Scott Galloway's Ultimate Guide to Financial Well-Being: The Algebra of Wealth

26:46I worked as a waiter all through college and I was terrible at it, but that was never an end game for me. And I always put a limit on stuff. Okay. I want to be an athlete. Well, I'm not nearly good enough to be an athlete. All right, next. I want to be an investment banker. I'm going to show up every day. I'm going to try hard. I don't want to do that. And then if you're a good student, you know, I think grad school is a great way to buy time and maybe try and find something. The reason why I went back to business school is because I had no idea what I wanted to do. And while we all pretend in our applications that we're supposed to be very focused, my application to UCLA, I said I wanted to be a pediatrician.

27:20And I thought that was true until I took chemistry. When I was applied to business school, I said that I wanted to be in computer science. And that was true too, until I started actually coding and realized I wasn't very good at that. Your job is to every day show up, work hard at something, really test it in an industry that you'll get better at and it'll pay well and what i would say to your daughters who are it sounds like pursuing kind of one of these romance industries is i don't want to crush anybody's dreams but what i tell people is if they want to be an actor ring fence it unless you're making a sustainable living within 24 months realize that you're going to be one of the nine i mean do you realize that the sag after union the union for actors and people in hollywood these are the best in the world there's 180 000 members of the union 87 don't qualify for health insurance because they don't make more than twenty three thousand dollars a year so it's a shitty industry now but where are you going to tell your daughter who dreams of being an actress not to be an actress no what i think you can say is all right you're talented you're going to find something that you can find reward in maybe this is it maybe it isn't but let's ring fence it let's give it two years and certain hard metrics around whether this is really working because in those industries, if you're not in the top 0.1 % and you'll know pretty early whether you are or not.

28:37Messi knew he was Messi at like 11, right? And lean on me, your parent, although it's hard when you're their dad because they'll listen to anyone but you, but lean on me to say, okay, let's be honest about how this is going because you are talented and there's a ton of opportunities. And what you said, James, is really, I think, compelling in terms of your narrative, those skills as an actor, actress, or in the creative industry, you can apply those to other industries. And also, for me, grad school was a great way for what I call the elite and the aimless to kind of figure it out or explore other industries while getting certification.

29:14But I would say at the end of the day, get up, get a job, don't let perfect be the enemy of good, meet as many people as possible, try and make as many allies as possible and have mentors such you can say, is this working for me? Is it really working? And if it isn't, don't be afraid to switch because in a matter of five years, I was a doctor, investment banker, MBA student, and consultant. None of it worked until it did. When did you first feel like that? So I know that feeling you're talking about where suddenly you fall into a job and it's neither here nor there, but then suddenly you realize, oh, I'm good at this.

29:53And the harder I work at it, the better the results are, the more money I make. And now I have this excitement that I've never had before in my life. I'm enjoying getting up in the morning to go to this job where I see my future for the first time. When did you first have that experience? Yeah, I know the exact moment. I was a second year in business school and I took a class called Brand Strategy with David Auker. And we were supposed to, our final project was to do a consulting engagement for a client. And I pitched Yamaha Motors And they said, sure, we'd love to do this. We're looking at the youth market, how we can reinvigorate the Yamaha brand in the youth market.

30:27And I said, you know what? I said, this is a real important project for you, and this requires market research and interviews with experts and real statistically rigorous data. And I said, I want to do this right. I'm going to write you a project, but I need money to do this. And they said, okay, write us a proposal. And I wrote them a proposal. I called my friends at BCG, and I said, what should I charge? and they said well we would charge this is 1992 we would charge half a million dollars so i said well i'm not bcg so i'll charge them a quarter of a million so i wrote a proposal my mom proofed it and i sent them via fedex so it would seem important a proposal and i've asked them for a quarter of a million dollars to do some market research and a brand strategy engagement for yamaha and they didn't call me back for like two or three weeks and then i pulled up to my apartment in rockridge oakland that i was paying 280 a month and i opened the mailbox and there was a check for $125 ,000.

31:16And a voicemail from this guy, Matt Takazawa saying, we're really excited about the project. You should have received the first installment. I remember thinking, James, at that moment, looking around and thinking, did I just commit a crime? Is this fraud? And what you realize is that no one, everyone's a fraud. Everyone's an imposter. But for me, it was, I was very economically focused at a young age. Something that was a benefit of growing up without a lot of money was I was very focused on economic security. So recognizing that I had the skills to convince a company to pay me a quarter of a million dollars to try and answer very difficult questions and then do a good job of it and get multiple engagements from Yamaha over the next several years, it was intoxicating.

