600 | FI 101: Teaching Financial Independence to Your Community

22:44Having the FU money is really powerful, right? And understanding how all this works, but I cannot stress enough. It's being around other people on the same path, which is why creating this group and going to these in-person events are a hundred percent the reason I've been able to create this life because I would have never even had the idea or the courage to do any of this.

23:08Jonathan Mendonsa:Yeah, it's so important. And just to be clear, if you're listening to this and you're not a member of a Chooseify local group, just go to chooseify.com and in the upper right corner, there's login slash register or something like that. Jonathan is constantly changing the button. So I'm not sure what it says at the moment, but you can create an account and it takes 30 seconds. You just say, Hey, what's the closest city or town to you? There are many, many, many hundreds of local groups all across the world. And if there's not one in your area, you can create one. Like Kristen has said repeatedly, I created what I wish existed.

23:41Jonathan Mendonsa:She did that with the St. Louis group, rebooting it, and with Five Friends Travel. Alan, I wanted to pivot to you. That phrase, I created what I wish existed. Is that something you've ever thought about in your own life as you've progressed down this path to five? Like I said, I think I want to give back. A lot of that came from teachers early in my life, high school teachers particularly. Growing up, I grew up in poverty as well. I grew up on a farm. I realized very quickly this is not what I wanted to do with the rest of my life. We went to college, got a degree, got a degree in accounting, and used that to springboard a career that allowed me to combine a couple of my passions.

24:31I love numbers. I love finance, things like that. But as I grew my career, I was able to teach a lot of people as well. So it wasn't always, I'm just sitting in a room with a green visor, hit my calculator for 18 hours a day. It was, how do I teach the next group of people to do what I do? We always had this thing at work where people would leave. I mean, there wouldn't be growth for them at that particular time. But our goal was always to train people to go to their next job, whether it was with us or the next company. Because not training people, you get exactly what you end up with. Our entire group was always about, let's learn the next thing.

25:20Let's teach somebody something. I've kind of stuck with that. And since I've retired, it's been the same thing. It's like, I'm always available for a call. Somebody wants to talk through a situation. If we're doing these one-on-ones and two-on-ones and nothing is better than having someone come up to you and say, after the one-on-one, we went to a bar. That's kind of what we do sometimes. Somebody came up to me and said, I think you might've changed some lives today. And that kind of gives you goosebumps and you go, okay, now I know I'm on the right path here. This is fun and it's gratifying on multiple levels to get a chance to have this conversation with you because when we're doing it just between the two of us, the feedback loop is there's space in between it.

26:07And just seeing how you've been able to realize this in your own communities is really rewarding to get a chance to hear. I wanted to focus on the FI 101 and I'm trying to remember now, Kristen, I know you were kind of giving us a little bit of the setup for how we got here. And you mentioned you started out in the brewery, very casual. And then kind of maybe around the time that Brad and I were starting to kind of kick things up a little bit and talk about it again on the show, you moved to the case study templates and you see a lot of enthusiasm. But now, and rightly so, I mean, let's be real.

26:38Let's just call it here. This community represents the stealth wealth community inside the United States. This is the entry level, middle class lifestyle, but it kind of hides. It's a veneer, a very thin veneer behind an incredible amount of wealth that is aggregated when you don't spend everything right up to your eyeballs. And so there's a lot of millionaires in this community, a lot of them. If they've been on the path for 10 plus years and they've been maintaining a savings rate, yeah, there's a lot of multimillionaires inside this community. What's amazing is how much they're benefiting because they are, this is the pattern that they followed.

27:14You're the average of the five. They're curious. They're ongoing learners. They tend to be outperformers in many ways and they've found each other. But now, and this is what we always hoped for. So this is absolutely the natural outflow of this. You don't want to put your arm up and say, this is for only the people that get it. This is only for the people that just, this comes easy to, this is only for the accountant brains. This is only for the, you know, the spreadsheet nerd. No, this is for everyone. And so through this lens, you want to invite new people in and having anything to do with optimization and a million plus dollar net worth is as far away from relevant for them as you could possibly imagine.

27:53And so we're not talking about capital gains harvesting at this particular stage. It's not, it's not even, it doesn't even need to show up. We're not talking about backdoor Ross. We're not talking about all these Roth conversion ladders, XYZ tax schedules, marginal effective at At this point, we're starting with, in my opinion, we're starting with a why. I would like to take this opportunity to actually spend a little bit of time getting your input on Financial Independence 101. Brad and I both spent a lot of time both this year and over the years brainstorming what this should look like in our minds.

28:30But you're teaching it and you're deciding ultimately what you think for your community is going to resonate the most. And I would be curious for both of you, and maybe start with you, Kristen, how to kick this thing off. What are the concepts and the principles that you wanted to convey to that person that maybe can't relate to the million-dollar-plus net worth and is like, this is my day zero? We really noticed in the last however long you guys have been talking about going online and joining your local group that we were getting all these new people. That's really kicked that off for us. And that's when I realized these people just need to get, they need to know the basics.

