Unf*ck Your Personal Finances w/ Jared Dillian

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2:06Hi, everyone. I hope you're enjoying the Festival of Learning so far. That was a great conversation we just heard from Rosie and Andreas on the business cycle. Right now, we're going to bring it a little closer to home and talk personal finance with Jared Dillian, editor of the Daily Dirtnap. We'll be taking questions, So make sure you go ahead and drop them in the Discord chat. Hey, Jared, how are you? Hey, what's up? Not too much. A lot of people are excited for this. Well, I shouldn't say that. There's a lot going on. A lot of it's stressful. And a lot of people are like, what does this mean for my personal finance?

2:40I think a lot of people are really worried about both protecting and growing their wealth. But right now, it seems like the emphasis is on protecting their wealth. Before we jump into the questions, though, you know, I know you talk to people about this a lot. What is a common mistake you think a lot of us make when it comes to dealing with our own finances? Well, I think the most common mistake that people make is trying to make the number as big as possible. You know, trying to make the number in the bank account as big as possible. And the way I approach personal finance is that personal finance should be about minimizing your financial stress, okay?

3:23Because we all have stress in our lives. We have different kind of stress. We have work stress. We have family stress. We have mental health stress. There's addictions. There's all types of sources of stress. But the thing about financial stress is that it's totally avoidable. If you structure your life in such a way, it can be totally avoidable and you don't have to worry about money at all. And that's really where you want to get to. You want to get to a place where you're not worrying about money. And beyond that, you want to get to a place where you don't even think about money. Where, you know, we, most of us here on Real Vision are in a profession where we have to think about money 24-7.

4:08You know, we're staring at the Bloomberg screen, we're doing stock recommendations or whatever. But outside of my job, I don't really spend a great deal of time thinking about the$7.50 I just paid for a bagel, right? Like, I don't think about that. But a lot of people do spend a lot of time thinking about stuff like that. So like I said, if you structure your life in such a way, you won't have to worry about money ever again. All right. We got to dig into that because I feel like, I don't know, jump in the chat and let me know, but I feel like finances is probably ranked really high on the things that people stress about.

4:47People would love to not be able to feel that way. How do you get to the point? What do you mean when you say if you structure your life that way? How do you get to the point where you can feel like that? You can feel like, even if I'm thinking about it, this is not a major source of stress. I mean, I think this keeps people up at night. Well, what I mean by that is the conventional wisdom in personal finance is that it's a million small things that determine how much money you have. Like, for example, I mean, the one that people talk about all the time is this Susie Orman thing about giving up coffee, right?

5:23So if you don't buy coffee at Starbucks, if you make it at home, then you're saving$4 a day times 225 days a year. That's$900 a year for 40 years. So you're saving$36 ,000, which if you invested at a 12 % return, you would have like$150 ,000. So if you just gave up coffee, then you could have a comfortable retirement. But the problem with that thinking is, is that people enjoy coffee, right? It's a luxury. It's a small daily luxury. And if you have this program that tells you, you have to give up small luxuries every day for decades in order to achieve this goal, you can't maintain it. You can't maintain it.

6:14So actually, that is a source of stress because people are constantly thinking about like, oh, my God, my date just ordered two appetizers for dinner and I have to pay for that. And immediately you feel stress. But my take is the small stuff does not matter. Right. Whether you make coffee at home doesn't make any difference at all. It's really it's three big things and maybe four. It's number one, it's how big of a house do you buy? Number two, what kind of a car do you get? Number three, how do you pay for college? And 3A is like, how many kids do you have? And that's really it. It's if you get those three things right, then you will never have to worry about money.

7:05You can buy coffee at Starbucks. It's not a big deal. Let me put this in perspective. let's say you bought a$500 ,000 house instead of a$400 ,000 house, right? So you're borrowing an extra$100 ,000. If you borrow an extra$100 ,000, the interest on that is equal to 110 years of coffee. If you buy an$80 ,000 car instead of a$40 ,000 car, the interest on that is equal to 30 years of coffee. So the coffee does not fucking matter at all. Like the little stuff does not matter. It's three big things. If you get the three big things right, then you're fine. That's some great perspective. I think that Daniel's saying, wow, people, some people drink a lot of coffee, but it is the example that she talks about shoes too, if you've ever seen those programs and they kind of drive me crazy.

8:00And I think you touched on really something really important because it kind of creates this shame cycle. Like you're stressed and shaming yourself for taking these steps that everyone tells you can get you where you want to go. But there's so much misery in the process that you do kind of lose sight of some of these bigger issues, I think. Yeah, I mean, there's a lot of guilt around it. Like you buy something and then you feel guilt. and you know the the personal finance industry you know so dave ramsey and people like him is kind of set up against this mythological person that has a 580 credit score and they've maxed out all their credit cards and they're drowning in debt and they have a spending addiction and they buy 700 shoes and they buy expensive cars like that person is mythological Like really the vast majority of people are responsible with their money.