31:56I felt relevant. I loved making money. I enjoyed hiring people and I enjoyed standing up in front of a group of people and communicating and storytelling around business issues. That was intoxicating. Over time, I decided it wasn't for me. I got out. Consulting and services is a young man or young woman's business. You're traveling all the time. It's dependent upon relationships. As I get older, I become more of an introvert. I didn't want to hang out with clients. So I pivoted to academia. And I think you're going to see that a lot in industries. But for me, that moment was when someone would actually write me a check for$125 ,000.

32:34That was a moment I thought, wow, maybe there's a there there. Did you, you know, while you were doing the Yamaha Motors project, did you seek out in parallel other clients to pay you, you know,$250 ,000? Yeah, and here's the thing, and you must know this as a stand-up comedian and as someone who had to raise money for a hedge fund, your success is largely correlated to your willingness to pull out a spoon and eat shit. I started calling every alumni of Cal and saying, Hi, CEO of Levi's. I've just started a consulting firm. Will you have coffee with me? no, no, no. Okay. A no man, I would email him again in a month.

33:08I mean, I was just relentless. And go ahead. Go ahead. Your willingness to eat shit and endure rejection is the only way you're going to score above your weight class professionally and personally. If you want to marry or date people who are nicer, higher character, and hotter than you, then it's really easy. Get used to rejection. If you want to score above your economic weight class, if you want people to look at you in 20 years ago, I wouldn't have guessed he'd be that successful. Then get ready to eat shit because that means walking up to strangers, emailing people, taking risks, risking public failure by trying to raise money, starting businesses that might fail publicly.

33:51And here's the reality. 98 % of people aren't willing to endure rejection. everyone's so impressed that i'm an entrepreneur the only difference is i'm willing to sign the front of checks not the back of checks the majority of people would never put their own money into their own venture it's so true and it's so painful the decades decades maybe for some people who are more talented than me it was years but not decades but the decades of rejection and as you put it eating shit like you just get humiliated all the time it's not just rejection It's humiliation in many cases because, because, because people who have the power to reject you also have the power to tell you why they're rejecting you.

34:34And sometimes they don't know. So they just say whatever they want to say to you because that's how they get off. But that's, that's the mojo. That's the push is that you have to like have a goal that you're willing to jump through fire to get to. And it's painful. It's painful to do that. And I don't know if there's really a formula for it. Like, I don't know how you, like you say, you already have to have that willingness before you can go out and get it. Yeah, I don't know how you teach someone the willingness to be rejected. I mean, I ran for sophomore, junior, and senior class presidents, lost all three times, and based on my track record, decided to run for student body president where I went on to wait for a lose.

35:18And I think that that just paid huge dividends for me. the recognition that failing is painful but a couple days later you're fine and i've uh again i've described success as the ability to mourn and move on like oh this didn't work out mourn and move on i mean you raise money i'm now reading that an average venture capitalist has to do 300 meetings to find one person to fund him or her it's just constant constant um rejection and the majority of people aren't willing to endure that. So I don't know how you train it in people. I'm trying to do with my boys. I force them to speak to strangers when they're out because it's awkward and uncomfortable.

35:58And I'm like, well, get used to it. That's the key to success is putting yourself in awkward and uncomfortable positions. And I've sat outside at the front of my house with, I mean, my youngest, very upset because I won't let him back into the house until he talks to a stranger. And I'm literally like, just go pet that dog. But those skills, I think, especially for men who are still expected to initiate conversation with potential romantic partners. I think that skill is so important. And I'm not saying that everyone should be an entrepreneur or you have to be risk aggressive, but be clear, you know, one out of seven businesses succeeds.

36:31So I've started nine. I mean, when I business failed, I mourned for a little while. And then I got up, dust up my pants and called people. I was, I like to think I was a good person, a good employer, a good, good person, an operator who took other people's money, and I'd try and start another business. And I've started nine businesses, and two have been very successful, two have done okay, and five have crashed into a fiery ball of flames. But all you need is one. And so to think that you're going to be successful in your first relationship, your first business, your first job, is just you're deluding yourself.

