The Money Expert: “Expenses Don’t Make You Poor! Your Income Does!” - Nick Maggiulli

0:00When it comes to what your family eats and drinks, you know your choices matter. You're the expert because you know what fits your life. And getting it right starts with good information. That's why America's beverage companies are sharing more information about our ingredients at GoodToKnowFacts.org. No spin, no judgments, just the facts straight from the experts for more than 140 beverage ingredients. Visit GoodToKnowFacts.org. Don't worry as much about your spending. Everyone's going to say you're going to nickel and dime yourself. Do not do that. That's not the solution. The solution is a long-term solution to raise your income.

0:39I'm going to stop you, Nick, and I want you to repeat that because people listening, and they all have issues related to their wealth. And so let's say I'm making 50, 60, 70 ,000 pounds or US dollars a year. What am I doing to get myself into the world of financial independence? And so repeat it. The solution is a long-term solution to raise your income. Well, I wish we all had a magic wand and we can raise our income. But the question is, how do you do that? What is the path to get there? For some people, it's going to be keep working hard at your job. You just need time. You'll get promoted.

1:08You'll see raises, all that type of stuff. It'll just happen naturally. That's not going to be true for everyone. Some people are going to have to go and start a side hustle. Some are going to have to go start a business. There's a lot of different ways this can be done. Some are going to have to go get an education and learn how to a new skill and kind of transition to a completely different industry. There's a lot of different options out there. Not every person is going to work with every solution. So you got to figure out the one that works for you. Welcome to Open Book. I am your host, Anthony Scaramucci.

1:34Joining us now is Nick Maggiuli. He's a bestselling author. He's the COO at Ritholtz Wealth. Those are good friends of mine. And the title of this book is The Wealth Ladder, Proven Strategies for Every Step of Your Financial Life. And I have the book right here. And Nick, you did a very clever thing. You gave me a$2 bill because it didn't fit on the cover. See that? I'm very impressed. I read the book. It took me one sitting to read the book. I loved your first book, Just Keep Buying, because your book has a lot of wisdom. You also say in the book, really, just keep buying and holding, because that's how people really make their money in good and bad markets.

2:17And so it's something that you understand at a much younger age than me, which I give you a lot of credit for. I'm there now, but I sold winners way too early in my life, Nick. And I think that's a lesson Peter Lynch has regaled upon and others. And I've been a victim of that. But it's great to have you here. Before we get into the book, tell us about yourself and what led you to write these two books, Just Keep Buying and Now the Wealth Ladder. Yeah, so I was an economics major in college. After college, I started working at a litigation consulting firm, originally from California, by the way.

2:51And at the consulting firm, I was doing a lot of data work, a lot of analytics. That was kind of really my passion, one of the things I loved. However, I also love personal finance a lot, and that really wasn't a fit within the litigation industry. And so I said, you know, hey, at some point, I want to start writing about this stuff. So I used my data skills, started writing a lot about personal finance and investing, started a blog in 2017. Five years later, I thought I had enough stuff. I put out my first book, Just Keep Buying. And then that went, that actually did really well, actually did better internationally than in the US, believe it or not.

3:2180 % of my sales in my first book are international, which is kind of crazy. And then I came out with the wealth ladder because Just Keep Buying is great. It's one very good strategy. It's like the best strategy I recommend if I don't know anything about you. But the wealth ladder kind of zooms out from that and says, hey, what if we could give you a bigger framework that could work for someone in different stages or if you want to get to somewhere else in your life. And so like the, the analogy I give in the intro is, you know, a personal finance or a fitness trainer would give different advice to someone who's morbidly obese versus someone who's a well-trained athlete.

3:52I think that same analogy is true with, with financial advice. Have you been talking to my trainer about my morbid obesity? Is that what's going on here? Is that like a valid thread if the questions go badly or something like that? My God, Jesus. All right. All right, but Nick, you're a young guy. How old are you, if you don't mind me asking? 35 years old. All right, so you're a 35-year-old guy. You probably think you're old, but I'm 61, about to be 62. You're a young guy. You have deep wisdom in this book, okay? You know, Saul Hill Bloom, I think you may know who he is, the five proven strategies of wealth.

