585 | Getting to the Boring Middle: What You Need in Place First

21:47Jonathan Mendonsa:Yeah, totally agree. And I think we do need to have another episode on debt and different debt pay down strategies. I know there's the debt snowball, the debt avalanche. I think there's some hybrid method that we talked about in the past. And also, frankly, all debt is not created equal. Okay. While perfect world, you have no debt, but realistically, many of us have mortgages on our home. Many of us still have student loans. I know, Jonathan, you are very aggressively paid down$168 ,000 of student loans in about four years or give or take, but that doesn't necessarily mean that's the right path for everybody, depending on their timeline, depending on their interest rate, et cetera, because there is opportunity cost to that, right?

22:29Jonathan Mendonsa:You could invest that money also and pay minimum payments or something. I'm not advocating for either way, but I think everybody needs to go in with clear eyes on what their own debt situation looks like, frankly. But I think very obviously credit card debt is terrible, right? Like as you said, 20, 28, 30 % interest, that makes no sense, right? Like there are some things that are just obvious. This is hair on fire type scenario where if you're on the path to FI, you are going to get to a point where you are financially stable, financially solvent, and then ultimately wealthy. And you are not going to have credit card debt.

23:04Jonathan Mendonsa:You need to really triage this. I mean, that's a dire situation, frankly. But is that the same debt as a 3 % mortgage that you got in 2021? No, of course it's not. But there obviously are people who feel like they need to pay that down immediately. I would just counsel, you need to look at your financial life. You need to figure it out. And we're going to give you information along the way, but this is a very personal decision, but Jonathan, right. There are just some obvious things like don't have credit card debt very clearly. For sure. For sure. And so we're looking at, you know, if there's this equation, you know, what you earn minus what you spend, that's the, you know, the left half of the equation.

23:39And then you have a little, you know, equal sign. That's how math works, right? On the other side, you have something that's left, this remaining balance. And this is what you figure out what to do is Some people spend up until it's gone. And if there's any, again, there should be something left, especially after this audit, right? If you haven't done the audit before, it wouldn't surprise me. Many people do spend up until they can't spend anymore because they don't have a why for what else they would want to do. After you do this audit, if there isn't anything remaining, well, then we need to go back and put our attention on the other side.

24:08What were our two options? What was what we earn? And it was what we spend. We need to make some choices there because there's ways to increase your income and there's ways to decrease your expenses. Knowing how much flexibility you have now points back to why the expense audit is so critical. Look, if you're poor, like you're dirt poor, like that's your identity statement, there's nothing to cut, okay. Yeah, if that's a true statement, if that's true for you, then cutting is not gonna be the right answer, right? We have an income problem. And so we need to spend time thinking about how do we increase the income?

24:38You can't cut anymore. That's fine. This isn't exactly the same problem for all of us, but have you looked? If you haven't looked, then we can't just start there. We need to look. And even if it's bad, you still need to know because it tells you, are we putting energy into income or are we putting energy into expenses? All right, let's assume that after we've done this audit, maybe we've made a couple trims, we've gotten rid of a couple of things, but now we're putting our energy into the other side, the right-hand side of the equation. We're looking at what was left, the difference. And this is where you start talking about things like, how do I want to optimize that?

25:10How do I want it? What do you want to do with it? And now it's actually a circular loop because you could say, actually, there was actually a decent amount coming over here and I'm having to now make a manual choice about what to do with this remaining balance. What if I could go back to that pay myself first mantra? And this is what Brad says about autopilot. You don't want to make a choice every single month about what to do with the difference. If you know there's a predictable difference left, let's go ahead and make the choice before it ever comes to the other side. Let's load up those pre-tax buckets.

25:38And you're looking through things like making sure you're taking advantage of your match and getting free money and preloading contributions into accounts, that sort of thing. Now you're starting to think about investment strategies and you're starting to think about how the fees matter and making sure that the funds that you're contributing to are not loaded with fees that are eroding your returns. It's this kind of incremental process. We're reducing our decision. We don't want to make this decision every month. We're trying to put systems in place to create the outcome that you want. And so at the end of some sort of, you know, 5101 style 30 to 60 day thing, you should have gone around that circle a couple of times and had a good amount of time to think about the income, a good amount of time to think about the expenses, a good amount of time to think about how to do the difference.

26:21And another big one is, have you optimized your taxes? Brad, how many people get super excited about their really, really big tax return, best part of their year? A little bonus they got in the spring.