29:11They were asking questions that made it very clear. They needed just the basics. So that's when I mentioned to Alan, you know, I have this idea. Let's teach that. Let's put together a course. But again, I say, I'm not great at tech. Help. And he's like, you know what? I'll take it on. So we brainstormed the ideas, but really he kind of did these slides. So I'm going to let him kind of jump in and talk about what this looks like. It really was, if I were to look back and say, what would I have liked to have known 20 years ago, 30 years ago, in trying to figure out what to do with my next dollar, not spend it.

29:50If I have a dollar, where should have gone? I listened to a podcast, The Money Guys. They had the financial order of operations. So we kind of based some of it off of that. And then we also use the pillars of five from your guys's podcast. So it really helped develop. If I have a dollar, a gap from what I earn to what I spend and there's something left over, where do I put that? And backing up, I think we may even need to go back to maybe a personal finance 101 in some cases, because we do have a lot of folks that are brand new to trying to figure all of this out and they might need some help with some of the very basics.

30:33But as we were putting this together, we knew we had a fair amount of the crowd that was new to our group and turns out we're new to Phi as well. So how do we convey, I hate to say how simple it really is. Because I think all of us understand that the math is easy. There's no issue with understanding the math. It's that space between your ears that really gets in the way of everyone and everyone's FI journey in some cases. So how do we make it simple? How do we break it down and try to get, all right, you're just joining this path. What should you do first? So that was the basis of most of the presentation and trying to figure out how to convey that.

31:22Alan, and your very first slide is what is financial independence? Yeah.

31:28Jonathan Mendonsa:And Kristen, this to me is the question, Alan, as you're envisioning these slides, I love your concept of what's the first step you take, because really it's going to be about the numbers. It's going to be about the action, but, but what's the hook? What is that North star for somebody? Like, why would they want to do that? I guess that does get to what is financial independence, but how do you emotionally get them involved in this? Everything I put in these slides is entirely original. I think it was all stolen from somebody. So I looked at a few different variations of what is financial independence.

32:06And I, you know, the first one we chose was you get to maintain your lifestyle without trading your time for money. So that was the one, I think it might have been Stephen Boyer, who I saw his 5101 presentation on YouTube. And that one resonated just because everybody has this mindset of, I'm going to work until I'm 65. I'm going to retire and do whatever. But if you can do it earlier, you should. You've got a lot of life to live, even at 65. but if you do it at 55, like I did, or if you're going to do it at 45, like a lot of the community has, why not? That's the, I don't want to call it the hook, but if you can live the life you want to live and somebody doesn't have to pay you to do it, then why not?

33:00Yeah, I think you've nailed something there that I'd like to spend a second on. And that is one, that tie between the two, which is somewhat artificially made. Most of us can only afford the life that we're currently in if the job continues bringing the income. And so that hook there, people don't realize that thread, how deeply it's woven in, and they don't realize that there is even a way to separate that at a much earlier age. And then the other thing you said is, I'm actually going to push back on it a little bit. You said, you know what, maybe we even need to do personal finance instead of five.

33:31I think, no, I think personal finance has failed for one very singular reason in that it has no why behind it. It has no why behind it. Everybody takes a look at personal finance and rejects it because it doesn't provide a significant enough reason to look further. There's no psychological hook, for lack of a better word, for anybody to take it, quote unquote, seriously. And so you can just start throwing identity statements on there like, oh, I'm not good with money, et cetera. When you have a why, all we're really doing when we're talking about it, FI 101 as opposed to PF 101, all we're really doing is saying, let's put your why first.

34:08Now we have a definition here, but why do I want to be able to separate out the life that I've chosen to live from my current job? Why do I want to do that? And now as we kind of explore that a little bit more, people can put their own values and reasons into that. Said differently, if I didn't have to work ever again for money, what would my life look like? What would I do with it? And he puts it on the first slide. He literally is like, you can travel, you can do whatever you want. Have you had any conversations with people that are inside the community, inside of an event like this saying, what would be your why?

34:49I think it's easy for us to throw like a platitude on there or just some sort of lazy statement about what we would do. But for individuals to take a second out loud in front of a group where there's some level of accountability and you're not just talking so other people can hear your words, you're actually reflecting out loud, what would my life look like if I were going to start over with the information that I have now? Or what would I want this future to look like and why? Is an incredible thought experiment for a group to share out loud. And then you're going to be at individuals that realize, oh, I'm already there, but are you living it?

35:23Alan, take a note. This should be one of our meetings. We go around and we ask everybody in the room.

35:27Jonathan Mendonsa:Seriously, no joke. I just got chills hearing Jonathan say that. That is an event that has to happen. Yeah. And that would be incredible because again, stories make the world go around and also you start to hear, okay, what is someone else in my real life, in this room, what are they thinking about doing with their life in FI? Jonathan, you might've just hit on the third leg of what, we have case studies, we have 5101, we have this. That's critical. This has to be the conversation to get started with. And Kristen, I'm just going to throw you out there. I think part of what makes you so appealing as this community organizer is they can actually see you living this out.