8:55So there's actually two extremes. Okay. And one extreme, which the, which Dave Ramsey likes to talk about is the person who spends too much. Right. But there's another extreme of people who actually spend too little. And if you've ever met somebody in your life who is a cheap bastard, right? Sure, they're never going to go bankrupt. They're never going to have debt problems. But they have other problems. They have relationship problems. Because they're the type of person that says, well, I'm not paying for you to go to college. And then the kids have resentments. And they end up in therapy later.

9:36So people who spend too little also cause a lot of damage. So the goal isn't to be at either end of the spectrum. The goal is to be in the middle and have balance and basically, you know, just choose the middle path. Yeah. No, I think that's great. Somebody, by the way, I'm laughing as I read this because someone said, Amen, brother, ordering a gourmet pizza right now. And I feel you on that. But and to be clear, you're not saying like YOLO, go for it, spend like crazy. you're just saying that there's a moderation somewhere in the middle there and you just prioritize some of the really concentrate on prioritizing and making decisions on some of the really big issues and then you can worry about the other stuff and that's less of a less of a concern if you get some of those big things right for you for you too right everyone's answer is going to be different on some of those things you raised yeah i mean you know let me put it this way For me personally, two years ago, I had a house that was paid for.

10:41I had no mortgage. And I said, I want to build a house, right? So we're building this humongous house. And this is self-inflicted. It's causing me stress. I had to come up with a huge amount of money for the down payment. The payment on the mortgage is going to be huge. There's two sources of financial stress. There's only two. and one of them is debt and the other is risk. Two sources of financial stress. A lot of people think that a source of financial stress is not having enough money. It's totally false. There are people who are dead broke who are perfectly happy. They're living within their means.

11:22They don't have any debt. They don't have any money in the stock market and they're happy. They don't worry about money at all. And there are people who are billionaires. Elon Musk, richest person in the world. What does he do? He buys Twitter with a bunch of debt. And then the stock goes down 75%. And he's feeling financial stress. So there's no correlation to how much money you have. It's a function of how much debt you have and a function of how much risk you have in the capital markets. Those are the only two sources of financial stress. That's so interesting. That's a great way to think about it.

11:56And how much risk and whether your level of risk is comfortable for you, right? I think that's really important. Some people are comfortable having a higher level of risk. But for some people, they think it's what they need to do, and it totally stresses them out. It totally stresses them out. Well, I think there's been some bad advice given in the last 10 years. We've seen the rise of index funds and people who are index funds promoters. and they say, look, just put all your money in SPYs or the Vanguard Total Market Return Fund or whatever, just like dollar cost average it and keep buying and hang on forever.

12:34But the problem with an index fund is that when you invest in an index, not only do you get the returns of the index, which are terrific, you also get the volatility of the index. And the S &P 500 is super volatile. I mean, it can go down 50 % in a year. So what you're doing is like it kind of blows my mind because there are very few people that can sustain a drawdown of more than 20 or 30 percent and keep dollar cost averaging and keep buying. So the solution to this is to diversify across asset classes and construct a portfolio that has a minimum volatility. Have you ever wanted to trade Bitcoin but haven't dared try?

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14:19So we've got a couple of great questions on it. First of all, Enlightened Liquidity Pool says, please tell Jared you're so money and don't even know it. I love it. But we've got a little bit of pushback coming from someone else. I'm not some of these. I can't pronounce the handles, but I love all these comments. The vast majority of people are responsible with their money? question mark i don't believe that's accurate uh this is vash ftw gg um i don't know that you're saying they're responsible with their money i just think you're saying that the picture that they're either totally reckless or or um or really cheap like those two extremes are not probably accurate i don't know do you think people are more responsible than were led to believe?

15:09I think that 30 % of people spend too much. I think about 55 % of people spend too little. And there's only about 15 % of people who would, I would say have a healthy relationship with money. I mean, that's the goal is that you want to have a healthy relationship with money and having a healthy relationship with money means that you don't think about it. Like you go to lunch, you pay for it, and you're not doing this mental masturbation about, okay, I spent$2 more on lunch, which means I have to spend$2 less over here. You just don't think about it. That's the place where you want to get to. Yeah, I think also what does responsible with money mean?

15:51It means different things to different people, doesn't it? I mean I would argue. My definition of what's responsible with money or about money, with their money, might be different than someone else's. um daniel asking what do you think about investing in yourself does that make your sort of big number list of things if you get that right so one of the things that i like to talk about is what i call the revenue side right you can you can a person is a business an individual is just like a business you take in revenues you have expenses and a lot of people say well I need to come up with some money, so I'm going to cut expenses.