37:06And so forgive yourself and get up and try again. You are the answer. I think a key component, and I even just articulating this, looking in the mirror and saying, I am the answer to a firm's problems. I would be great for a firm. And then answer the question, well, why would you be great? And get in front of people and start practicing, convincing them why you'd be great. You could make someone very happy, right? There's no pain like getting your heart stomped on, but then convince yourself, I could make someone very happy and I'm going to someday. I remember, I mean, I didn't have girlfriends in high school and in my freshman year, it wasn't until I was a sophomore that I had really my first serious relationship.

37:50And I remember thinking, I'd be so good at this. I'd be so good at this. And it gave me the mojo to be more aggressive and ask people out and then have them say no and then ask them out again. But for me, that's been really the key to success. And if your business fails, if you're getting no's, that just means you're on your way to yes. So the more no's you get, the more that means you're on your way to yes. I think also very important, as crass as it sounds, hang out with rich people. Because for instance, take raising money. If you're trying to raise money and everybody you talk to has$100 in the bank, you're not going to raise money.

38:31If everyone you talk to has$50 million in the bank, you're going to raise money. Even if you have a crappy idea, you're going to, you're much more likely to raise money. You increase the potential for your luck. So, and maybe it's hard to hang out with people who are rich, but I would say one shortcut to that is, you know, and this is relating to mentoring to offer as much value as you can. You can't get a mentor until you offer value to somebody who then says, okay, I want to, you know, guide this kid along. And so like, if I had hung out with, like you were at Morgan Stanley, if I had worked at Goldman Sachs and then worked at a hedge fund, it would have been much easier to raise money for a hedge fund than doing what I did, which was starting without any of that pedigree or any of those connections.

39:18Well, it goes back to when you're in a city, you can't be in a room when you're in New York, you can't be in a room with more than 20 or 30 or 50 people and not have a lot of wealthy people in the room. So you're just around a lot of wealth. What I would say is that I would frame it a little bit differently. The people you hang out with, you want to try and hang out with really high quality, impressive people, people who are funny, interesting, ambitious. And a lot of those factors lead up to wealth. And because really impressive people, other people want to know them. And if you speak well of them behind their backs and you're a good person, they're going to want to put you in a room of opportunities, even when you're not in that room.

39:55What I would say is, and this is sort of crass too, is I would say, if you can go to work for a rich person. Because when I didn't have money, when I was hiring people, I just have to watch every nickel. And what I would do is try and compensate that with equity. And when the companies worked out, that would work out really well. But now that I have money, I pay my people really well because I can. And it would just be, it would just feel very awkward to live the life I'm leading and be really like pay people market salaries. I pay above market. I mean, they probably don't think that, but I know I do because, okay, how could I ever be on the wrong side of this equation given, you know, absolutely.

40:38If you have a different job offers, go to work for the, for the, for the boss who's wealthiest because they it's just easier for them quite frankly to pay you really well

41:06i'm always trying to think kind of the very beginning side of this equation like what you called getting the mojo. If you work for a rich boss, and it doesn't matter what industry, try to pitch ideas to them or come up with ideas for them or do something that adds a little. Just like you pay above market salary, a young person should have above market service they provide. So don't just do your job. Do more than the job. Come up with new ideas. come up with ways to be more efficient, do things that are outside the scope of your job. Because you have to have some way to stand out because the competition is immense.

41:46In New York City, there's 5 million kids wanting to break out. Yeah, look, I don't, I'm very, I'm very boomer on this. I think it's ridiculous when I ask my kids, when I say my kids, I mean my students, where they expect to be economically. somewhere between about two-thirds by the time they're 35 and want to be making three quarters of a million a year which means they expect to be in the top one percent and my experience is the only way you can be in the top one percent unless you're smart enough to be born rich is to pretty much do nothing but work for a solid two decades and then in the same breath they'll they'll talk about the need for balance i'm like these two don't work together that's like saying you really want to get into ice cream, but you want to be really fit.

42:33It just, well, you know, three quarters of a million dollars, by the way, what job pays three quarters of a million dollars other than in the finance industry or like a top lawyer? Or unless you're in the top of any industry, but by the time you're 35, you got to be in finance, but, or quite frankly, you just have to work to get, to get to that level. And by that time, uh, by 45, you have to just work your ass off. And what I, I mean, one of the things I took, I tell the story when I was at Morgan Stanley, I'm like, okay, you got to figure out what your strengths are. What can you do that no one else can do?