36:04I mean, you can point to the line items about how you have through the lens of what you want your life to look at, everything else just kind of slots in. You have a pretty strong why, you have a pretty good vision for what you want. And when it didn't exist. You had the time. So you just build it. Yeah. And then people that that's attractive, that's attractive on multiple levels for people that realize, well, I don't have any of that control in my life. I am Ty. I'm up to my neck with obligations that I've just had never evaluated and really don't even know how to start to unwind. Right. So through the lens of this, what do people want?

36:35Well, they, yeah, they want more autonomy. They want more control, but that also requires a thought experiment because if you haven't done that and it's free to do the exercise, but it's also, it's not just a free, easy pass. Watching Netflix is simple. This sort of thing actually forces a lot of trickle down thought and your thoughts are more coherent in front of other people. And they're also inspired. If you're just drawing a blank and you're hearing a few other people from various stages, right? If everybody that was just fine, just say, I just catch up on Netflix finally. We're done, right?

37:08Well, we're done. But that's not the case. It's simply not the case. And it's the aggregate of the life that was built from reclaiming the tide that makes other people like, oh man, I'm not dreaming big enough. I think there's a lot of people who actually struggle with what to do with all this free time. Like this is something my husband's actually struggling with right now. We're having conversations about this. Being in a room with people talking about what they're going to do could be really inspiring. Yeah, we got to do that for sure. What I'd hope for this conversation and for the ones I know will do following up on this is that we kind of iterate the whole thing.

37:41Like we'd love to have you back on to help us think through these various aspects, but we did iterate what comes out of this. You know, what is the blend of the why with the tactical appropriate for the stage that someone finds and find themselves in, and maybe the persona that they are as well, because if you different people come in at different places with different emotional baggage, a different things, stigmas around money, different life circumstances, which make their journey completely different than maybe minor, Brad. So that's what makes it compelling. That's what makes this. It's not that my life looks exactly the same as your life or Alan's exactly the same as your life, but it's that you want to see your community winning.

38:20And you also know this person that did win, you have someone else that needs that information as well. So if you can see someone else win, if you can glean from them the action steps that they took, that immediately gives you something to go help someone else that you know with that same information. So as a community, we're interested in patterns because we know if they don't work for us immediately because we're already past that stage, there is someone else that desperately needs that information. And if we can just promote the conversation, it can trickle down and help those that maybe we love closer than the stranger that's just telling us about this for the first time that we just met.

38:56Yeah.

38:57Jonathan Mendonsa:And it all starts with action. That's what we've always said is the hallmark of choose a fire is you have to take action. This is not just a passive endeavor. Okay. Okay, you're listening to this podcast right now. You're listening to the four of us talk about this. You need to sit down and no matter where you are on your path to FI, and you need to think about, hey, what does my life look like post-FI? That's a really interesting exercise that can be done on the individual level. I would love to see this as, because that's the next action is, if your local group is not doing this, if you're hearing this and your admin, your local admin hasn't said, okay, this is an aha moment yet, bring it up you can be the change that you want to see you can create that event it has to start with individual action though that's to be no matter who it is there is one individual that is going to take action on this and start it that that's just how the world works the world works by individuals standing up and saying i want to be the change that i want to see in the world and i just love alan kristin that you guys you two have been the change that you wanted to see in St.

40:03Jonathan Mendonsa:Louis. Again, FI is not this passive endeavor and FI is not just about the nuts and bolts of money. If it was, we would not be doing this podcast anymore. This would be a five episode podcast short and we'd all be done. This is about a constantly evolving mental framework. And as Kristen has said repeatedly, it's about community. It's about creating the life that you want, whatever that looks like to you. We have millions of people worldwide in this community and no person's path looks the same and no person's ultimate aspiration of five looks the same. And I, I don't find that a limitation. I, you find that exhilarating.

40:46Jonathan Mendonsa:I think that's what's so fun. And not only that, but you're going to find your own concept of five changes along the years. I talked about this with Alan and Katie Donaghan recently, again, in that episode where all three of our paths to FI have changed dramatically, even once we've reached FI. That's not a bug. That is a feature. You mentioned the nuts and bolts aren't all that important, but at the same time, when you've got new people in the community, they need the nuts and bolts, right? Absolutely. After we sort of address this whole idea of like, what is financial independence? We go to what I think is the next most important step.

41:20And I think Alan said the math is easy, but a lot of people just don't know the math. You don't know what you don't know. right? Well, then we jump into, I think the article that so many people in this community know, and hopefully you'll reference this in the show notes for people who don't, but Mr. Money Mustache is the shockingly simple math of early retirement. And that's right where we go next. Alan? Well, I think going back to Jonathan's why, I think of three things. Obviously, the expense audit and the value matrix. That's, I mean, if you want to know why you're spending what you spend on, go through that.

41:59That's an exercise you should do. Sarah and I did the Donegan's Extraordinary Life event in Richmond. Highly recommend looking at that wheel of life and ranking those nine areas in your life that will give you some direction on where should you go next. And then lastly, and I say it and I know all the St. Louis people are groaning right now, I say it at every meeting, do a case study. You don't have to present it. Fill it out. Look at your history with money. Look at where you're at today. Ask yourself the questions that you would ask the group and whether you present it or not, that's up to you.