26:31Jonathan Mendonsa:Yeah. And that is, so tax refund is essentially an interest-free loan that you've given the government every single year, right? For many people who don't have the wherewithal to save money, that is pretty nice to get a couple grand back in April and it feels great. But realistically, for those of us in the FI community, we should be, we talk about the perfect tax return being a hundred dollar refund, somewhere under a hundred dollar refund, or maybe up to a hundred dollars and paying in because you want it to be as close as possible. You don't want to give an interest free loan to the government throughout the year.

27:01Jonathan Mendonsa:You want that money to be working for you. And And Jonathan, yeah, like you said, the investment side, talking about control, I think just having some understanding of your investments for the first time ever gives you a feeling of control that is hard to describe. Because I think for most of us, investing seems like a complete black box. It seems like something that only experts can do. It's impossible. I need to have insider information. I need to pay the man or woman down at the Edward Jones to manage my money. and you listen to someone like JL Collins and read his book, the incredible book, The Simple Path to Wealth, and you realize, oh wow.

27:42Jonathan Mendonsa:And also frankly, John Bogle and Warren Buffett who echo the same exact things, which is nobody can beat the market over a long period of time, over a 40, 50 year period, which is really what our investing lifetimes look like at the minimum. It's almost impossible to beat the market. It is almost impossible. So what is your best strategy? your best strategy is to match the market. And in this day and age, this is the golden age of investing. You can do that for almost no fee. You can buy something like an S &P 500 ETF or mutual fund or a total stock market ETF or mutual fund for a couple of hundreds of percent of expenses in minuscule, almost zero.

28:23Jonathan Mendonsa:So if your financial advisor is charging you the horrific assets under management of, oh, it's only 1%. And then to prove their brilliance, they're putting you in some expensive mutual fund. You're going to lose a significant percentage of your net worth, really 30 to 50 % and more than that over 50 plus years. Jonathan, that's crazy talk. So I think the control for me would be a lot of people look at that incomprehensible list of funds that they have in their 401k and they don't know what to invest in. What I always do, my quick heuristic is just look for the lowest expense ratio. Okay. It's usually under a 10th of a percent.

29:01Jonathan Mendonsa:And that is usually going to be something like S and P 500 or total stock market fund that is matching the market. That is the closest proxy for matching the market. And Jonathan, I think for me and for the vast majority of the fight community, thanks to people like jail Collins and such, that's the strategy that we take. And it is honestly, it's the simplest path to that wealth. I know it sounds trite because that's the title of his book, but there's no brilliance. There's no guy behind the guy. There's no secret to investing. It's all BS. Frankly, anybody who thinks that they can outsmart the market, they're just lying to themselves and to you to enrich themselves.

29:42Jonathan Mendonsa:It doesn't exist. It literally doesn't exist. Just match the market. So that's the control on the investing side for me, for sure. You know, I was just trying to think through how deceptive returns are, how deceptive it is for returns. And I was thinking through mutual funds and there's some that have some higher name recognition. I would say probably over the last few years, I feel like the ARC fund has had like a lot of name recognition. It's been in the press a lot. And when you see a mutual fund that has super high returns, it's very tempting to say, well, I want to do the one with the best return.

30:14And this is a huge mindset shift that you just, you won't process until you've been investing for a while. Like you personally, right? It just, this is not intuitive. What does it mean to chase returns? This is the problem. If you take a look at, oh, well, my guy has, you know, he got last 15 years, got 300 % returns, right? Well, that's, that's, that's pretty good over the last 15, 300%. Well, what was the return for someone that invested in January of last year to now?

30:42Jonathan Mendonsa:Those are two different things, completely two different things. And it is irrelevant what someone did over a horizon. What matters is from your entry point to your exit point, whatever that is, what is that return going to be? And that is completely unknown, including to the fund manager. But if your money goes down, they're still going to collect your fees, right? They're going to get their fees regardless. And so, you know, over ARC's inception, Maybe it's like a 300 % return, something like that. Well, over the last year, maybe it's been more like 10 % or 13%, or there was a year where it was down 20 or 30 % or something like that.

31:20Very volatile, right? And so for individuals that are hopping in and hopping out, maybe that's okay, maybe. But the point is for the person that looks at, you know, morning stores, top five returns, you're chasing returns. Those returns are already locked in. Now think about this, like as an individual, if you made a bet on something that blew up and it blew up and you know that that thing, you found value, you identified something that was undervalued by the market, you invested it, you made a great choice and it had a 10 Xer and here you are. Well, the problem is now you have to find the next one because maybe that one's done or maybe it peaked and you have to get out.

31:57Well, that's going to create taxable events. And then two, you have to figure out what the next bet is and they do stumble. Now, the problem for you as the individual investor is you haven't found the person that will never stumble. And regardless of whether or not they land the next bet or not, their fees are a locked in thing for you. You understand that? And so these are just, you got to process this because it's so deceptive to go look at a mutual fund that has great returns. You're not getting any of those returns. You're getting what happens next, the next chapter. And if you don't know, which none of us do, you're not even relying on your own judgment.