43:05The strategy all boils down to one question. What can I do that is really hard that other people aren't willing to do? That's your strategy. What are my strengths? But if you're 25 years old, how do you even, you don't, right now you're not good at anything that's really hard. Okay. So how do you find that? What I did at 22 is the following. i was an athlete i was mentally strong i didn't have a girlfriend i was living at home i had no social life so what i could do and i did this was every tuesday morning i'd go into work at 9 a.m and i'd stay till 5 p.m on wednesday i'd work through the night and because it was such a macho bullshit weird abusive culture they valued that i'm like okay i am physically capable of doing this there is no sacrifice or trade-off other than being very tired because i have nobody at home.

43:50I have no dogs. I have no kids. So I thought every week I'm going to work 36 hours straight. And they valued that. I wasn't as well educated as my Ivy League peers, but that was one of the things you can do at a very young age, quite frankly, is work harder than anybody. You may not decide to, you may decide that you don't want to employ that strategy, but you have to have an eye towards an unassailable, differentiated, unambiguous talent or skill or commitment that other people aren't going to bring. You have to figure out what that is. It's funny how you're bringing back memories for me. I haven't thought about this in a long time, but I remember being in my 20s and almost feeling sorry for my boss at the time.

44:37He was in his 40s. and because I was young, I did have the ability to do, like I would work through the weekend, for instance. Like there was no problem for me to come in Saturday and Sunday and put in full work days with nobody else there in the office and my boss couldn't do it. And then Monday morning when he would come in, I would have so many achievements, he'd have to figure out how to take credit for them so that he could keep rising. And that, you know, developed a good relationship between him and me where he would then essentially let me do whatever I wanted to do, I would let him take credit for it.

45:12And I, and you, you brought up twice. I would talk, say good things about him behind his back. I would give him the credit so that he could let me continue to rise. And that was, that was good for my career. In consulting or in business, the easiest way for you to develop really strong relationships is to get your boss or your client promoted. Yeah, that's very true. My job was I was always working for the CMO as a brand strategist. And my job, I would say at the firm, our job is to make that guy the CEO, to make him so brilliant with our work that he becomes the CEO of Latin America for Levi's or Dreyer's or whatever it was.

45:48And the same, if you can make your boss successful by just doing great work for them, you're going to be the boss at some point. And you've got to figure out, well, what is it? Am I brilliant analytically? Do I understand design? Am I great at PowerPoint? Like, fine. What are your weapons of choice? So you got to be able to fire a bow and arrow, a musket, all of it. You got to try and be a reasonable athlete so you can handle any weapon. But then what are you going to be a ninja at? Like where is your ninja? You've got to be, you know, at any company, you got a year to figure out what do they go to you for?

46:19And it could be pretty fucking narrow. Well, that's the guy that knows how to run the copier like no one's business. I mean, it could get pretty narrow. He is great at planning the social events for the company. That's important. That's important, right? right he is great he is great at welcoming new people or pitching people when we make an hire a young hire to have him speak to Jake he's great at talking up the firm like who what are you the go-to for that's the first question within a year I've got to be the go-to girl or guy when they need x done right and then more broadly how do I make the people I work for and the firm successful and pretend, and good firms do this, make you a shareholder?

46:59How do you think to yourself, I wanna make this firm really successful because people will notice, right? They'll notice, it's like, if someone likes your kids, you immediately like them. If someone comes up to you at your school, a drop off and says, oh, I'm just so impressed with Alec. He's such a good kid. You immediately love that person. Anyone who likes your kids, you like. You wanna show and demonstrate every day that you really want the company to be successful in little ways. Like, I don't care if it's picking up litter in front of the office. I don't care what it is. People notice. You know, I wrote about this concept in one of my least read books.

47:36It was called The Rich Employee. And it was this idea that what you're saying is you have to become the identity of the firm. You have to, like, absorb that into your own identity. So I worked at HBO, for instance. and HBO had a very distinctive type of show compared to like, let's say NBC. So I had to feel what was the HBO aesthetic in order to then implement it at my job at various levels. And that technique works. Like you have to love where you're working. Like I'm talking too much here, but the same time I got offered a job for HBO at making 40 ,000 a year. And at the same time I was offered a job at JP Morgan making 80 ,000 a year.

