I say, great. It calls out real weaknesses. I can have a quality kind of discourse to beat this thing up. And then I can bring that polished artifact to a human for that next level of discussion. And that is definitely making me smarter. That is not like me surrendering to the AI or the AI doing all the work. This is a discourse. And I think it's really helpful. The AI is dead wrong on a bunch of stuff frequently. And I go in eyes wide open with that, but it also brings up really good suggestions and thoughts too.

6:42It can be right and provide data in some cases that challenge things. As long as I am disciplined enough to fact check all of the things that it says, I do that a lot to polish ideas and get them ready for discussion with folks. And I do it a lot with vibe coding. I think it's going to be very powerful in terms of creating great stuff over time. I think you take a humanity doing this at large, and you're going to find folks moving much, much quickly, much more accurately over time, especially as the AI gets better at being real about stuff and stops hallucinating. You can trust it a little bit more over time.

7:14Mindy Jensen:Well, and with this progress comes some pitfalls, Scott. I think that's true, but that's like with any technology, right? Like I think AI is a lot like social media, right? You know, my My social media is filled with Jay Scott's posts about the economy. And it's filled with entrepreneurs talking about best practices. And it's filled with personal finance nerds sharing what's going on in their lives. It's filled with my friends. And I've largely over time been able to move on from the political crazies on the right and left that used to suck me. And I could not look away from the super hardcore MAGA or the super hardcore liberal people posting all day just like how much they hate the other party.

7:53I couldn't get into that. But that was bad. But I've moved away from that. My feed is now filled, generally speaking, with productive stuff. And I think other people can fill their feed up with stuff that's not productive, that's not making their minds. And I think social media has that amplification effect. I think AI will do the same thing. If you're using AI to better yourself and to really beat up ideas and get feedback and using it thoughtfully and carefully and not trusting what it says implicitly, but using it to question things and then questioning it in turn, I think it's really, it's an amplifier of human capabilities.

8:24I think there are probably other uses of AI that are totally unproductive and or that will cripple people. Like if you're using it to write all your papers in high school and never learn how to write, that's going to cripple you for life. And I think that's going to be a really damaging output. It's a tool, it's a power tool, and there are really powerful applications of it. And there are ways to really hurt yourself with it.

8:44Mindy Jensen:Yeah. Jobs are going to be massively affected. Even three to five years ago, technology was the field to be going into, but now it's one of the most affected job markets with the rise of AI. You are seeing this yourself where you had a huge line item in your budget for developers and coders when you were the CEO of BiggerPockets, and now you're able to do this same work way faster, weeks, weeks, months faster. And it's not the same types of work. You know, There's certain limitations, but the workflows that I'm able to adapt the AI coding tools to, I can't do some specific things. I can't do certain full stack stuff that requires deep backends yet.

9:24But I can build front end applications in a way that is multiple orders of magnitude, at least two to three orders of magnitude cheaper than what used to be the case, you know, for 10 years. That's super recent, right? The latest updates in the last six weeks for AI Studio have made that possible in a way that wasn't possible even as far as October of this year. So it really is remarkable the pace that this thing is moving at to take simple instructions and build complex outputs to understand what you're looking for and then spit it right back out to you. It's not perfect. It requires lots of iterations still, but it's getting better all the time.

9:57And it's really powerful. And something's changing here. That's absolutely true. In order to build even the MVPs of stuff that we now have in BiggerPockets money, I would have needed months and hundreds of thousands of dollars at BiggerPockets to build.

10:09Mindy Jensen:All right. We are going to jump out for just a moment, but we'll be right back after this quick word from our show sponsors.

10:20Mindy Jensen:Welcome back to the show. How is all of this stuff being generated, Scott? AI runs on electricity and in data centers, and these data centers are massive. And I'm starting to see municipalities saying no data centers in our area because of the electric suck that they are. I'm hearing that Elon Musk wants to take his XAI and put those data centers in space. A sister company to his XAI is SpaceX and Starlink. So there's all these interconnections that are happening, are they going to do it right away? No. But what kind of head start or massive impact will this have on that AI versus other AI when you've got the simultaneous, like all of these juggling plates, you've got the municipality saying no, you've got a data center in space where the electricity is infinite because they've got the solar panels to, and clearly I am only regurgitating what Carl has said to me because he does the deep dives into this, but you've got solar panels powering these data centers in space with the infinite sun, they can follow the sun around the earth and never have a dark night.