32:31You're relying on theirs and how they see things, right? You're relying on some level personalities because they don't have a crystal ball. They have to make guesses based on maybe additional information, but they have to outperform their fee. They have to outperform the market. So they have to take more risk. And it is extraordinarily nearing impossible to outperform the market over a longer period of time. And this is why, even though we have some people in our community that are huge fans of picking individual stocks like Brian Feraldi likes picking individual stocks. He would never in a million years dismiss index fund investing.

33:09It's a core of his holding, but occasionally what he does is he as an individual feels like he has identified value that the market isn't priced in and he won't take a position, a long-term position. And again, as an individual investor, maybe you can afford it, but here's the real thing. That's great for Brian Feraldi. He's doing a lot of research and he makes some great choices. He's a long-term buy and hold investor, but that is not what a mutual fund is that's actively managed. They have to outperform the market. They have to make new bets to keep capturing value. And that comes potentially at, you know, you're at the disadvantage on that end of the equation.

33:47So I just wanted to throw these up there to be intellectually honest. When you're thinking about long time horizons and you want to take your brain out of it, keeping up with the market will do exceedingly well for you. And the vast majority of individual investors do not keep up with the market. So just keep that in mind. So part of control has to be, you appreciate the why of that. You stop getting shiny object syndrome. You take your lizard brain, using a lot of Brad's terms here, but you take your tiny lizard brain out of it and you just say, all right, I'm going to automate and control what I can control and I'm going to reduce the fees and I'm going to look for keeping up with the market over a long time horizon.

34:27So, Brad, I know I just circled the wagons there, but I just wanted to provide some context because when we're talking about the right side of the equation here, what do you do with the difference? We have income, we have expenses. Now we're talking about investments, but it's a circular loop. For someone that's saying I'm in control, at least with regards to the investment side of things, what would you say are table stakes for saying you're in control? Yeah.

34:49Jonathan Mendonsa:So you're in a great place, right? First off, let's take a step back and say, if there is a gap, right? Your income minus your expenses and you have a gap, you have a number there, you're doing great. You're saving money. Okay. Obviously we want to increase that money every single month, that amount, because the more you can shovel into your investments, the quicker you're going to get to five, but you're doing great. But now you have to put this money into work, right? And this is what we've been talking about. Where do you want to direct it to. So I think clearly you start with your 401k and find out, do you have a company match?

35:21Jonathan Mendonsa:You just need to ask your HR department. You want to maximize that company match because that is literally free money. It's part of your salary, whether you realize it or not. So at the minimum, you want to do that. But then where do you direct the rest of it? I think there's a reasonable case to be made to put more into your 401k because you get a tax deduction for it in the current year. And like we always say, control what you can control. And that is lowering my taxes this year. There's something to be said for that. But of course, there are other ways to save. There are something really simple, like a taxable brokerage account.

35:54Jonathan Mendonsa:And now this just means an investment account that is not under one of these umbrellas of a 401k or a traditional IRA or Roth IRA. Those are retirement accounts. A taxable brokerage account is just the amount of money you have in your savings. Okay. So this could be sitting in a high yield savings account, which actually is not a terrible idea either because high yield savings account are paying three to 4 % now, which is not nothing. You could put your emergency fund in there, but realistically taxable brokerage is just, okay, instead of the money sitting in your checking account, earning nothing, you need to get that money to work.

36:27Jonathan Mendonsa:So you can have an account at Vanguard or Fidelity or Schwab, just like you might have a retirement account and you just open up a brokerage account and you can invest in whatever type of securities you want there. So an ETF like VTI is something that I invest in. VTSAX, of course, is famous in our community, et cetera, et cetera. But this money needs to go to work. It can't just sit there because there's such an opportunity cost, Jonathan, right? Like if the money is sitting there not earning anything, then you are giving up. You can't get wealthy doing that. The money cannot just sit there because like we said, this money is going to earn and it's going to compound and it's going to double most likely every nine years, even if it was just sitting there investing without putting in additional money each month, which we obviously are.

37:12Jonathan Mendonsa:So that's why you're going to start to see your net worth snowball. It's going to be extraordinary because not only is it growing, but you're shoveling new money in every month. So, okay, that's something you need to automate contributions Like we talked about, everything needs to happen without you being involved. It just makes your life easy. You want your personal finances to be the easiest part of your life. It should be. Once you get past that 30 days that Jonathan talked about 30 to 60 days, there is no excuse to not have your personal finances on autopilot. Everything should have a place.