4:30Very young guy like you, deep wisdom about certain things. So where does this come from? Is it your reading? Is it your research? Is it your professors? Were you born with it? You write like an elder statesman. This could be a book that Charlie Munger wrote, frankly, who passed at age 100. it. So I think it's I don't really have any particular expertise. Everything I try to do is look at the data, look at the research, read a lot. I read voraciously about a lot of things, not just financial things like reading about science and all sorts of stuff. The most recent book I just read was like on the history of the earth and like how old it is and how we figured that out and all this different stuff.

5:13So I'm just reading a lot. And that's where I don't come and say, hey, listen to me, because I'm rich. I don't like that. I don't like that way of pitching things. I say, look at the data and what does the data say on how people got rich or how people got to this level of wealth versus that level of wealth? And that's where that comes from. All right. So in the book, you got six levels of wealth. But before we get into any of that, I would like to talk about starting from nothing and being something. So if someone is in that first and second level of wealth, can they become financially independent?

5:47Is that possible? That's sort of the savings of net worth ranges, 10 ,000 to 100 ,000. Oh yeah, of course. It is definitely possible. Of course. All right, so I want you to repeat it. It's definitely possible. I'm going to stop you, Nick, and I want you to repeat that because there's people listening and they all have issues related to their wealth. And so repeat it. It's definitely possible to build wealth and to build financial independence. Yeah, I tell my producers at Goalhanger, pay attention. and so let's say I'm making 50, 60, 70 ,000 pounds or US dollars a year. What am I doing to get myself into the world of financial independence?

6:24Go ahead. So the thing you're gonna wanna do, I mean, in the short term, I say don't worry as much about your spending. Everyone's gonna say you're gonna nickel and dime yourself. Do not do that. That's not the solution. The solution is a long-term solution to raise your income. Now, of course, I wish we all had a magic wand and we can raise our income, but the question is, how do you do that? Like what is the path to get there? For some people, it's going to be keep working hard at your job. You just need time. You'll get promoted. You'll see raises, all that type of stuff. It'll just happen naturally.

6:53That's not going to be true for everyone. Some people are going to have to go and start a side hustle. Some are going to have to go start a business, right? There's a lot of different ways this can be done. Some are going to have to go get an education and learn how to a new skill and kind of transition to a completely different industry. So there's a lot of different options out there. I don't want to say you do this one option because that option may not be right for somebody. And so you have to be, I mean, that's not a cop-out, but it's a very honest way of approaching the problem and saying, hey, like not every person is going to work with every solution.

7:21So you got to figure out the one that works for you. And so that's what I would push forward is like education, raising your long-term income. Many people have anxiety about money. Some people are living above their means. Some people go on Instagram, they see highfalutin drinks or great meals or I don't know, something about your generation, Nick. You guys are taking photographs of every goddamn piece of food out there, and you're creating food envy for each other. And so there's a general tendency to overspend. So you're not a cautious spender. You don't believe in cautious spending or nickel and diming, nor do I.

7:56But how do you get yourself disciplined to have some money set aside where you're paying yourself first to create the wealth that we all want? I mean, the thing that makes it easier, like I always say, if your income is high enough, if you don't need to budget as much, right? I think, yes, if you're in a very tough situation, let's say you're making minimum wage in the US, you're making 30, 40, maybe$45 ,000 a year, you're not in a position to be spending crazily. I'm not saying that you need to watch your spending like a hawk, but you need to watch it a little bit more than someone who's making even 70, 80 a year, right?

8:29So I think the key here is like, where are you spending your money? Like, don't nickel and dime yourself and figure out a way to raise your income. It's the strongest relationship in all personal finance. It's the correlation between income and wealth. It's the strongest relationship. I have not found a stronger correlation in the data. The higher someone's income is, the higher is their savings rate. The higher is, it's obviously easier to save money, the more you're going to invest that money, the more you're going to grow their wealth, etc. We can sit here and guilt trip people about coffee and all this stuff.

8:59It's all fake. It's all fake just as a way of covering up, oh, see, you're poor because of your expenses. That's not true. It's your income. And so I need to break that myth and bust it as much as I can and start to repeat it as often as possible. All right. So just keep buying is embedded in this book, right? So give us the thesis of just keep buying and how does it fit into the wealth ladder? So just keep buying, the thesis is the continual purchase of a diverse set of income producing assets. And I'll say that one more time. The continual purchase of a diverse set of income producing assets.