11:30Mindy Jensen:There's just so many things to be thinking about. This will give more preference to AI companies that have data centers in space, maybe if this works out. There's all these moving parts to start thinking about with regards to your investments. Maybe you invest in a company that goes to the moon. Maybe you stay in index funds, which is going to be good because it's going to be in all of them, but you're not going to have that meteoric growth that some other people are making these small bets on these companies with these huge reward prospects. It's a fascinating time to be here, but it's also a little scary if you're not financially independent yet and maybe your job can go away.

12:08I think that's right. So I just talked about my use of AI at a local scale and there's implications all around for what that means, I think, for folks. But if we zoom way out to the highest level. You know, at the beginning of this year, I think there was an assumption that the, you know, the Mag 7 and these big AI players would, you know, like Chad GPT would spend, you know, somewhere in the ballpark of$300 to$400 billion on AI infrastructure. That's just the capex. So this is the basically the chips and the relatively minimal cost of building up data centers. Chips are really the major expense here.

12:40That has been pushed up to$400 to$423 billion for the estimate for 2025. So this is a true arms race among these competitors. From my perspective, I think that this is a really big global risk for the economy in the United States, the company's valuations here, because I think there's real problems with this dynamic for their ability to generate future profits, despite the obvious power of the AI that they're building and the applications that I can see personally every day in what I'm using. Here are a couple of risks that I see. First, that CapEx is going to be functionally obsolete within a few years.

13:14I think NVIDIA estimates that their chips are going to be 20 times more powerful than they are now in the next three years. So whatever you're building now, that$400 billion basically depreciates to zero or close to it over the next two or three years. And so that's a huge problem. You don't have to just generate, you know, a good return, a 10 % return on that. You're now going to be competing with whoever buys the next$400 billion in chips in 2026, 2027. And so I think that's reminiscent of airlines to me, you know, to a large degree, right? You know, and Warren Buffett has this famous quote about airlines, I'm going to butcher it.

13:46But basically, if you take the total, you know, EBITDA or total profit of the combined airline industry over the last hundred years is close to zero, even as that investment has unquestionably increased the freedom of travel and quality of life for billions of humans on this planet over that time period. I think AI has a potential to be impactful in that same way while also being a pretty big financial risk for the people who are investing in it. And these guys at the top, like Mark Zuckerberg, they're not unaware of that risk. I think he has a quote where he's talking about how, yeah, it's a huge risk to invest these tens or hundreds of billions of dollars in AI, but it's also a huge risk not to invest in there and get left behind by the competition.

14:30And so, you know, I think meta is going to catch up to these other players in the next couple of years on that front. And I think it's going to be an arms race for a long time. So I'm pretty worried about that. And then like what you said, you know, there's a great episode. I listened to the Prof G with Scott Galloway podcast every once in a while. I really admire some of the things that he does over there. He had a great discussion a while back about the electricity use for AI. And one of the problems with electricity is that when you build a big data center, the demand for power goes up 5 % or 10%.

14:57it doesn't increase the price of electricity for everybody else by 5 or 10%. It increases it by 50 % because electricity grids have fixed infrastructure environments and power plants that provide electricity. And so it does get just a little bit more expensive for that next extra bit of electricity use. It gets a lot more expensive. And I think Americans around the country are seeing their electricity bills going up 30, 40, 50 % over the course of 2025 to 2026. And with a big portion of that increased demand being driven by data centers, I really do not think the American population is going to get behind building Sam Outman's or Mark Zuckerberg or Elon Musk's next $100 billion in wealth at the cost of their increased electricity bill.

15:38Something's going to change there. And that's going to have a major economic input. That's like there's two inputs to AI, basically, chips and electricity. If one of those inputs is going up in price at a pretty rapid clip and the other requires a relentless pouring inflow of just preposterous amounts of cash, that's a problem. So I'm worried about the financial prospects of companies that are generating this cool technology, even as I use it. But I have good reason for that because I move between all the AIs all the time, right? New one comes out over here. It's better. I switch to that immediately.

16:08It's free. You know, even the paid versions are like 100, 200 bucks a month. It's just not meaningful for the better product at that point in time.

16:15Mindy Jensen:I don't really have anything to comment on that because you've put a lot more thought into this than I have. Let's pivot a little bit and talk about careers, Scott. Like I said before, Before technology used to be the career to go into. And now those jobs are getting spit out by AI, chewed up and spit out by AI. And people are not keeping their technology jobs. They're having a harder time when they get laid off. They're having a harder time finding another job in technology. What are some ways people can protect themselves with their career when they're not already fi? I just read a great book here.

