Money Talk How to Retire by The Age of 40 Ep 280

In this episode, Alex, a self-made millionaire, shares insights on financial prudence and the path to wealth. Despite his wealth, Alex recounts driving a modest Prius, emphasizing the importance of living below one's means. He challenges the common pursuit of status symbols, like expensive cars, by outlining a pyramid of wealth categories, highlighting the disparity between income and assets among the top earners. Alex stresses that achieving high net worth status is more about saving and investing wisely than earning exorbitantly. He offers practical advice on wealth accumulation, such as saving $15,000 annually for 30 years with a 9% return. Alex's key message: true financial freedom comes from spending significantly less than you earn, enabling you to retire early or choose work that aligns with your passions.

• Alex introduces the topic of financial management and the contrast between appearance and actual wealth.
• He highlights his own experience of being a millionaire while driving a modestly valued car.
• The discussion aims to explore how top earners manage their wealth and the differences in their lifestyle choices.

We were pulling up in a Prius that had a crack across the windshield and a dent in the side door, alright? And this car was probably a $6000 car, tops, right? And the thing is, is at that moment I was a millionaire.

The quote emphasizes the disparity between Alex's financial status and the modest vehicle he was driving, challenging the conventional association between wealth and luxury possessions.

• Alex addresses the common desire among entrepreneurs to be in the top 1% and the misconceptions about the lifestyle of the wealthy.
• He points out that living beyond one's means is a persistent issue that people fail to grasp.
• Alex stresses the importance of understanding the relative cost of purchases in relation to one's income.

And so one of the things that I consistently see is people outliving their means. And that's not a new message, but for some reason, it still doesn't resonate with people.

The quote reflects on the common financial mistake of spending more than one can afford, which Alex observes frequently, even though it is a well-known pitfall.

• Alex shares a story from his first mastermind event where attendees were paying $40,000 a year.
• A participant questioned their wealth based on the vehicle they arrived in.
• This moment highlighted for Alex the expectations versus the reality of how wealth can be perceived.

And one of the girls, Monica Batar, was like, as we're getting out of the car, she was like, I thought you guys were supposed to be rich.

This quote captures the moment when Alex's wealth was questioned due to the modest appearance of his car, illustrating the common misconception that wealth must be displayed through expensive possessions.

• Alex regrets purchasing a Bentley, despite it costing him less than a week's income.
• He emphasizes the importance of living on a small percentage of one's earnings.
• Alex and his partner, Leila, lived on $30,000 a year even after making significant income, valuing financial security over luxury.

A Bentley for me, relative to my income, is less than one week's income for me, income.

This quote highlights Alex's financial discipline, as he measures the cost of his purchases based on their proportion to his income, rather than the absolute price.

• Alex expresses concern over a client's high expenses after completing a program.
• He advocates for maintaining financial reserves for unexpected changes, citing the unpredictability of the last year.
• Lowering expenses is a way for Alex to reduce anxiety, emphasizing the psychological benefits of financial prudence.

And so for me, I get more anxiety by having expenses. And so for me to actually lower my anxieties, I lower how much I spend.

Alex explains that his approach to managing expenses is not only a financial strategy but also a way to manage anxiety, reinforcing the personal benefits of living below one's means.

• Alex introduces the concept of the top 1% pyramid, a hierarchy of wealth distribution.
• The pyramid consists of four layers, each representing a distinct level of net worth.
• The base layer represents high net worth individuals with assets ranging from one to five million dollars.
• High net worth individuals are more common than one might think, with 1 in 69 people in the United States falling into this category.
• A distinction is made between income and assets, highlighting that a high income does not necessarily equate to high net worth.
• The discrepancy between the top 1% of income earners and asset holders indicates a tendency for people to spend rather than save or invest.

"The bottom layer of this is people who have these are considered high net worth individuals. That means you have one to $5 million in assets... So being over a million is not even top 1% anymore."

This quote explains the base level of the top 1% pyramid, defining high net worth individuals and the asset range that categorizes them.

"It's one in 69. So one in 69 people has between one and $5 million."

Here, Alex provides a statistical representation of how common high net worth individuals are in the U.S.

"The top 1% income is 400,000 a year, but the top 1% in assets is only a million or a million and a half bucks."

This quote highlights the disparity between income and asset-based measurements of wealth, suggesting that high earners do not always accumulate equivalent assets.