48:21And I was going to move to New York City to take one of these two jobs. I rejected the JP Morgan job because I felt what's the difference between JP Morgan and Morgan Stanley or any other bank. Whereas HBO, I had a feeling I could feel what that brand is and I would do good at it. And that worked for me. The money wasn't the important thing there. I think when you're young, like you said, and you have the opportunity, you want to find something you're going to be really good at. So if HBO, you think it's going to be better suited for me and i can the top people at hbo make not as much as the top people at jp morgan but they make a shit ton of money and they'll make tens of millions yeah so if you think all right where could i be a master would i better would my skills am i more likely to develop mastery at jp morgan or develop mastery at hbo it's simple do i have more creative instincts do i have you know am i better analytically that's jp morgan you know whatever it might be but you want to go us somewhere where we can say, this is where I can develop mastery.

49:20And again, it's still, like you use a really important word, workshopping. You can't be afraid to switch jobs, interests, talents, passions many times in your 20s because you're not really going to know what you love until you try lots of things. The only wrinkle I would add there is have a kitchen cabinet and never leave a job until you talk to some people because young people and old people but especially young people oftentimes have emotional reactions to to things that they need to take a breath and take a beat and you need you need a group of people you can call and say i think about i'm thinking about leaving my job and this is why and because sometimes they'll save you from themselves sometimes they'll go well your ego was hurt you're just putting up with the bullshit that exists in every other company don't have an emotional reaction or find another job before you quit your job.

50:15Just like when I now, I wish I'd figured this out. I didn't figure that out in my 40s. I don't make a big decision without talking to at least two or three other people, personally or professionally. It's really important. You have to put all questions of ego aside as well, which I think is hard for young people. Like you have to really learn to listen to people. Very important. Well, you can't read the label from inside of the bottle. And I've known so many radically successful people everyone is a fucking idiot in certain aspects of their lives i have friends who are amazing business people credible judgment good board members great investors and they have just they're just terrible they have terrible judgment when it comes to their relationships and then i have other people who are like great at what they do professionally make a ton of money great family members great shape and for the life of them they can't save money they there's something about their saving and their ability to manage money that's just broken.

51:15Everybody has blind spots. Everybody. And a series of people you ask questions to and friends and a social network and advisors, that's your Kevlar. That protects you from making really stupid mistakes. Because when you're young, you like think, oh, I'm smart. And I conflated leadership and masculinity with making my own decisions and then convincing the world and myself and other people that I was right. And if I just checked in a couple times with people, they could have gone, well, Scott, does it really make sense for you to do this? Have you really thought this through? Like what about X, Y, and Z?

51:46It would have saved me so much heartache and saved me so much money if I just had two or three people I could call on and ask basic questions to. In another part of the book, you talk about all aspects of wealth, and I think that's what makes this book so valuable. Once you have money, for instance, how do you invest it? How do you save it? the importance of compound interest, et cetera. But one point, I don't know if I disagree or not. When you're young, if someone says, you know, XYZ costs 2000, and let's say you have six months in the bank saved. So you know, you're not dying tomorrow, but if something costs you 2000 and you had a friend who said, uh, if$2 ,000 is important to me, you know, 40 years from now, then something's wrong.

52:33And so you were talking about personal finance and the importance of savings, but I kind of agree with the person who says you don't need to worry about$2 ,000 because it's true. Your money-making power grows so much faster than the interest on$2 ,000, particularly when you're younger. It doesn't really matter$2 ,000 or if Starbucks coffee is$10 or whatever. I'm of two minds here. The first is... Okay, first off, if you just cut out one cup of coffee from Starbucks and save$7 a day, and then you can figure out a way to live in a place that's clean and nice but a little bit smaller, you can find a way to save$500 or$1 ,000 a month, which isn't easy.

53:17But if you can figure that out from 22 on and you just put that money in SPY, you're going to be financially secure when you're our age. I mean, the market's been going up 11 % a year since 2008. eight that means every 21 years your investments go up eightfold so my friend who i referenced who was putting those two thousand dollars away from the time we got out of college i would say on average every year he made 20 or 30 percent of what i made he ended up in almost the same spot because the the compounding of that that money early on that he saved ended up being hundreds of thousands and then millions of dollars when we were in our 50s so there is something about having the discipline to put some money away when you're younger that just that magic box of and ignoring or trying to trying to recognize the flaw in our species is we don't realize how fast time is going to go because for the majority of time on this planet our species has not lived past 35 it's impossible for us to calibrate that 20 years is going to go by in a blink i mean it's just going to go by so fast yeah and it's seven to eleven percent a year a small amount of money over 20 years turns into a lot of money having said that i also recognize that there is a balance and that is you don't want you don't want your youth wasted it does make sense every once in a while to buy a cool outfit and go to coachella to really try and enjoy yourself to occasionally spend some money i don't want i would never want to deny a young person of their youth and and say saving is the only thing you should be doing in your 20s because you won't really start making real money probably until your 30s.