37:45Jonathan Mendonsa:Everything should be paid automatically. All of your savings, all of the money in your brokerage to your 401k to your IRAs. It should all happen automatically. you need to know what investments you're in and why and you need to know what are the fees is this just something that somebody told you to invest in a decade ago well that's not a good enough reason anymore you know how expensive this can be you know that this could cost you 30 to 50 percent of your net worth just by being in the wrong investment that has too many fees and you need to unwind that really so for me it's lower expenses know where to direct it get your 401k match, have money going into all these different accounts that are essential.

38:24Jonathan Mendonsa:And that Jonathan, that to me is control. Yeah. And being able to understand what is the nature of the investment vehicles that you're in. So you have your tax buckets like the 401k or maybe the 457 or the 403b inside the United States, you know, Canada, Aussie, you guys have your own names for some of these things that are pre-tax, et cetera. But, and then inside of that, you're making a choice about what fund you're in. You don't understand there's a difference between the tax treatment and then the actual fund. What are you in? So we're kind of moving through these phases. You have now moved out of control when you can say that's done.

38:54And here's a challenge as a community. This was our starter list. We're obviously pretty familiar with the content, right? We've been

39:00Jonathan Mendonsa:talking about financial independence now for approaching a decade, but we're not claiming to have the definitive list on this, but we are working towards standardizing a list that individuals could feel good about if they are wanting to say, you know, I feel like I'm in control now. So with that in mind, choose a buy.com slash login. This is episode 585. And you will actually be able to go in and join the conversation. We'd love to hear your list. What did we miss? What should we add? And we actually will be using that feedback to start to standardize and create something. It could very likely have things on it that we didn't include today.

39:34And it could actually be standardized for various different countries as well. So definitely get involved on that. We started out with our pillars of five back in episode 21, and I think probably like 30 % of those would still be on the list today. Not because they were bad, but because we got better input over time. We're counting on that feedback from you to help us really stand. I think it's something that would be useful for the community to have this, a list of to-dos to be able to say, I am in control. It does not mean that you're debt-free. It does not mean that you're at financial independence, but it does mean that you did the work and you put a plan in place over a 30 to 90-day period of time.

40:09So without in mind, now for the first time, you are in the next phase, which is you have options. You have options. And when you have options, you should start thinking about gamification, right? That's gamification there. And part of this is when we're talking about options, we're now looking at things like milestones, right? Milestones that we could potentially hit. This is a concept Joel from 5180 mentioned to us. And he had his own list, which were probably good, probably worth listening to, but we're probably not going to use them directly for this one, although there will be some obvious overlap.

40:42Milestones are things that you should look for to recognize your progress. Things that you can put in the coming soon mirror, right? Things like when are you going to be debt-free except for the house? You know, that would be a big milestone if you could be debt-free except for the house. When are you going to have the house paid off? That might be really, really far in the distance. Not every milestone is going to be for every person. When will you reach something like Coast Fi, which is something that we explored just in the last episode and we'll talk a little bit more about today. Something like barista fi, lean fi, these types of things inside of each milestone.

41:12Maybe you have smaller things, which are more like, you know, checkpoints, little actions that you could take something like I just had my first, you know, I was able to, to max out my 401k for the first time. You know, I was able to get my first tax return under a hundred dollars. I was able to, I have my first 100k in an investment account. These, and there's a million of these, right? So we're thinking about gamification out loud and through the lens of options, you're saying, what do I want to prioritize first? Maybe based on the milestones that are most interesting to me, maybe based on checkpoints that I think are very achievable that I could do in real time.

41:47You're getting a little bit of victory, a little bit of progress each and every day, but it doesn't have to be the boring middle, right? It's not like there's nothing happening between control to independence, we're going to work through these ideas of recognizing our options, then working through our optimizations and thinking about things. Your optimizations could really carry you all the way to independence, which would be the final phase. And independence, you could be targeting lean fire, fat fire, any ridiculous number that you want. But independence basically says, if you never made another dollar, probably going to be all right.

42:23Probably going to be all right. And you could have retired or not retired. The retirement is a completely optional thing that we'll get to in a little bit here.

42:31Jonathan Mendonsa:Yeah, I love this. So options to me, once you have everything set, like you said, once we have control, you do have options. You have a world of options because you are in an increasingly stable and then really significant financial position, which gives you, as we always talk about F you money to do things that you want, which maybe for the first time in your life, you can do that. But you have options in every aspect of your life. You can take a mini retirement, possibly. You have different flavors of FI, as we've discussed, Coast FI, Barista FI, Lean FI, whatever, Fat FI, frankly. Also, there are different, many, many, many different investment options.