• Alex discusses the importance of long-term thinking in wealth accumulation, referencing Warren Buffett and Charlie Munger's philosophies.
• The strategy for moving up the wealth pyramid involves living below one's means, especially for those with top 1% incomes.
• By spending less than what is earned, individuals can transition from high net worth to very high net worth status.
• Alex emphasizes the simplicity of the plan to achieve top 1% wealth, countering the short-term, show-off culture prevalent on social media.

"And the only thing that I've been continually reading about, because I've been really pouring a lot into really reading a lot about Munger and Buffett... is how they live and how they think in terms of long term."

This quote underscores the influence of Buffett and Munger's long-term investment strategies on Alex's perspective on wealth accumulation.

"For you to get over 5 million, you just need to live on a lot less than you make."

Alex simplifies the approach to climbing the wealth pyramid, advocating for frugality as a means to increase net worth.

• Alex provides specific statistics for each level of the wealth pyramid.
• The next level above high net worth is very high net worth, which is 0.3% of the population or one in 338 people.
• Very high net worth individuals possess assets between five and thirty million dollars.
• Ultra high net worth individuals represent an even smaller fraction of the population, at 0.07%.
• Billionaires are the rarest, with one in 468,000 people achieving this level of wealth.

"Now, in the US, the next level is very high net worth... That's one in 338 people is worth between five and $30 million."

This quote provides the definition and prevalence of very high net worth individuals in the U.S.

"And then the level above that is ultra high net worth individuals, which is one in 1383."

Here, Alex describes the next tier in the wealth pyramid, indicating the exclusivity of ultra high net worth status.

"Billionaires is one in 468,000. And the percentage there is zero. Zero, four zeros. Three zeros. 2%."

Alex quantifies the extreme rarity of billionaires, the highest level of the wealth pyramid.

• Alex takes a moment to connect with the audience, inviting them to engage with him on LinkedIn.
• He encourages listeners to send a connection request and to suggest connections that might be beneficial.

"Hey, mozanation, quick break. Just to let you know that we've been starting to post on LinkedIn and want to connect with you."

Alex reaches out to his audience for personal engagement, demonstrating an interest in building a community around his content.

• Achieving financial success is possible through consistent saving and investing in the stock market, particularly the S&P 500.
• A disciplined approach of saving $15,000 annually for 30 years with an average return of 9% can lead to significant wealth accumulation.
• Living below one's means is crucial for financial growth, regardless of income level.
• Spending money does not necessarily correlate with increased happiness.
• Selling a product or service is often necessary to generate income that can be saved and invested.

For you to do that, you got to save, like, 15 grand a year for 30 years. That's it. And that's assuming just 9% returns, which is just the stock market. Just put in the S and P 500 and don't do anything with it.

This quote emphasizes the simplicity of the investment strategy: regular saving and investing in a broad market index fund like the S&P 500, assuming a reasonable average annual return.

If you make $400,000 a year, so you're making $35,000 a month. If you live on five, you can put $10,000, and you'll be at the top end of this.

Alex illustrates that high earners who live frugally can save a substantial portion of their income, accelerating their path to the top 1% of wealth.

But everyone just spends so much money.

The quote highlights the common pitfall of excessive spending, which hinders the ability to save and invest for the future.

It's two things. It's income and time.

This quote distills the essence of financial growth to two fundamental elements: increasing income and allowing time for investments to grow.

Net income being, like, minus your expenses. So it means it's make more money, spend less money.

Alex defines net income and emphasizes the dual approach of earning more while spending less as key to saving more money.

We live on less than 5% of what we make.

Here, Alex shares a personal example of living well below one's means as a strategy for financial security and growth.

You should live on 30 grand, 40 grand a year.

Alex suggests a modest annual living expense as a target for most people to enable saving and investing.

Spending more of the money is not going to make you happier.

Alex challenges the common belief that higher spending leads to happiness, suggesting that it does not have a direct correlation.

I'm telling you, it's not sure I have this studio.

Alex admits to enjoying certain luxuries like a studio but only indulges in such expenses after achieving significant financial milestones.

Either you're selling someone else's product or you're selling your own product.

The quote emphasizes the necessity of generating income through sales, whether it's through selling products or services, either for oneself or for others.

If you make $100,000 a year, $100,000 a year, and you live on 30, you can do this.

Alex provides a practical example of living on a fraction of a six-figure income to achieve financial success.

How can I get into this category by the time I die and use that to impact humanity, like, in a way that's meaningful.