9:35That singular sentence gives you everything you need as an investor to just focus on, do your thing in your career. And then as an investor, if you're buying a diverse set of income producing assets over time, that's the continual part, you're going to build wealth. Like that's just generally true. This would have been true throughout history. And if you do it for a long enough time, it's going to be true. You'll keep pace with inflation in the worst case scenario. And you're very likely to outperform inflation over a very long time period. And that's true. That's including not just U.S. stocks.

10:05We're including international stocks, including real estate, including farmland, including all of these things. And so when you look at this, that solution is very simple. Just own those income-producing assets, a diverse set of them, not just one stock, not just one house. Own a diverse set of these things, and you do it for a very long time, and you will build wealth. You have a professor. You have a mentor. You have somebody that rang your bell and got you going in the direction that you're going in. who is that and what were what was their message and i'm happy to share mine by the way but who who is that for you you're an economics major from stanford if i remember correctly yep who rang you who rang your bell nick uh the person that i think helped me the most is dr j bodhacharya who's now you know he's much more famous now since covid and a lot of things that have happened and he obviously is now um with the administration but she i was i told him like he's like hey what are you doing well you know i know who he is but tell viewers and listeners he got a lot of things right in COVID.

11:04Yeah. Against the conventional wisdom. Some of those things, Ron DeSantis actually adapted in Florida ahead of other people. And Florida's economy did better on a relative basis as a result of that. So tell us who he was first. Yeah. So he was a professor of health economics at Stanford and he was my professor at the time. So he taught a lot about, you know, he actually, I actually, when COVID happened, I remember thinking about what happened, like his class, because he taught me all about, here's what happened with a pandemic like initially cases start to go up people start taking preventative measures right this thing peaks and then it starts to come down of course the virus evolves and there's multiple peaks and it's a little more complex than that but he talked about this he had this thing called if i remember correctly the great i think with the bearinger declaration he came out with a declaration him and two other researchers came out and said like hey like we are against the lockdowns we're against a lot of this stuff that's going on because this is not going to solve our problem.

11:58And he got a lot of flat for that. He got a lot of, you know, a lot of the stuff that was said that he said in there, he had a lot of issue for. But now looking back, it seemed like it would have been the better path forward. Of course, we don't know with hindsight, a lot of uncertainty and stuff. But anyways, now he's, he's within the Trump administration. And so the thing that's really interesting is like, he got me aligned to like, do something different, because I he asked me like, I came in and talked about a paper, something for his class. He said, What are you doing for the summer? I said, Well, I'm going going to be working at my aunt's warehouse.

12:27I was going to be there just like, you know, making minimum wage and stacking boxes, whatever needed to be done. Right. And he's like, no, you're not doing that. Like you need to do something more analytical with your mind. I know someone, you know, the, even another professor here at Stanford, he has a company, you should go work for them. Just send me a resume. And so I sent my resume in, I'd go in there. I took a statistics test, whatever, all this stuff. And I got an internship there, which got me into economics litigation consulting, which is what I eventually did after school. So he absolutely changed my life and I will forever be grateful for him.

12:56And he did this for a lot of people. It wasn't just me. He did it for a lot of students. He helped a lot of people out. There's something about you. I'm trying to figure out what it is. It's one part charisma. It's one part wonk. It's one part you're backing your stuff up with a lot of research. And so I put you, I'm going to drop you and drop you in a lower middle income area of the country, maybe here in the United States or in the UK, and you get an audience with these people and you can move them. And a couple of those people are going to become financially independent as a result of your philosophy and what's in your two books.

13:34So go ahead. You got a three minute speech that you want to give those people to ring their bell, the way your bell got rung by your professor and the other professors at Stanford? Yeah, so the thing I would say is think about what skills you have today and you don't have to have them all today, but everyone has some strengths. Everyone's like, oh, I'm pretty good at this thing. Maybe you're not the best at it, but you're better than some other people. What are those skills that you have that you can build on? You need to build from some base foundation that you can build on over time that can hopefully raise your income.

14:08Once you raise your income enough, it'll be much easier to save money, right? You can't just let your spending go forever with your income, obviously, but it'll be much easier for you to save money. And then once you're able to save money - My wife has tried that, Nick. My wife has tried that, okay? We've given her an unlimited budget on certain things and she exceeds it. Okay, but keep going. So once you raise your income, it's much easier to save money. Then you can take that money, save it, invest it. And over time, that is going to build wealth. And once again, invest it in a diversified set of income-producing assets, right?