43:07Jonathan Mendonsa:We've talked at length, of course, about low-cost index funds, but that's not the extent of your investment options. There are many people in the FI community who invest in real estate. There are many people who invest in plenty of other things. That's something to consider. I think, frankly, the bedrock of most people in the FI community's investment life is going to be low-cost index funds. But there are many people who play at the margins with, again, with real estate and individual stocks, bonds, etc., even crypto, things like that. Is that unreasonable? No. I mean, you have options and you need to look and you need to be very rational about it.

43:39Jonathan Mendonsa:But, Jonathan, I think that's part of the fun is there's no prescribed path to FI. Okay. There are general principles, but this is a very uniquely personal thing. And like we've talked about, you ruthlessly paid down your debt extremely quickly. That's a thing. And that's wonderful. And that worked for you and your family. Other people might make a different choice. Does it make one person right and one person wrong? Of course not. But I think we all need to do some introspection and really think about what does this path look like for me and my family and the people around me. I think that you can't think about your options without thinking about what does my life look like?

44:19I think that's a great point. So you actually, I'm glad you rounded it off. I'm glad you even said things, you know, individual stock picking and crypto that's all here. Like there's no dogma. I mean, we, you hear us, you know, we, we recognize that there's a responsibility for us not to go off the rails here and talk about every fringe way that someone has made a million dollars, because the key is to help as many people achieve their goals as possible. And for every single person that you know that's made a bunch of money in crypto, there's a broken, bloody stream of people behind them that are bankrupt and lost everything on a bet because rug pulled, etc.

44:50And so it's not about what has worked for someone else. It's just increasing the odds of your success, your personal success. And even in our own lives, when there have been a choice that we made that led to a better than positive outcome or a suboptimal outcome, you have to personally own that. You can't go back. right? And so even when we have done something else and we recognize, oh, well, we got suboptimal, well, and you know that you could have done better if you had just done, you know, the market. In other cases, maybe you've done better in something else that you took a stab at, but you also know that you got lucky.

45:25You got lucky. And could you do it again? Maybe, but would you get the same outcome? Not necessarily. And so there is, you know, with the point that you made about me paying off my debt, that's a great thing. Personal finance is personal. A lot of people gave me not a hard time, but just said, you know, you would have made more if you had done, you know, this and you just stayed in the market time. And that's not a wrong answer in absolute terms. But what it fails to capture is the nuance of personal finance is personal. And then at a tangible level that most people probably could appreciate, paying off my loans and prioritizing them allowed me to feel much more confident about stepping away from my job when I had to make a choice between doing the Choose FI podcast and doing, you know, my job because I had paid off my student loan debt, I had decreased my risk because I had decreased my risk.

46:11I could take more risk and I was able to do that. So when you're looking at how do you evaluate whether something is a good choice or a bad choice, just be aware that someone giving you their opinion doesn't have all the context. They don't have all the facts that you're aware of. And so getting rid of risk can allow you to take more risk. If you have your finances on autopilot and you have your slam dunk path to financial independence on autopilot, you can be pretty risky with this stray five or$10 ,000 that you wanna do X, Y, Z. And guess what? You're not all in on that hand because no one else is gonna dip into their pie to make up for your bad choice, right?

46:49You gotta build your own. No one else can do this for you. What we can do though is we can give you the tools to build it for yourself and give you the best chance of success by highlighting for you the principles that stand true over time. That's the difference. And that's why this requires nuance and it requires your input.

47:04Jonathan Mendonsa:Yeah. Agreed. And as you were talking about that, two principles that I had written down on my list of a hundred that I made back to the list. Oh, the table of contents is coming back. Yeah. It's always coming back. Come on. So a couple of things in terms of decisions, right? So we had the incredible poker player, Annie Duke on episode two 62. So she wrote a book called thinking and bets, which I think is just an absolutely essential book for just living basically. And she talked about the concept of resulting, which is we generally look at the result of a decision and then say, okay, did the result turn out good?

47:39Jonathan Mendonsa:It was a good decision. Did the result turn out bad or poorly? Then it was a bad decision. And that's just, that's simply not the way that life works. Sometimes you can make a horrific decision and just get lucky and it turns out right. That doesn't mean it was a good decision. It was never a good decision. It was a terrible decision. It just worked out okay. So it's really important to not delude yourself and you are pretty easy to delude. And another thing, frankly, is investing is not gambling. So many people think investing is, oh, I'm going to buy this piece of paper or now, you know, little digits somewhere on a computer screen and I'm going to just sell it for more as soon as it goes up.