42:42But at least you can walk into the next meeting with some questions that you can ask somebody that you know has probably gone through it.

42:50Jonathan Mendonsa:Alan, I love that concept of just doing your own personal case study, regardless of whether you ever present in front of your local group or not. And Jonathan, this is another thing that we actually have the PowerPoint, the case study template in the new platform that you created. So can you tell people basically where they can find all of these resources? because I think sometimes people have some questions on this. Yeah, we're going to have to think through what's the best path. What we've tried to do is give local admins their set of resources, their own set of resources that they can share and choose and use however they want.

43:26All admins do have access to the case study template. All admins do have access to the 5101 presentation that Kristen and Alan are continuing to iterate over time. What I am trying to do, and this is the ongoing effort, and this is why I think it's communicating with Kristen and Alan and other admins to see about how they want to do this, but I would like to be able to set it up so that the local admins can run their own cohorts and allow members to track their journey inside the community app to the degree that it's helpful for the admins and for the community members. So for instance, if Alan mentioned the value matrix and the expense, we'll talk about that in a little bit, but if someone chooses to do that, they could have a button to say, hey, I'd like to submit my information to be a case study.

44:10And that local group could then, you know, have the separated out information and actually go through that various exercise and use it. So it's all baked there. Talking about moving everything a little bit forward and making it a little easier. The flow here should be teach, right? And then there's a practical exercise that's standardized that individuals can do. They can do it on their own. They could do a paper, But to make it easier for the admins, especially if they want to go through the case study process, they can do this in a centralized place and just submit their numbers to be used as a case study.

44:43And so they could then take this case study and then do that in a follow up meeting. And so really the key to all this is just for individuals that like that idea, admins that want to move in this direction. I'm going to be coordinating with Kristen and Alan and anyone else, any other admins that want to be a part of that to figure out what would make it the easiest. So they have these tools, but we need to speed everything up. So it's just simple and intuitive and that it builds. So for instance, imagine once a year, you did a reflection about your why of financial independence. It's non-destructive.

45:14The next year you go in and you have that and you update it. How does your why change over time? Maybe your first one was a platitude, but it became more valuable and you look how your why changed. in terms of a group going through a cycle over 10 years. Imagine where you'll be 10 years from now. How does the building of that track record, you know, where, okay, let's, let's refute. How is our why changing? Have anybody thought through that? And it's not that everybody will do it every time, but it's that here's how, here's what's changed. Here's what I've realized as I've been able to, it's not just a platitude anymore.

45:47It's not just a vision board anymore. It's actually the next phase of my life is starting in three months because I had this date that I just threw down based on simple math, but guess what? The math worked. And now I'm accountable for being on the other side of this. And here's what I've realized in between now and then. I actually wasn't looking to completely leave my job. I just wanted a job that was part of my life, not a life that fit into the scraps that was left over after my job took everything. Okay. All right. What does that mean? And so this is the sort of thing, what we're going to want to do is for individuals that really want to have this ongoing track record of small actions leading to powerful results.

46:24We want to give local admins the tools where they can work with their community. And I'm committed to working with Alan and Kristen, all the local admins that want to see this happen and do it. With that in mind, I've been working on what I believe is just stages. And you may have heard me talk about them, but I think it's really useful as we get in here just to explore this. I think there's five stages of financial independence. I think there's this discovery pre-phase, you guys were doing a meetup at a brewery and the person down on the end heard that you were all here in Aswit and Jhaven and we're saying we're in a local financial independence group.

46:56And they're like, what? What's this? And then you have this, oh yeah, well, this is what we talk about. This is what FIA. And that's a thing? People do that? We've all experienced a version of that, right? That's discovery. In the first time that someone's getting introduced to this, everything is new. Everything is new. There are just a couple concepts that if really dialed in, change the paradigm for that person's future entirely. And we touched on them, but I just want to hit them. Like if I could just get one, if I could just have, you know, 20 minutes with an individual, what I'm going to want to hit is the definition that we just talked about.

47:35And then the power of savings rates. You just talked about it. The shockingly simple math, the 4 % rule as a starting place. And I'm going to want to make sure that they understand what the, what a financial independence is, how to calculate a rough financial independence number, how to calculate a savings rate and why it is the most important thing. It is more important than your income. It is more, you know, if you are spending 100 % of what you make and you make a million dollars a year, you are going to be working decades longer than that person that's only making, you know, 50 or 60K a year, but is only spending 30 or 35.

48:11They will have separated their time for their money decades ahead of you. It is not about income. Obviously, all of us understand there's an advantage to making a million dollars a year. It's not the point. The point here is that if you spend right up to what you make, you have no options, right? Unless you can cut your spending. So we're going to think about our life through the lens of separating our time from our money. We're going to move in the direction of conveying what is a financial independence number, how to calculate your rough financial independence number, why a savings rate is so critical, how to calculate your savings rate.