14:40That is the way forward. And I talk about these in my books and I'm index fund, owning real estate, owning farmland, whatever. There's a lot of different ways this can be done. There's no one perfect solution. That's why there's the real estate people will tell you it's all real estate. The stock investors will tell you it's all stocks. They're both wrong because they're both right. That's the that's the interesting thing. They're both correct at the same time. You can do it in real estate. You can do it with stocks. You can do it with all sorts of things. If I was someone like lower middle income, I might.

15:04I think where there's a shortage of skills and labor right now is in a lot of producing of real things. I think there's going to be a shortage of that going forward because everyone's focused on AI and technology. We're going to live on the Internet and all that. I don't think that's true. I think the real world is going to need builders. We're going to need plumbers. We're going to need all sorts of people that are building things in the real world. And I think we don't have enough housing. We don't have enough a lot of these things. And we need those people to do that. I think creating these businesses, you can start to make real money doing that.

15:33I'm not an expert at creating those businesses. There's a lot of other people that will be better at that talking about that. But I do see that as a path forward for a lot of people that is probably overlooked right now. Very well said. You're a man of great practicality. I want to talk about market crashes. So I have survived thus far nine market crashes. Maybe the next one will get me. I've already outlived the nine lives of a cat. I think I'm on life 30. But how do you survive a market crash? You write beautifully about it. You also write about it and just keep buying. So I've been through both of your books.

16:09What's your advice on market downturns and the panic that the media helps to engender during a market downturn? I mean, I think they help engender it because it brings attention, right? The phrase is the higher the VIX, the higher the clips. And as a reminder, the VIX is a measure of volatility. So basically how much buying and selling is going on. And so when things are crashing, there's usually a lot of selling. The VIX is very high. And so that is kind of a measure of like, hey, what's going on? And so what do you do during a market crash? You do nothing. You do the same thing you've always been doing.

16:42You keep buying. You keep going on with your life, right? The more you focus on it and panic and stuff, that can lead to suboptimal decisions, especially very large changes. If you do want to do something behaviorally, make a very, very tiny shift. If you're like, hey, I'm a little worried. Take 5 % off the table. Like I'm not, no one's going to, no one's going to fault you for that. Take some money off the table and then move on and then keep doing what you're doing. You don't want to go all the cash. There's people that went to all cash in March, 2020. And right now they're, they're sitting on massive, you know, they've lost out on a lot of gains and they're still in cash since then.

17:15There's not probably many of them, but there probably are some people there. So that's the thing I say is do not overly panic. If you want to do something behaviorally, make a very, very small change to get yourself past that and then keep buying and keep acquiring assets. hard to do though yeah oh very difficult because once again why is it why is it so hard to do for somebody because you're every person and everything around you is starting to influence your behavior and how you're thinking about it right like imagine you turn on the tv oh there's this pandemic and i want we all went through this like we can all play this game in our minds we just went through it if we hadn't had a crash in 20 years it'd be very like theoretical this is very real we just went through this right like oh what do you mean like they're stopping the nba like that's serious like oh they're not doing this they're not doing that next thing you know like all the all the trade around the world is shut down now it's like people aren't traveling you start discounting all that and you can understand how stock pricey would fall and they did fall but pretty quickly the market said okay well like this we're going to get through this we're going to figure this out blah blah and it started rediscounting all that future right so the market right away starts even as the news is getting worse the price starts to get better so you can't wait for headlines to do this either because the headlines will keep getting worse even as the market's already rebounding.

18:24By the time the headlines say - If you use the same amount of money every month, you're buying more of the asset. Yes, at a lower price. You're buying less of the assets. So dollar cost averaging has worked for me and my family for 40 years. I want to go over these levels. Paycheck to paycheck is level one. Grocery freedom is level two. But Nick, we got a lot of inflation, Nick. There's coffee,$21. Eggs are a dollar an egg. I mean, what do you say to people about inflation? How do they deal with the inflation? What should they be doing to hedge themselves against what looks like prolific government's spending?