54:52And then you can catch up. What I would say though, is that develop that savings muscle, even if it's just a hundred bucks, 50, a hundred bucks a week. And then here's the key, find partners or friends that also gamify money. I went to UCLA, I didn't have any money. I had to save$3 ,300 every summer. Otherwise I wasn't re-enrolling in school because I'd racked up fraternity bills and I needed to pay my tuition. Everybody knew who the six guys in the fraternity were. It was mostly wealthy Jews in the Valley, but there were six of us that didn't have any money. Everybody knew who we were. And we would gamify it.

55:25And we'd have a whiteboard. And every day we'd talk about how much money we made in the summer and how much we spent. I spent$77 a week for 12 weeks, including rent. I lived on top ramen, bananas, and milk. And guess what? I still had a good time. We'd pool our money and buy a 24-pack of Schmitty beers. We still had a nice time. Gamify it. Find a partner, a spouse, a girlfriend when you're younger that is also, you know, wants to track their budget and wants to build something with you. And it's really powerful if you can surround yourself with people like that. And I'm not suggesting you don't go to Bangkok and do something cool or go, you know, go, you know, I just came back from Egypt and Israel.

56:04Have some fun. But develop that savings muscle in your 20s and also recognize, and you just have to make the tradeoffs. a thousand bucks at 22 is like saving 25 000 when you're 42 so just do the trade-off which is going to be harder if you don't if you want to spend all your money in your 20s and have some fun i get it that's what i did my first bonus check morning stanley i bought a bmw and hung swim goggles out the rearview mirror to pretend i was more athletic than i was i was totally peacocking how how old were you 22 23 i got my first 22 you bought a b how big was your bonus check uh i think it was like 20 25 grand you know morgan stanley pretty well i mean what was your salary at morgan stanley um i think it was 38 or 40 grand i think i made 60 grand my first year out of college in 1987 which probably today oh my gosh you were rich well yeah and i spent it all i spent it all and if i just saved a little bit of money yeah i mean here's the bad news i i didn't save money.

57:05I always assumed I'm such a baller. I'm starting companies. One even went public. And I always raised my consumption to my spending. I didn't spend more than I made, but I always raised my consumption to my spending. And then 2008, the great financial recession hit, I lost everything because I was way over invested in tech. And about the same time, my oldest son had the poor judgment to come marching out of my girlfriend. And that, you know, when your kid, your first kid is born, you're supposed to, you're told that it's going to be bright lights and angel singing. I was so sick and nauseous. I really came very close to fainting.

57:40And at first I thought, is this because I find the process of childbirth so disgusting, which I do. But more than that, I was ashamed. I was 42. I'd had a lot of curb success. I could have been on the cover of magazines and I didn't have any fucking money. And now it was no longer just about me. I started my first moment with my son was a recognition that I was already feeling as a father and it was emasculating and it was really upsetting. And if I had just put a little bit of all that money I'd made away and let time take over in an index fund, instead of going all in on these investments that were going to pay off huge for me, I might not have been had millions, but I would have had enough money to be able to enjoy my kids as infants.

58:25And that's really what this book is about. I want you to be rich. I hope you hit it big. I hope your company goes public. I hope you have a best-selling book or album. But just in case you don't, there's a little bit of effort, a little bit of discipline when you're younger, in your 20s and your 30s, that can make sure you have a plan B and have some financial security. And that's what I did not do. And I started doing it in my 40s. When I started making real money, I got very serious. My kid changed everything. I'm like, I am lowering my burn. I am going to save a shit ton of money. I'm gonna diversify.

59:00I'm going to find unique opportunities. I'm going to save a ton, diversify and let time take over. And then I got very lucky since 2008, the markets have been on their greatest bull market, you know, run ever. And I started saving a lot of money and it compounded. It went, you know, it went crazy. And I would have saved myself a lot of stress if I'd started doing that just a little bit much earlier. How did you deal with that fear in 2008, your kid's born, and you don't have as much money as you'd like. And by the way, the capitalism is falling apart on the front pages of every newspaper. Like, how did you, you must have been terrified.