48:43That is discovery. If you can go farther, go farther. But if someone feels good about that, they have already moved out of the first stage of financial independence. And we are now moving broadly with as much time as we have left into what I know we're going to be talking about here, which is awareness, which says, forget about what it is. What would it look like for my life? Awareness is not about judgment. Awareness is not about changing anything. Awareness is at some point, you got to step on the scale to see where you are at. You can't avoid it until you have that moment of, all right, I know all those numbers.

49:21And so, you know, Alan just mentioned it, the expense audit. Notice how far down the road before we start looking at income and investments and network, We are starting over here and something that everybody should be able to do regardless of financial acumen. It's just, all right, I've discovered it. And now awareness looks like me, you know, taking a look at my life, my current picture and putting it into a series of easy, simple exercises without judgment. And then from there, now we can calibrate and figure out where we are. And so I just think, you know, that simple framework, however local groups choose to implement that.

49:57And we're going to go through these slides to see what happened. And I think what's probably happening in the 5-101, Alan, I'll give this back to you, is that we're probably, you know, because we're doing it in one session, we're thinking through what is the best use of that 40 or 50 minutes that we have with these individuals to get them as far down the path as possible. We're starting with the why, then we're starting with the big concepts, and now we're trying to give them a few insights into the actions that they're going to do when they get home. Yeah, I think, you know, when we say, what do I do with my next dollar?

50:28That is where we targeted the financial order of operations. We said, you better have an emergency fund, just a small one. You don't need six months of living expenses in that fund. You need to be able to fix a tire. If you're at the stage in your life where a flat tire or a blown out tire is going to cripple you for months, you need to start there. That's probably as far as you need to go for as long as it takes to get to a few hundred dollars in that account. Then we talked about the employee match, eliminating high interest debt. Where do you go with that next dollar? Ultimately, you're going to start investing it.

51:09You're going to put it into your 401ks, your IRAs, your HSAs, all of that. but I think a lot of people who came for the first time were probably on stage one. They had a dollar and they wanted to understand what do I do with it? And then after we talked about that, we took them to the pillars of FI, old school pillars of FI. I mean, I can't even remember what episode it was, but it's been a while. That was our first and most popular listicle. I made one change. I think you guys had cut the cord and cell phones as a bullet point, but I put in the expense audit because I think that's as good as it gets at this point.

51:52The other change was instead of VTSAX and chill, it became VTI and chill. The natural evolution. Exactly. So we didn't spend a ton of time on any of this. I think we spent more time on VTI and chill than anything because we all know that investing those dollars is really the only way to get there. you can't save your way to fi it's just almost impossible no matter you know what anyone says unless you again you have that million dollar uh income and you only spend fifty thousand dollars and then it only takes a year or two to save up and you're probably there i like what you said there but i think i should uh it's not even push back i agree with you let me just front run this i agree with you but i think that's confusing for individuals to hear that when someone were to say to you, you can't save enough for FI.

52:40You know what I mean? You just said a savings rate. It's the most important thing. Help me understand through the lens of someone that's coming through a FI 101, what you mean by this idea? Well, I just save. I'm a little squirrel and I just tuck it all away and I just save. Well, as a prelude, we did 201 recently and that was one of the questions. We know the inflation rate is roughly, I want to say three and a half percent. I think I did that one over, I want to say 50 years. And we basically came back to, if I started with a thousand dollars 50 years ago, the inflation rate would blow that up to about 6 ,000 bucks, give or take.

53:25Now, if I wanted to save, call it a high yield savings account, I used one-year T-bills as an example. That was close to 5%. So that 50 years, that blew up into almost$10 ,000. So very small gap there,$4 ,000 over 50 years. If I were to take that$1 ,000 and invest it in the S &P 500 over those 50 years, it was almost 12%. That blows up to$292 ,000. So I could save and have an extra four grand over the value of inflation, or I could invest and have an extra$280 ,000 over the value of inflation. Yeah. So your point here is that fiscally responsible is not enough. It's a very good starting place.

54:18You have an advantage, but if you're just fiscally responsible and you stop there, I spend less than I make. Directionally, you have advantages, but mathematically, you're not going to be happy with the outcome over a long period of time. And that is also a mindset shift because I think some individuals would say out of fear, I just don't want to risk it. I don't want to, that sounds too risky. I see Bitcoin and I see all these people losing money in the markets and I see red flags everywhere and I see CNN in the morning and I see MarketWatch and, you know, some, why would I want to put my money there?

54:58And we spent some time on that. A little bit later in the slides, we talked about, I really went in on some of the things that JL Collins talks about, getting people comfortable with the market. But before we got there, we just gave a bunch of examples of, like Alan did, like what your money could grow to if you invested it. But we also really started digging into the fees part of it. And I think that really opened a lot of people's eyes because we gave them the example, if you just put money in VTI versus if you paid an assets under management or if you paid active fund management and just how much over time that that would decrease what you could have.

55:34Yeah, you're hitting a both in on something here when you're talking about and you kind of think, where's the perfect place? Well, you're going to find out after you've done this and after you've seen what resonates for people and what people need at that particular point in time. And I do think that the projection charts are hugely impactful and help lock in that your why could actually be possible if you optimized it and if you knew the playbook. And so I don't think it's just, hey, six months from now, now we'll talk about investing. No, you need to bring some of it forward. We need to show that it's not just a dream, that this is actionable and practical.