16:46It's called Good Economics for Hard Times. And it's really thoughtful here because, you know, one of the things that a free market economist might argue is, well, if the jobs are displaced, people get new jobs, right? And what you find in practice is, you know, people don't move that quickly between jobs, right? It's very hard to get a worker who's been doing something for 15 years to pivot to a new career. And there's a cost in society for that. And that the gains from AI are going to aggregate in the hands of a few people who are really able to exploit those opportunities. Maybe it's the Sam Outmans or these billionaire AI folks.

17:21Maybe they get crushed via the competitive dynamic I just discussed earlier. And somebody else who uses the tool for free to build a business will make a lot of money. I don't know what that looks like. But there will be disruption. And those profits will aggregate in somebody's hands at the expense of these other folks. And so I think that the only rational play is continues to go back to fire, become financially independent early in life and make that a priority. It just de-risks all of these situations. And what it does for you is it gives you time to kind of absorb those hits and those losses and those disruptions.

17:54disruptions. And it gives you the flexibility to actually pursue the opportunities that emerge in a freer way than somebody who can't, right? Somebody who is not pursuing fire, somebody who's stretched the limit and is living paycheck to paycheck, whether by choice or necessity, and there is going to have a very hard time abandoning that job. They're going to have to double down and double down and double down and work harder and harder and harder. And they may just lose. That'll end up in a catastrophic consequence for them versus the person who's pursuing fire and finding that situation harder and harder and harder may move on, Maybe they have a couple months or even a long period where they're unemployed or looking for the next opportunity, but they'll have their mind open and be able to actually find a winning position that gets behind a tailwind on there.

18:34I think there's going to be lots of disruption and lots of opportunities to seize. And those opportunities are going to be seized and realized by a few well-positioned, lucky, but also prepared people. And that the disruption is going to be an issue for society to grapple with. How do you deal with all these people that are left behind that thought they were signing up for a 30 year career or 15 years into it, still 15 years left in the mortgage? And this disruption is really killing them and their opportunities. That's going to be a challenge that we're going to grapple with. And I think that's I don't know how that's going to end, but I don't think it's going to be as smooth as this idea that, oh, new opportunities will emerge.

19:08Right. You have people that have been horse and buggy driver for 30 years and all of a sudden everybody gets a car, which is what happened here. Those horse and buggy drivers don't just like move on to the next thing immediately. It's going to take them time and that's going to be a challenge.

19:21Mindy Jensen:Okay, Scott, that's enough doom and gloom for this episode. Let's talk about how you can use AI on your FIRE journey. I think one of the greatest ways to use AI is to look at your financial situation, upload your financial situation to your favorite AI and ask it to analyze your situation, analyze your spending, analyze your investments, analyze your entire financial situation and see what it has to say. It can look at things in a completely unemotional way, whereas those of us who are human have a little bit harder time separating our finances from our emotions. So just having it be unemotionally looking at your financial situation is a huge win for you.

20:10I think that your answer is right, right? Just go in and plug in your challenges, your opportunities. I have no problem plugging in some of my financials to the AI, asking for feedback, and then don't trust it implicitly. But like anything else in life, take what it has to say and say, hmm, there's some good here. There's some real stuff that I wouldn't have thought of that I'm going to modify my plan based off. And there's some wildly wrong crap that this thing is spitting out here because that's how it always is. but my experience with AI is a very regular amount of this stuff is trash. This is not a human, but it is capable of providing very good inputs to a large variety of situations, as long as I'm willing to acknowledge that there are going to be a number of errors.

20:53So for example, that health and fitness protocol, we discussed this on a recent episode for New Year's goals. Of course, I built huge parts of that with AI. I built most of it based on a book called Bigger, Leaner, Stronger by Mike Matthews. Thank you, Mike Matthews. We really appreciate you. You're welcome on the BiggerPocketsMoney podcast. Anytime you want to talk about fitness there, built it based on that. But then I also plugged in a lot of things with AI and kind of helped me customize it. And then I brought that to my doctor and he was like, yeah, this is all good. A couple of tweaks here and there to fix these things.

21:22This one's unnecessary. You don't need that. That's what AI powered with human expertise can do. And I think that that's the answer. And if you do that over time, you're going to find opportunities as long as your position is not precarious. If your position is precarious and precarious, I mean, you're living paycheck to paycheck, you're not moving along this path to financial independence. I think the disruption is going to be a real threat to you. But I think if you're using this and you're on the path to financial independence, you're going to find opportunities. And I think that this community at BiggerPocketsMoney is very likely to be among, on average, the huge relative winners from AI in society these days.