59:40And how did you personally deal with that fear? Well, I'm used to a certain level of failure. I just got to work. I started working hard and trying to, you know, trying to find opportunities. I started a company that ended up being very successful. I started L2, which seven years later, was it seven years? Yeah, seven years later, we sold for 160 million. That was a big hit. Things just got, I just got very focused. And I also had an onverse conversation with my partner. I am not gonna be a great dad. I'll be here for you, but I'm gonna be working all the time. My job is to co-kill the goddamn mastodon and bring it home.

1:00:17I had a very traditional approach to it. By the way, my wife or my now wife was working at Goldman Sachs. So I would go home for bath time, but I was just working around the clock. back and I you know I gave up a decent amount I didn't see my kids a lot when they were very young and I always say it cost me time with my infant children it put a strain on my relationship it was not great for my health and it was worth it because now I have a lot of balance and now I have a lot of time with my kids and what I tell people is you can have it all you just can't have it all at once and I just got very focused and very serious on it on career and economics so you You didn't let the fear paralyze you.

1:00:57That's a huge point because what I see with a lot of people who are successful is they hit their first failure and they get stuck. They can't quite recover. They lose their mojo. They start a business and it doesn't work and they're afraid to ask for more money or they stick with it too long and they fail slowly. Or they get kind of like a dog that's been hit by a car. They're skittish. They're too skittish to start a new business or get back in the game. or they have just the wrong amount of money. What do I mean by that? They have enough money so they don't have to do anything right away, but they don't have enough money to retire.

1:01:32And so they let perfect be the enemy of good. If you're out of work or your business fails or something happens, put a statute of limitations. Three months, six months, whatever it is, the best opportunity that rolls along within three or six months, you're taking it. Because you gotta get back in the game and you gotta get back to the plate. And I know so many successful people which is they're just grazed by a ball. They've been so successful their whole life and they just get a slight, the ball just comes too fast to their face or they strike out for the first time in a while and they're just literally paralyzed for years.

1:02:07And you just gotta get back up. No one remembers your failures but you. No one cares. Oh, his business failed. And then they go back to thinking about themselves. They don't care. They're not thinking about you. But you bring up an important thing about like having so much money, but not quite enough. And you discuss this in the book, and this will be basically my final question, but it's such a fascinating thing. What is the number? Like, how should people think about the number, like cash in the bank that they need to have where they really don't have to worry? Now, I know there's not one number fits all.

1:02:45Right. What's the formula? I can give you the math. I can give you the math. and then I can tell you how I actually behave. The math is pretty simple. And that is you want your passive income to be greater than your burn. So calculate out how much money you need. And it might be reducing. You have kids, sounds like leaving the house at some point you'll have social security. And you think, okay, to live in New York, I'll just pull a number out of the year. You live a nice life. I need$600 ,000 a year. I don't know what the number is. assume assume you can get six percent in the market maybe four percent after tax and then just do the math if it's six percent and you're making six hundred thousand that means you need ten million in the bank that's a lot of money and if you don't think you're going to get to ten million by assuming a six or eight percent return in the amount of money you're saving then you need to lower your burn so you just got a reverse engineer back from when do i hope to have some sort of when do i want to be wealthy do i want to be wealthy at 55 at 65 and the definition of wealth as passive income greater than your burn.

1:03:47What will I need to live? Assume the market's going to return 6%. Assume you'll get some additional sources of income in terms of Social Security. Look at your burn and then just do the math. That's the formula. Now, distinctly - So like if you need 500 ,000 after taxes, you need roughly 10 million in cash in the bank, let's say. Right, but that's awfully intimidating for your listeners. My father, between his Royal Navy pension and social security makes$48 ,000 a year and he spends 38. When I take my dad out for dinner, we go to a Mexican food restaurant, he orders a margarita, he drinks half of it and asks for the rest to go.

1:04:23That's his approach to life. He's rich. His passive income is greater than his burn. He's rich. And to get to$38 ,000 a year, which is all he needs, it wasn't that hard. He could figure out, I'm tracking between my pension and social security, I'm going to be there. So a lot of this is just an honest conversation around your burn. Wealth isn't about how much you make, it's about how much you spend or specifically how much you save. So just have an honest conversation. I think I can get to this wealth. You can do it the other way. I think I will get to this wealth. I'm saving this much money. I can account on this return.