48:16Jonathan Mendonsa:Like that's not investing. That is gambling. Investing is what you're really doing when you're buying something like a total U.S. stock market index fund is you're buying a little ownership piece of three to four plus thousand companies and potentially a hundred plus million workers that work for those companies. You are now a part owner of all of those companies and all of those people are working every single day, five days a week to enrich you. And that's a totally different reframe on investing rather than, oh, the number on this screen is going to go up and, oh, it's, I see a little green on that number, Jonathan, that cute little numbers in green.

48:55Jonathan Mendonsa:Oh, great. Or no, the number's red. It's bad. That's a day. That's a day thing. It's not a 50-year thing. Investing is a 50-year thing. I've been trying to make peace with this idea of individual stock. I've had some success here and there, but I also recognize how much you had to think about it and how long you had to be willing to be wrong before you were right. And I've been trying to think about, is it gambling versus, is it you thinking in bets? And is thinking in bets gambling? There's probably a little bit of overlap, but I think you, I really, probably for the first time, you helped me kind of parse out the difference there.

49:29Looking at a ticker on the screen based on Apple's 24 hours charts that it shows you on your little phone, Google or iOS and saying, all right, do I think later today it's going to be green or do I think later today it's going to be red? Like pure gambling. What I love about Brian Feraldi in general and his thought on what he's looking for stocks. He's looking for value. He's looking for things that he believes, this has nothing to do with gambling. He believes the market has mispriced something because of a short-term bias that will correct to the other way. Now he is thinking in bets, but is that gambling?

50:04Well, I don't think it's gambling to the same way that we kind of have like a derogatory statement like Russian roulette. Let's see what happens. What it is, is he believes he's identified value that the market with its short-term bias and needing to always be able to convert can't appreciate. And so he locks in a position, but he has to be willing to hold it for at least five years. And anytime that I've made like money, like in an individual position, I recognize that because I felt like I knew a lot about a thing and what was happening behind the scenes, I bought that position. And usually what happened is my position dropped in value by 30 or 40%.

50:40That's just kind of what I've seen. That's a horrible feeling. You feel like you're the biggest idiot in the world. You question yourself. But the thing is, when that happens, you're saying, all right, but was the thesis true? Did that invalidate my thesis? Or is that the market doing its frothy thing that has nothing to do with my medium to long-term thesis? And so I've actually had a few things that made three or four X, you know, with the benefit or a five-year plus window. And now I'm like thinking, oh, you're a genius. You're so smart. But you're not. You got very lucky. But what was true, and I think what differentiates it is this idea, thinking in bets or really not gambling, having a belief about something to be able to get through.

51:19But here's the problem with it. Here's the problem. I've had some success with it. No one guarantees you an outcome. And let me tell you, when it goes down and you feel like a sucker, you don't want to tell anybody about it. When you're winning, you want to tell everybody. But here's the problem. And this is why, again, going back to what I said earlier, but nobody that saw how you won with that thing should trust you with their money to go find the next one. because your odds of finding the next one are still zero. It's a coin cost. It could go either way. And the more that I recognize that, the more I have an appreciation for the fact that like, and this is what a mutual fund is up against as well.

51:53They have to keep up with the inexorable market. They have to make a choice to beat the market. So if I were in the position of having to produce better than market returns for individuals, I would have to go find the next thing. And if you don't want that responsibility, but you still want to end up with three to four million dollars, you should just take your lizard brain out of it and find a way to reduce the fees and think about time horizon as opposed to timing the market. This is kind of like I've been really fighting for a long time internally and externally way to verbalize this little cognitive dissonance between maybe some individual success I've had at times, but literally with five year periods of feeling like a complete fool, right?

52:36But then some success, but then actually starting to balance that out with like the more and more I appreciate about, I want to do other stuff with my time. Yeah. I still want to be a millionaire. Yeah. I still want to have stealth wealth. Yeah. I still want to achieve my goals of financial independence. I don't want to spend time looking at what the market is doing today or tomorrow or this quarter or next quarter, wondering what the Fed Reserve interest rates are going to do to X, Y, Z. I don't want to do that, but I would still like the outcome? How can I do that? This is kind of where I landed.

53:03I have a deep appreciation and respect for the simple path to wealth.

53:08Jonathan Mendonsa:Yeah. Agreed. And there's also a concept of return on hassle, which is an interesting one, right? It's like that title down. It's so true. I mean, so yeah, as you said, it's kind of a fool's errand to think that you're going to outsmart the market because you have to get it right twice. It's hard enough to get it right on either the buy or the sell timing, but you have to get it right both times. The chance of you doing that over and over again by finding some absolutely brilliant thing and then getting it right on both the buy and sell, it is just improbable. And that's the thing. It's like, what is your best chance to be wealthy over a lifetime?