16:32So let's say me in 1999. 1999, I was in the Coast Guard. I was making$45 ,000 a year. So if I squeezed and squeezed and squeezed, I could have come up with an extra$3 ,000 a year. But what did I do instead? I went to business school. I got my MBA. I got a job at Lehman Brothers. And a few years later, I was making$800 ,000 a year. So I invested in myself. But really what that's about is focusing on the top line rather than the bottom line. Like if not having enough money is a problem, the obvious solution to this is to go out and make more money. That's the obvious solution. But people kind of view this as a pie, a finite amount of money, and they try to slice it into smaller and smaller pieces.

17:24But instead, that's no fun. It's absolutely no fun. Cutting expenses sucks. You're cutting out your luxuries, you're miserable, you're going through this austerity. Instead of doing that, then focus on the top line, focus on how to bring in more money. Yeah, that's really interesting. And it sort of challenges us all to be a little bit more entrepreneurial or think about what you can do, whether it's in your own job or kind of expanding maybe the types of things you could do, which with technology is a little bit more, we're more able to. Fascinating conversation, by the way, with somebody who's at the academy last night who talked about really changing his mindset.

18:04He did the same thing, invested in himself, lives in Geneva, went to the US, did a course and met so many people who were so entrepreneurial and disruptive. It's really changed his mindset and he's launched his own company. That's not maybe possible for everybody, but it kind of speaks to that mindset mindset shift when you focused on revenue. Mingus Mills saying, Jared, when are you going to create a music bump for RV? Yes, please. Thank you, Mingus. We were sort of just talking about that a moment ago, having Jared DJ one of our events, but this is an even better idea or an equally good idea.

18:39We will bring that to the top. Whiskey Mike saying, good point about avoiding extreme ends of the spectrum. But Hub has an interesting point. A high interest rate on a house or car loan does matter. So sometimes you've got to deal with the circumstances you find yourself in, right? If you're sort of thinking about, okay, I think this size home is going to enable me to be less stressed. Same thing with the car. Suddenly you're out there in the market and now the prices on everything go up. How can you kind of factor that in, Jared? Well, you know, it's funny because I had a radio show on personal finance from 2019 to 2021, and it was in a very low interest rate environment.

19:28You know what I mean? So a lot of my thinking around this was developed when interest rates were very low. If interest rates are higher, it just means you can afford less. I mean, that's the reality of it. Your car payment should not be bigger than your house payment, which is true of a lot of people in South Carolina, right? You might be a redneck if your car payment is bigger than your house payment. It's absolutely true.

20:02You can't get a car loan with double-digit interest rates. I suspect that not many people listening fall into this category. But here in the South, you have a lot of what's called subprime auto dealers. It's not a dealership in the traditional sense. It's a parking lot with about 30 cars on it. And there's a sign out front that says no credit, no problem. And they will put you in a car, but the interest rate is going to be like 20 or 30 percent and you'll buy a three thousand dollar car and you'll end up spending eight thousand dollars in interest and that is that is absolutely not the way to do it so you know in the in the instance of buying a car if you're not getting an interest rate of four or five six percent then pay cash for the car remember one of the sources of financial stress is debt right and one of the reasons that debt is a source of financial stress is because you have this payment that you have to make every month.

21:02And the bigger the payment is, the more you worry about it. Yeah, this is a really this is a really good question. And it's a deep one. So, you know, if you want to just think on it and come back to it later in the show, we'll do that. Because I think that, you know, when we say something like pay cash, that's fine if you have cash and if you've saved up. And especially when we're talking about a car, because here in the States, you need a car to get to work, right? So it's this terrible, that's why a lot of people are worried about the reset in a higher rate environment for people who have to go out and get that car, because it's critical.

21:39GJ George asking, how might the concept of unfuck your finances differ for individuals from marginalized communities who face systemic financial disadvantages and discrimination, and what additional resources and support might be necessary to help them achieve achieve financial empowerment and security? It's a great question, G.J., but it's a big one. I don't know. You want to take a whack at it, Jared? You want to think on it a little bit? No, I can take a whack at it. I mean, look, like, you know, I don't come from a marginalized community, but I didn't grow up with a lot of money. I grew up, you know, kind of lower middle class, but I came from a family that really just hated the use of debt.

22:26Like was, I mean, they were cheap fucks. I came from a family with cheap bucks. Like they just, you know, they just were cheap, cheap, cheap. And like those values that I got as a teenager, I took into adulthood. So really, you know, I'm sort of a function of my upbringing. If, if you live in a community where there's not there's not any cultural knowledge about finance i mean see here's the problem and a lot of this is a lot of this has to do with education what you're seeing now is a push for classes on personal finance in high schools across the country i think six states have now passed legislation that have been enacted personal finance curriculums and i think this is absolutely a good thing because if kids aren't learning about this at home then they have to learn about it somewhere.