19:05And I'll quote Morgan Stanley, who's not even Bitcoiners over there. They call it currency debasement. So what do you do, Nick? You have to own income-producing assets and in some cases some non-income-producing assets. Things like Bitcoin and gold can be inflation hedges. and that historically gold has not been the best inflation hedge. It's still generally done well, but like there are periods where it hasn't been an inflation hedge, right? Like it peaked in the early 80s, and then it had a 20-year period where it was underwater before it hit its new peak. So there are weird cases where this happens.

19:40So it's about owning assets that are going to probably go up over time. I think generally businesses pass on their costs to their consumers. So stocks in general tend to be a pretty good inflation hedge. People don't believe that, but it's true. If people want to believe Bitcoin's a great inflation edge, you can think that as well. I think there's debates to be had about that. It's obviously done very well, much better than I think anyone anticipated, even through today. So yeah, it's about owning assets. So like sitting in a bank account holding cash is not the solution there, right? So I think everyone understands that.

20:09You know, sometimes you need to have some cash for emergencies and whatnot. But I think the solution to hedge that is to own assets of some sort. Okay. So again, don't fear the market crash. Buy into it. Just be patient and disciplined. Don't fear the inflation. If you got income producing assets, the way Nick is prescribing, you're going to get some economic benefit from those income producing assets to help you offset inflation. Let's talk about you got other, you got restaurant freedom. I love that because you're Italian. I'm Italian. Let's face it. We love to eat. You got travel freedom, house freedom.

20:43What about impact freedom? What does impact freedom mean to you? so impact freedom so in the wealth ladder there's like these six levels each level like a 10x jump from the one before so impact freedom is when i say like some with a hundred million dollars plus you can fundamentally change people's lives like you could go and buy a business you could start a foundation and really like change a bunch of people's lives technically you can do a lot of that without having a hundred million dollars you can impact lots of people with much less money it just takes a lot more of your time right if you're very rich you you can pay other people to do that But if you want to have that impact yourself, you just have to put in a lot more of the time.

21:19So it's a trade-off between your energy and your financial resources versus just sending your financial resources after something. So it's just another way of thinking about this. So impact freedom to me means the ability to impact a lot of people's lives and whether that means buying businesses through charity work, etc. There's a lot of ways you can do that. The thing I love about the book is the work in progress element of the book. I mean, you're even citing later in the book, Charlie Munger in an interview that Charlie Munger did with my friend Becky Quick from CNBC. I don't know if you remember the chapter, but you're in there.

21:54He's saying, yeah, I could have worked harder. I could have been smarter. He's made himself multiple billions of dollars. He was Warren Buffett's partner for 60 years. And he's telling you there's always room for improvement. And weirdly, he's also telling you something else that should resonate with people. even though there's always room for improvement don't be that hard on yourself just get in the game and follow up and demonstrate some discipline and you could win at this game is that fair to say do i have that right for your book oh yeah that's completely right and i think munger's case is very interesting because he's i mean everyone would consider him one of the wisest business people of the 20th century of maybe any century i think it's the reincarnation of ben franklin by the way that's why i love him so much yeah and so like you look at this i mean how many great thinkers do we get a century and he's one of them it's like ham einstein you know you know you think about this type of stuff and it's like wow that's a true great and still he even had some tinges of what sounded like regret even though he's clearly incredibly successful and so he goes to show some of the emotions and even the greats go through this so even the people who are like are very renowned still go through these things so it's very natural to feel like oh i could have done that better.

23:04Well, like, even if you had done that better, you still would think, oh, I could have done that even better than that. Right. So it never really ends. So I think it's just a way of, you know, reducing some of the guilt we put on ourselves as well. Something to think through. All right. So we're down to the last couple of minutes of this podcast. Okay. So what my, and hopefully you'll come on again. And so this will be something you'll be used to, but we, we've got five words we've picked out of your book. We want our authors to just do some free thinking here. I'm going to say the word and then you respond to the word.

23:33Okay. Okay. You ready? Yep. All right. I say the word investment. When I say that word, Nick, what do you think of? Giving up present consumption for future consumption. All right. So delayed gratification, hard for people to do, but people that are capable of doing it, they're well-rewarded over the course of their lives. What about saving? Is that different from investment? And if so, when I say the word saving, what do you think of? I think of, I think of giving up future consumption. It's more of, I actually know, I think of it differently. I would say that's excess income above your spending.