53:44Jonathan Mendonsa:I think it is a simple path to wealth. It just is. And then also, like I said, the return on hassle, Jonathan, you know, you like you just talked about embedded in what you just said for the last couple of minutes. It's like, you're thinking about this all the time. You don't want to tell people you want to tell people about your successes. You're ashamed of your feelings. I can't stop talking about it. Right. And it's like, I mean, you're doing all of this and I find it very hard. And of course, let's be clear. You're doing this with it. If you are doing this, you're doing this with a small percentage of your assets.

54:11Jonathan Mendonsa:Most of your assets are in low cost index funds, but you have some play money to do this kind of stuff. Like the likelihood that with all of that and any fees that you have to pay, that you're beating the market, that you're beating the passive portion of your investments. It's pretty slim, but even if it is, it's probably a small amount. And is it worth the hassle? I think that's a question. Is it worth the stress? Is it worth the, I don't want to tell my significant other about this. I don't want to tell my friends about this. Is it worth the hassle? And I think for most of us, it's just simply not.

54:40Yeah. I think what you said there, and I wanted to highlight it is because any single individual could look at a pick that has outperformed the market over a five-year period. Okay. But what about over 40? You know, like, like stretch this out. Now imagine you're all in on this hand. Are you all in on this hand over 40? Is that going to keep happening? Are you going to keep nailing the winners? Or is the very fact that you had success here likely to, you know, tilt your decision-making to make more risky things and then end up be behind? So again, I think very, a lot of people can make a choice or two choices periodically and outperform over, you know, this thing and maybe wildly outperform, but you don't get to go back.

55:22You don't get to go back. And the stats just show us the vast, vast majority of the people. In fact, 99.999%, maybe everyone that tries to do this over time, over 40 years falls flat. So I think that's the balance act there. And yeah, I mean, you don't need to be embarrassed about talking to anybody about anything, but certainly as a cautionary tale or a life lesson, recognize the fact that everybody wants to talk about their winners. So when you have this person giving you a hot tip, they don't always win. They're not talking to you about their dogs, right? They're not talking to you about the things that they got burned on.

55:57And if you have, you know, there's a story and I think it's, maybe it's true, maybe it's not, but the point will still carry. Let's say you have this crew of people that start out with a hundred thousand people and they choose option A on one side and option B on the other. And they call half their list and give them option A and option B. Then they make their bets and then A wins and B loses. All right. So they never talk to B again. Now they take that little list of option A where they just won and they doubled their money. And now they say, hey, we got a new pick. Here's C and D. Now they split that list into two cohorts, right?

56:30And they bet one side and then they bet the other. One side wins, one side loses. They cut that list in half. Now this tiny little cohort has just had two wins in a row. Now they're unaware that 75 % have been scalded, but for these people, two picks in a row. All right. Now they move on to E and F with this little cohort and they split them in half again. They pick two sides. All right. But now this time, these people can't miss. They can't miss. I will give you all my money, all of it. All right. Like whether that I'm sure a version of that has happened over time. This is a parable, if you will, but I'm sure a version of that has absolutely happened.

57:04And you don't know. And so be very careful about hot tips and what people aren't telling you. If you don't want to worry about any of that, again, return on hassle, simple path to wealth is absolutely the way to go.

57:18Jonathan Mendonsa:All right, Jonathan. Well, speaking of options, we had one of our community members wrote in. His name is Fish Guy, and it is specifically about options. He says, my 2026 looks a little different. I'm considering taking a sabbatical starting in May for about six months. My wife and I are 30 years old, have about 700K in assets. We have very safe jobs, which makes it feel very risky to step away intentionally. We make about 240K combined, no kids. This break will hopefully serve as a reset to help us figure out what we want our lives to look like. Now, there's a lot of angst leading up to this, particularly because we have no plan for after the sabbatical.

57:54But we feel more empowered than ever with the FI community behind our backs, and we feel certain that now is the time to make the change. Curious to hear from other Coast 5 folks who have taken a similar leap of faith. Brad, what we have here obviously is a couple that have control and are contemplating their options and they're going to lever the power that they've accrued before reaching financial independence to just take a step back and then see what life they want to step back into.

58:25Jonathan Mendonsa:Yeah, I love it. And I love also the question of I'd like to see what other people in the community are doing. And Jonathan, that's the cool part is now we can all discuss this, right? So go to choose a vet.com slash login right across the top. When you're listening to this episode, you'll see a big, big banner that says this episode's title and you just click on it and you leave a comment and let's, let's discuss this. Let's talk about it. All right, Brad, this next message we got is from Marty. Marty says my biggest goal for 2026 is to pay off two of three credit cards. Total debt between the three of them is 55 K.