23:17So ultimately, I think education on this stuff is really the best solution to the problem. Yeah, I agree. And obviously, that's why we launched Real Vision, because no matter what your background, if you don't have access to these type of ideas, that's why we have the academy. Raul and Andres just gave a master class last night to try to dig in and understand and kind of break down the stigma about getting your hands dirty in this stuff, because you do need it. And the school my kids go to, it is a requirement. You can't graduate without taking personal finance. And they were moaning about doing it, even though we try to talk to them about it.

23:51And they actually learned a lot and they admitted it. It's a fantastic thing to do. I also think that for anybody who listened to our podcast with Peter Diamandis, he's a serial entrepreneur. It had nothing to do with personal finance. But he always says if there's a problem, if you have a societal problem, you also have potentially the biggest business opportunity to solve. And so somewhere someone's talking about fractionalized art. I know there are things like fractionalized ownership of things, of sharing. You know, there are there hopefully people are I would encourage everyone to take a think about that if you're someone who's been affected by that.

24:26By the way, we also have people responding saying they are also not in a marginalized community, which clearly is a lot harder. But I'm echoing your sentiment, Jared, about considering how to make money, raise capital, anything else but take on debt to accomplish goals so that you don't sort of have that burden. And we won't even get into student loans because I think a lot of people are, you know, that's something that comes to mind in that same frame. Let's see what else we have here. A lot of people asking about what to do in this environment. What do you recommend for residual income that keeps pace with inflation and pays you to live.

25:12So I'm not really a big passive income guy. Okay. Let's take a look for a second. The two most popular finance books of all time, two out of the three. Okay. On one hand, you had The Millionaire Next Door. Okay. Which I can't remember who wrote it. the name escapes me right now, which is about being a cheap fuck. The other one is by Robert Kiyosaki, Rich Dad, Poor Dad. Now, the first half of that book is truly amazing because it really gets into your attitudes towards money. And in order to do this, you first have to have the right attitude. And I thought the first half of that book was brilliant.

25:56But then he gets into this whole thing about passive income, about buying houses, buying laundromats, buying dental practices, and levering up in order to generate this passive income. And, you know, again, getting back to my philosophy that, you know, the source of all financial stress is debt and risk. I mean, yes, you know, a lot of people do that successfully, but it is also a huge amount of stress. And there is a likelihood, however remote, that all the houses you own that you're renting out are going to go pear-shaped at the same time. You know what I mean? So it exposes you to financial ruin.

26:36So one of the things you try to avoid is the risk of ruin. So I've never been a passive income guy at all. And a lot of times the stuff that looks like passive income actually is active income because there's sort of this mythology around like, okay, I'm going to buy a couple of houses and I'm going to rent them out and I'm going to collect checks and I'm going to make a hundred thousand dollars a year while sitting on my ass. But it's, it's not that easy because you have people setting off fire extinguishers. You have people clogging toilets, you have parties and you end up spending a lot of time on these properties and it ends up being a lot more work than you initially thought.

27:15So I think the whole passive income thing is a complete illusion. Like I said, some people can do it. Some people do it well, but it causes a lot of stress. I just want to respond to this because Jared and I have talked a lot and someone saying you got lucky 800K a year for an NBA that doesn't exist for 90 % of people. That may be true, but I'm not sure luck has anything to do with it. If I remember correctly, Jared, you were pretty feisty in terms of getting yourself a foot in the door of Wall Street and sort of pursuing that dream, right? Oh, yeah, yeah. I mean, I don't want to get into that whole story, but...

27:55Well, they can take my word for it. I wouldn't put luck in that sentence. Yeah. Which, by the way, is true of many of the people that we have on. They often say themselves they're lucky, but when I talk to them for my life of four trades, for those of you who have listened to the podcast, I think a few of them have said it different ways, but it's a lot of work to put yourself in the right position. if luck happens to come your way or an opportunity has to come your way, but there's an awful lot of hard work that gets you ready for that moment. You know, so I'm not saying luck doesn't have anything to do with it.

28:32Sometimes, you know, something, something happens and there's a door opens, but you have to be ready. Otherwise it doesn't mean anything. Yeah. The way I like to call it is you, you have to be positively exposed to luck. Yes. Right. So you have to, you have to put yourself in a position where good luck can happen to you. You know what I mean? Which, you know, is another way of saying if if I stayed in my apartment in California and just wished for a job on Wall Street, I never would have got one. You know what I mean? But I was buying plane tickets and flying to New York every couple of months to do informational interviews and hustling, you know, trying to hustle a job on Wall Street.