56:05You can realize this in your own life. And then I think there's one piece there that's massively important. It should be said sooner than later, and that's that the fees matter. And it's not just that the fees matter. It's that I think a lot of people, when they hear you need to be doing good with an investment, and Brad, I'll give this to you. I know you're just going to have fun with this one, but the fees matter. The next thing is, well, you know, I got a guy or I know someone that has a guy or maybe I need a, or gal, I know someone, right? I know someone or they know someone, maybe I need to know someone like, who's your person?

56:36Is that, is that, is this is, you know, do I need to find that secret person that can beat the market? And, and, um, I think that's a big lemony belief because I can't do this myself. I'm not smart enough. And so I probably shouldn't try Brad.

56:50Jonathan Mendonsa:Yeah. You really teed that up for me pretty good. So it's like, you know, spontaneously combusting over here, trying to get it. So yeah, I've got, so I have three different things that just came up that are, I think are all really critical that tie into five, one, one first, as Alan said, it's essentially the opportunity cost of not investing. Like Alan said, it's great to save. You have to save. You need a savings rate. It's critical, but it's not enough. The perfect example is you've managed to scrimp and save$100 ,000. You essentially stick it under the mattress or stick it in your freezer.

57:29Jonathan Mendonsa:Well, that$100 ,000 36 years from now is going to still be worth$100 ,000. Okay. You've nothing terrible has happened to it. You haven't, you haven't risked it. Right. But it's still sitting there. It's a hundred thousand dollars. Now, whereas if you put that money, you invest it in the stock market in what we believe is the highest likelihood of success is low cost broad-based index funds. I think it's reasonable to expect an 8 % annual return. There's this concept called the rule of 72, which basically says, all right, I take this number 72. I divide it by my expected return. And that gives me the number of years it's going to take to double 72 divided by eight is nine.

58:12Jonathan Mendonsa:All right. So every nine years you expect that money to double in nine years, a hundred thousand turns into 200 ,000. And then another nine years later, it doesn't go up an extra a hundred thousand. It doubles again. So it's 400. Then nine years later, it's 800. And then at that 36 year, it's$1.6 million. You might have just stuck it again, in the proverbial freezer, which for most people is sticking in a checking account or like in the old days, an online savings account that gave virtually nothing. Okay. Well, that's safe and it feels good, but the opportunity cost is actually potentially one and a half million dollars in this instance.

58:52Jonathan Mendonsa:All right. And that is staggering. Now, does that mean that there aren't going to be times where your money, your net worth goes down 30 % in a given year? No, I can't tell you that at all. In fact, I can almost guarantee you over a 36-year period, there's going to be a year where your net worth goes down 30%, certainly where it goes down 5%, 10%, 15%. Volatility is guaranteed. But over the long run, we believe this is, and all of history suggests, this is the highest likelihood of maximizing your net worth. So that opportunity cost concept is really important. And also, people are looking for the nuts and bolts of how do I actually do this?

59:32Jonathan Mendonsa:This is the golden age of investing. You can go to almost any platform. We specifically like Vanguard, Fidelity, and Schwab, but there are many, many, many other options. Kristen and Alan said VTI and chill. Now, VTI is Vanguard's total stock market ETF. This, again, is a broad-based, very, very, very low-cost fund. In this case, it's an ETF. It's not a mutual fund, but the distinctions are very, very minor. At all of those brokerage houses that I just mentioned, there are going to be no commissions. So you can buy this for basically just the cost of the ETF. It's probably a couple hundred dollars a share now.

1:00:13Jonathan Mendonsa:You can buy fractional shares just about everywhere. It's not like Jonathan, when you and I started Chooseify, there were limitations on VTSAX, which was a mutual fund. you needed at one point you need$10 ,000 to invest in this thing at for a very long time. It's been 3000. I think that's now, yeah, you're probably right. There used to be like the Admiral share and then the, whatever that's gone. That doesn't exist anymore. So there's no cost for these things. That's the beautiful aspect. And Jonathan, to actually get into your question, understanding the cost of fees and why we love things like VTI.

1:00:46Jonathan Mendonsa:And again, this is not financial based, I'm not saying the only thing to invest in is VTI. There are plenty of broad-based index funds that essentially mimic the S &P 500 or the total stock market index. I think it's very, very hard to go wrong with either of these options. We like VTI, which is Vanguard, but you can buy that anywhere. You can buy that at Fidelity or Schwab or Robin Hood or wherever the heck it is you happen to have a brokerage. So here's the example. I created this a very long time ago on my old site. And I basically said somebody had that a hundred thousand dollars saved up and they continue to invest a thousand dollars a month.

1:01:23Jonathan Mendonsa:All right. For somebody in the fight community, that's not unrealistic at all. In fact, that's probably on the very low side for a lot of people because picture even a couple making a hundred thousand dollars, which is, you know, two people making 50 grand. That's a very middle-class lifestyle. This is a 12 % savings rate. So just to set the stage, I don't think that's unrealistic at all. Now, I said, basically, they're investing for a lifetime. They're investing for 40 years. I need to update this, Jonathan, but I assume the 9 % gross market return. Now, I suspect today, I would say 8%, but nevertheless, if you had that$100 ,000 invested and you saved$1 ,000 a month, after 40 years at a 9 % gross return, you'd have$7.2 million.