58:56I'll be paying one off in March, basically paying off about 35K this year. So I would say Marty is in control, right? Do you understand? Like Marty is not debt-free, but Marty for the first time, maybe because clearly this credit card debt has been accrued. Marty has a plan put in place to achieve a short-term outcome that is going to unlock a lot of options. Because Brad, when you don't have 55K of credit card debt hanging out over your head, you know, at a 20 plus percent interest rate, you have significant cashflow options.

59:29Jonathan Mendonsa:So many options. And yeah, sometimes this is not all about being a millionaire or a multimillionaire fight. It's about getting more power on your side of the ledger. And Jonathan, you famously say, get back to broke. Like that was, that was something that I didn't appreciate. I mean, you said that hundreds of times I didn't appreciate it. And just hearing it now, it hits me different because frankly, for somebody who's 30, 50 plus thousand dollars in debt, Getting back to broke is an amazing thing. It's extraordinary. It's life-changing. And yeah, paying off debt as your first act on the path to FI, that's pretty damn good.

1:00:05Jonathan Mendonsa:And yeah, onward and upward from there. I appreciate you saying that. I was always aware when I was saying it, and I was super feeling it, that you weren't impressed with my pros. But yeah, it always resonated with me just because it felt so far away. You're 168K, and I was angry about it, right? I was angry that I'd made these choices at a young age, trying to do right, trying to be on the professional path, trying to get success. And here I am in a career that's just toxic. And I'm going to have to unwind all this to unlock, in my mind, to unlock options. So yeah, back to broke was a, it was a big deal for me.

1:00:35So I appreciate you saying that out loud, even now. You know, Brad, we actually had a lot to cover and I had the goal to do even more community member content in this. And I think it's just going to be sometimes, you know, the content drives itself and sometimes you find a way to do both. You know, you just never know until the episode's over, but I thought maybe for this episode, why don't we wrap it off by bringing in frugal wins of the week? We just added it to the platform. We're encouraging members to leave us their little frugal win. And sometimes it's big things and sometimes it's a tiny one percent.

1:01:07And today we have a frugal win of the week. And this was shared with us by Eddie. And Eddie says, as a new dad, my caffeine intake has increased over the past year. I was primarily drinking energy drinks and even with buying in bulk, I saw the cost start to pile up. So I switched over to buying a jug of black tea from Walmart instead. This jug costs around the same as one energy drink, but it can last me the whole week. I'm easily saving$50 a month just from this switch. You know, my only concern, Eddie, would that you wouldn't be getting a lifetime supply of taurine in every dose. That's awesome.

1:01:45Small little wins, right?

1:01:47Jonathan Mendonsa:Yeah, I like that. I I like that. And yeah, my caffeine consumption, I actually get the, I guess the kind of curry cups, but they're Amazon brand. So Amazon has their own brand called Happy Belly. And I forget exactly what they're probably like 20 cents per cup thereabouts. Not saying it's the best thing in the world, but they taste great. And yeah, pretty good deal. So always lots of ways to save in these things. If you're willing to just do some research, look around. I've been pretty happy with the light roast, the breakfast blend on the happy belly. You know, I was, uh, I was actually just this last week thinking about it.

1:02:22One of the first things that I ever, uh, documented on the podcast or tried on the podcast was trying to get into like a coffee mode kick. And I was talking about how I was getting my coffee at Costco, et cetera. Anyways, but I decided I wanted to learn how to do a pour over cup of coffee. And I was using this thing called the Kim X and I had this little grinder and I would do it all right there. And it would be my morning ritual. And I was thinking about it last week. I am still using that same coffee grinder, a little Capresso coffee grinder that I bought 10 years ago. And if you think about it, you know, in terms of valuing the things that you purchase, when you purchase something, how often do you use it?

1:02:57If you use it every single day, then putting the price on that, you know, can be a little bit higher than something you use once every, you know, six months or a year or whatever else is just taking up space. This little coffee grinder has lasted nigh on to 10 years with daily use. And it just keeps on going. The Kim X would have too, but my, uh, maybe it was me. Somebody dropped it and it broke. I don't remember. Anyways, details were lost to time. It would have done it pretty well, but I, you know, drinking your coffee black, just like drinking your tea black and just focusing on how do I get a great tasting cup of coffee, as opposed to just covering up with cream and sugar.

1:03:32And until you get that pumpkin latte taste, there's calorie savings there. There's monetary savings there. And if you can find a little coffee grinder to last 10 years, like that little Capresso, then, you know, there's the joy of seeing something well used. All right, my friends, the fire is spreading. We'll see you next time as we continue to go down the road less traveled.