Alex shares his personal motivation for financial growth, which is to have a meaningful impact on humanity.

• Living a comfortable life does not require a high level of expenditure.
• Personal anecdotes from Alex demonstrate that it's possible to live comfortably and be content with modest living expenses, even when earning significantly more.
• The fear of financial instability can be mitigated by living below one's means, which can lead to increased happiness.

I was a millionaire and living on less than $3,000 a month, right?

Alex shares his personal experience of maintaining a low-cost lifestyle despite having a high net worth, illustrating that wealth does not necessitate high spending.

You can do that and live a normal life, like a comfortable life.

The quote suggests that it is possible to live a comfortable and fulfilling life without indulging in excessive spending.

I just don't want to lose everything.

Alex expresses a cautious financial perspective, aiming to avoid the risk of financial ruin by living modestly.

If you can be satisfied and decrease your anxiety or make the amount that you spend decrease your anxiety, you will be happier.

This quote connects financial prudence with emotional well-being, suggesting that managing spending can reduce anxiety and increase happiness.

• A simple retirement calculator can be used to plan for early retirement.
• The amount needed to retire early depends on current age, desired retirement age, and the lifestyle one wishes to maintain.

World's simplest retirement calculator.

Alex introduces a tool for calculating the requirements for retirement, emphasizing its simplicity and usefulness.

So if you live, let's say that you are currently 30 years old. So you're currently 30 and you want to retire.

The quote sets the stage for a hypothetical retirement scenario based on current age and retirement goals.

• The percentage of income saved is more crucial for early retirement than the amount earned.
• Saving a high percentage of a modest income can result in substantial retirement savings over time.
• Living on a small portion of one's income can accelerate the path to financial independence.

"The percentage of your income that you spend is going to be the thing that dictates how quickly you can retire, not how much you make."

This quote emphasizes that the key to early retirement is the savings rate rather than the income level. It suggests that controlling spending is essential for financial freedom.

"Then every year you're adding four years of retirement because it means that you are spending 20 and saving 80k."

The quote illustrates the power of saving a large percentage of one's income, showing how saving 80% of a $100,000 salary effectively adds four years to retirement for every year worked.

"That's assuming that none of the money you had made any money. So it'd probably be closer to, like, 1.2 million by the end of that decade."

This quote points out that the calculations are conservative and don't account for potential investment growth, which could significantly increase the savings amount.

"This guy is never really going to be able to retire."

The quote highlights the difficulty of retiring early when only saving a small percentage of a high income, due to the high cost of maintaining the current lifestyle.

• Spending less than you make is a fundamental principle for financial stability and freedom.
• People often prioritize appearances over financial freedom, impacting their ability to save.
• The path to the top 1% of earners is more about reasonable saving than earning a high income.

"You have to spend less than you make. It's sometimes the simple shit that people don't want to do."

This quote underscores the basic yet often overlooked concept of spending less than one's income to achieve financial goals.

"You can either have your ego in how you look to everyone, or you can have your ego based on the freedom that you feel."

The quote contrasts the choice between social status and financial independence, suggesting that true freedom comes from financial security, not outward appearances.

"To be in this top 1%, you don't need to make a million dollars a year."

This quote challenges the misconception that one must earn an extremely high income to be in the top 1% of earners, highlighting that strategic saving is more effective.

• Living on a significantly small portion of income can lead to the possibility of retiring within a year.
• Perceptions of poverty are subjective and can hinder the ability to save aggressively.
• Simple investment strategies, such as contributing to an S&P 500 index fund, can lead to long-term wealth accumulation.

"If you live on 10% of what you make and your money grows at 10%, then in one year you could retire."

The quote provides a hypothetical scenario where extreme saving combined with investment growth could allow for retirement in a very short time frame.

"Spend less than you make, the greater you can create that disparity, the faster you can retire."

This quote summarizes the core message of the discussion, emphasizing the importance of a large gap between income and expenses for achieving financial goals quickly.

"Getting into the top 1% is literally a matter of saving 1000, $1,500 a month and putting in the s and p 500."

The quote offers a practical and straightforward investment strategy to achieve top-tier financial status, emphasizing the simplicity of the approach.

"You're a smart cookie and you're going to do it because you think that simple things are usually the keys to the universe."

This quote encourages the listener to adopt simple, effective strategies for financial success, suggesting that the simplest approaches are often the most powerful.