1:02:04Jonathan Mendonsa:That's incredible,$7.2 million. dollars. Now, if you went to a financial advisor who had this assets under management fee, this AUM, which I think is one of the most insidious things in all of personal finance, they're going to charge you about a 1 % fee. That doesn't sound like anything. 1%, oh, it's nothing. But your 9 % gross return actually then goes down to an 8 % net return. Instead of that$7.2 million, dollars. Now you're left with about 5.3 million. So you have lost$1.9 million to fees in that scenario. And that's if they invest in any very low cost index fund, which is highly, highly, highly unlikely.

1:02:45Jonathan Mendonsa:Now, naturally, I didn't give the exact specifics of there's a couple hundreds of a percent of fees. That's negligible. But where we get into it for real is that financial advisor is not going to just put you in VTI. They're probably going to try to prove how brilliant they are and put you in an actively managed fund, which probably I'll have another 1 % fee. So again, your 9 % gross return now goes down to 7 % because the 1 % advisor fee, the 1 % mutual fund fee. So you're at 7 % never turn your net worth at year 40 is not 7.2 million. It's 3.9 now. So you have lost$3.3 million to fees. That's what we talk about.

1:03:27Jonathan Mendonsa:When we talk about the importance of fees. There's no way. And the final word on this and the upshot is over 40 year period, almost nobody is going to be able to beat the market. In our estimation, the best you can do is to match the market. Therefore, finding this advisor who's putting you in this one, there's no way they're going to beat the market. So therefore, this is a terrible decision in terms of expected value and just from in terms of just a bet on what is the highest probability of maximizing your net worth. And yeah, the proof is in the pudding here. These fees cost you$3.3 million in this scenario, and that's staggering.

1:04:07And it's not just Brad's opinion. It's just borne out by the facts over time that there are virtually no mutual funds that over a 40-year period of time have, in a statistically significant way outperformed the market. Just the fact that you are likely picking the winners when you go to Morningstar Reports and picking the best one, well, that's who outperformed last year and the year before, maybe the last five. It almost puts you at a disadvantage going forward. And so you cannot control the performance. And to some degree, probably the managers can't. But what they do have to do is they have to be more creative.

1:04:41So they have to make more decisions, which means more taxable events, which is going to put you at a disadvantage there. and there's natural, you know, kind of selection on these things. So you're always seeing the ones that did the greatest, but it's almost kind of self-cleansing and that the ones that actually drop off, you never really get that exposure. You only have, you don't get to go back. You're making, you're thinking in bets, you're looking at probability. And so you're saying, okay, if I look at history, what has happened? Well, you can't control their performance, completely unknown.

1:05:12You're just guessing, but what you can absolutely know, and this is Brad's point you absolutely know is, you know, the fee structure. And actually some of you don't. And that's a big problem. Once you become aware of the fees and you understand, okay, that actually does. Yeah. My, my advisor sent me a Christmas card. He better darn well, you kidding me? You know, he said Christmas card with him and his, but yeah, I'll bet he did send it. You know, the fees are going to be there whether they do well or whether they go down. It's just, it's just, you're, you're going to pay those fees regardless of performance.

1:05:41And And those fees are going to sting even more when the market is down 20 or 30%. And because you were maybe in some riskier stuff where you were getting those outsized returns earlier, now maybe you're down 40 or 50%. It's just something to be aware of that controlling the fees, that's all you can really control. And if you can just keep up with the market over time, you're going to be very happy with that. Alan, Kristen, I've asked you guys ahead of time if we could actually stretch this out and do it over two episodes. Because I think our community, both individuals going to a local group, but also group admins are going to get a lot of value out of thinking through the structure.

1:06:14And Kristen, I'm curious, you know, let's say I have a feeling next year, you will be doing a FI 101 again. And I think you'll probably be excited for that opportunity to kind of start over. And I would imagine it's going to start to become a cadence where individuals realize, Hey, this is the perfect time to bring someone to be introduced to this concept. I'm curious. Now you've done a FI 101 and we'll talk about FI 201 just in a little bit here, as you think through it, through the lens of this conversation and maybe coming into it, how many sessions, how many, you know, introducing from someone to zero to the point where we're all, they've been able to do some actions.

1:06:50We're all talking the same language. We've had enough time for them to get something, go home, digest it, take an action step, come back. How many events do you think you would like in a perfect world each year to really be able to have a cadence for successfully onboarding them? And I ask you this, knowing that you also started by kind of starting with like the Dave Ramsey baby steps. So maybe that means that you're familiar with the Financial Peace University to some degree or some of that stuff. How many sessions do you think you would need with a someone that is new to this, all of this? Well, we're still kind of figuring it out as we go because we're crowdsourcing and people tell us, you know, after we do these sessions, I'd also like to talk about this.