1:04:59By the time I'm 50 or 60, I'll have this much saved. It'll spin off four or 6 % plus social security. I'll make this much. how do I adjust my lifestyle to foot to this? And the thing is, once you start doing these calculations, it gives you a sense of control and mental comfort because you can think of, okay, how can I manage and take control of my financial future so I don't have that type of anxiety? And then the things that can take you off track are obviously an illness, but this is the difference between being wealthy and super wealthy. The people who are really, really wealthy are the ones who bring character to their investment strategy.

1:05:36What do I mean by that? The most devastating, the way to snatch defeat from the jaws of financial victory are divorce, personally and professionally. I'm divorced. I lost 60 % of my net worth overnight, probably more than that because not only do you have to split everything, but now you have two households to manage. So your net worth goes down by 60 % overnight, maybe even 70 % because you're a forced seller and it's never good to be a forced seller. It also takes you off track for a year or two years emotionally in addition if you look at a small business it's doing really well and ends up going out of business it's usually because the partners in the business get a divorce professionally they stop getting along they go after each other and the business gets torn apart so if you look at really rich people they usually there's a myth that rich people are lighting cigars with their hundred dollar bills and they're bad people the elizabeth warren every billionaire crawled over someone to get rich i have not found that to be the case I have found in general that really wealthy people are high character people.

1:06:34They bring generosity and forgiveness to their relationships and people want them to win. They collect allies along the way. So what's the difference between being fine economically and being super wealthy? It's character and it's bringing a certain amount of forgiveness and generosity to your personal and your professional relationships. You want people to want you to win. That's really great advice. And, you know, I guess finally I want to ask you, you know, let's say you want to make a steady 6 % a year. Now, yes, the stock market has gone up 11 % per year for so many years, but it's gone up 20%, down 20 % some years.

1:07:12So you don't really feel safe on the years you're going down 20 % because you don't know how many years in a row it will do that. It could do it two, three years in a row. What would you do if you wanted to make a steady 6 % per year, which is not as easy as people think? Well, I mean, steady six, you can probably now, I mean, there's money market accounts are like 5.2. Yeah, that's true. So let's say a little higher because like inflation's running a little higher, interest rates are higher. So let's say you wanted to make a steady 8 % a year. I like SPY, low cost index funds. Any one stock, as you said, James, has a 50.1 % chance of going up.

1:07:50If you picked any five stocks in the S &P and held them for 10 years, no one has ever lost money. Population growth and technology create an increase in productivity over the medium and the long term the trajectory of the markets has been up into the right just low cost index funds the number one question i get on email right now outside of advice for young men is should i buy nvidia stock now and what i tell people is i don't know but your approach is if you buy an index fund in the s &p a third of your dollar 33 cents on the dollar go to the magnificent seven so if they continue to rip because it's index adjusted, you'll participate.

1:08:26But if they are overvalued and the other 493 stocks have their day in the sun, you have money there. Don't try and convince yourself or put the pressure on yourself to be a hero and find the needle. Buy the whole haystack. Time will go faster than you think. And over the medium and long term, the market's direction, natural trajectory is up. You don't need to be a hero. Buy the whole haystack and then forget about it and make sure it's low cost. And don't fall under the illusion that you can pick stocks and do not day trade. Well, as a former day trader, I definitely agree with that. That was the most stressful period of my life, and I did it for years.

1:09:08Well, Scott, author of The Algebra of Wealth, thanks once again for coming on the show. I think you've been on the show for every single one of your books, so I'm very happy about that. You're always a great guest and so many interesting things. So thanks once again for coming on the show. Thanks. Well, thank you, James. Thanks for being such a great supporter. And like, I think of you as an icon of New York right now. I think if we put things into a time capsule, like if there's any way you could be one of those cryogenetic, I feel like you kind of mark the age for me in New York. I've known you for 20 years now or 15 years and the comedy clubs, the investing, the HBO, I think it was sort of this iconic-like figure in New York.

1:09:50Anyways, I always enjoy spending time with you. I've definitely turned over every rock in New York during the past 20 years. I mean, actually, right now I don't live in New York because I am worried about New York's future, as I've written about. But New York really has defined a lot of my life. Well, come back, James. To resist is futile. You belong in New York. Maybe, maybe. Once again, Scott, thanks so much Thank you, James

1:10:43you sell. Thanks. Have a good one. Yep, that too. Want one place to manage all your online and in-person sales? That's kind of our thing. Wherever you sell, businesses that grow, grow with Shopify. Sign up for your$1 a month trial at shopify.com slash listen. Shopify.com slash listen.