1:07:30So our idea right now is a 5101 probably every January. And then I like the idea, of course, of keeping the case studies. I think that's really important. So I'm thinking maybe we do a quarterly educational session. So a 5101 and then maybe second quarter we do a 5201. And then Alan and I have talked about doing a third quarter just kind of on taxes because a lot of questions about taxes, right? We also want to do an AMA and ask me anything. So that would be like a fourth session. So I feel like with that, we might be able to cover all the bases. We'll see. We haven't done it all yet. We're still kind of getting there.

1:08:10We've done the 101. We've done the 201. I think next we'll start thinking about the tax situation. Alan, what do you think would be helpful to you? Let's say that you did this FI 101 and you know you're going to be doing a FI 201. We're going to talk about that shortly, but they've come through FI 101. What would you like to see them kind of think of in terms of things that they should do and be able to come back with maybe questions or different activities. They're going to be able to bring some of this information in before they come back for a FI 201. What are the takeaways or the activities or the exercises that someone should do after finishing a FI 101?

1:08:47Really, I think two of the bullets we listed at the end were track your net worth. Figure out your net worth. We didn't talk about how to do that. So that's maybe where I came back to a personal finance one-on-one type of a seminar. Again, everything we do in any of these things, you can find it out there. I mean, this is not new knowledge to anybody, although some people just prefer it live. So I would rather sit in a library space and have somebody tell me some of these concepts rather than go seek them out myself in some cases. But I think between tracking your net worth or figuring out what your net worth is and track your spending, those are the two.

1:09:28I mean, I don't know that there's anything revolutionary about anything else we said, but if you don't know either of those numbers, you're really not going to be successful in your next endeavor when it comes to FI. You have to know your gap, your distance between your income and your expenses, and you have to know where your assets and where your liabilities are in terms of, am I positive? Am I negative? Does it matter? I think if you have those two numbers and two concepts, then you're ready for the next steps. Well, this is just evolving as we're all thinking about this out loud and as various community members experiment with their own version.

1:10:09There's no prescriptive way to do this. It's just we're going to iterate over time. But what strikes me is that the case studies are the natural beneficiaries and recipients from individuals that took action. So if you do a 5101 and you have individuals that do follow up exercises, like for instance, hey, we're going to be meeting back in a month. Does anybody want to go for it and do a run through and do an expense audit? And then they can volunteer it, that information to be a case study. And then you could go through a live exercise where you do the value matrix in front of people with that individual to give you the additional feedback as you go, individuals to basically say various ways that they've optimized in their various locations.

1:10:48That could be a very tactical and practical case study that would benefit and lock in and give individuals the opportunities to get targeted questions and feedback. Because if we're doing an expense audit, we're all dealing with variations of the same expense. Then applying that value matrix and see how it comes in. you have this blend of objective and subjective, which trickle directly into value, which trickle directly into the choices. And those choices ultimately are going to decide your, you know, kind of the journey that you're going to find yourself on. I think it's this overlap of didactic, right?

1:11:22So we're doing this presentation and then you blend and maybe you do one or two case studies, especially if the group's enjoying those in a format that works for the whole group. And then that is capturing a lot of those follow-up questions that maybe didn't get hit the first time. And then now we're going back and we're saying, okay, you know, let's go ahead and look at what could be for, if we want to call it 201, et cetera. But by the time someone's finished a 5101 and one or two case studies, and they've had that encouragement now from watching how, maybe they didn't take action, but the other individual did.

1:11:56The other individual did the whole thing and then look at the confidence that they have with their choices and their actions. They know what they're doing next. Wow. That locks it in for everyone else. And now you're coming back and you're like, all right, what's the next stage? So what's going to happen is through this lens over the cadence of a year, everyone and all life cycles are going to be served, right? You're going to have this natural progression from discovery to awareness. By the times you've done those two additional case studies, these individuals that took action are seriously working on control.

1:12:26And those are the ones that are craving. what I would say is now we're at 201, which is, you know, this is the optimization and trending into independence maybe. And so you're able to kind of blend and every year you're kind of watching the progression. The individuals that started out in awareness are coming back one or two years later and they're looking, you know, strongly at, you know, some of this lifestyle design stuff, which all just felt very wishy-washy platitude. You know, I just, that was just like, I can't even think about that. So it's just irrelevant to me and I can't get any value.

1:12:56Well, now you can. The goal is to get you to the place where you're allowed to dream about platitudes and what it would look like for your life. That's the goal. You know, you can think about what this looks like for you. Christian and I have had a great time. And what I would like to do here, if you guys don't mind, would you be willing to stick around with me and Brad? And we're going to go ahead and record a second episode with you. And we're going to look directly at what you guys unpacked and discovered when you rolled out 201. We're going to maybe just iterate that, hear what you did, hear what the feedback was.

1:13:25and then what is that, you know, what's that weaving? How do you weave that transition from discovery to awareness? Maybe these individuals are now feeling like they're starting to be in control. They have a plan and now we're saying, all right, these are the things you didn't know you didn't know. Would you be up for recording another episode with us? Sure thing. Of course. All right, my friends, the fire is spreading. We'll see you next time as we continue to go down the road less travel.