Dear Financial Samurai,
With the 10-year bond yield surging to 5.2% last week, my main thoughts were on survival.
I’m curious how folks are dealing with higher credit card rates, auto loans, and mortgage rates. Unless you have a tremendous amount invested in the stock market or found a home run private AI investment, the average person probably isn’t popping champagne right now.
And if the stock market suddenly decides the cost of capital is too high, even investors who’ve done well will feel the sting.
Personally, I’m raising more cash again to feel more secure. Money market rates are still only about 3.65% since they follow the Fed Funds rate more than the 10-year, but building a bond ladder now doesn’t seem like a bad idea. At least we’re getting paid to wait.
See: What Fed Rate Hikes Mean For Your Money
A Big Realization About FIRE
Given survival is on my mind, you’ll be reading more articles about what rising rates do to our lifestyles. And the first big realization is that the older and wealthier you get, the harder it may be to FIRE, not the reverse.
When you’re young and full of energy, you feel you can tackle any challenge. If you FIRE before 40 and things don’t work out, you can probably find a similar job within 1-3 years. The same can’t be said if you FIRE at 50. You have to be absolutely sure your finances are set, because there’s no turning back.
If I were still working in finance since 1999, I think there’s only a 20% chance I’d be willing to FIRE next year at age 50. The inertia after 27 years would be too great, and so is the pressure to provide.
This realization helps me understand why people with enough money still trade 40-60 hours of their valuable time for a paycheck. It also makes me want to encourage all of you to take more risks while you’re younger. The optionality is worth more than you think.
See: Why It’s Easier To FIRE at 35 Than At 50
Surviving And Not Thriving On $26/Hour
One of the best financial exercises you can do is compartmentalize your money. When you co-mingle finances too much, it’s easy to cheat and not take things seriously.
So with my wife going back to work part-time, substituting at our son’s old preschool for $26/hour, I started thinking about how we’d survive off her salary. After an eight-hour day, that’s $208 in gross income, or about $52,000 gross a year, roughly $45,000 after taxes.
Suddenly, every expense feels heavier, especially food and gas. So we’ve been cooking more at home and eating a little less, which I welcome since I’m in a 100-day dad bod challenge where I need to lose 13 pounds of fat and gain 2 pounds of lean body mass. We’re also walking more and taking more public transit. It’s been rewarding to consume less and simplify.
But one day, I wanted to do something nice and pick up my wife after a long day on her feet. That’s when the city reminded me it doesn’t appreciate generosity. From big brother surveillance to oppressive inflation to financial penalties for simply existing, it’s a strong reminder of why financial buffers matter so much.
Life will eventually beat you down. Having a cushion makes the fall a lot more survivable, and sometimes even laughable in retrospect.
Read: Financial Despair Is When You End Up Having To Pay Money To Work
The Happy Place
Despite life being rough sometimes, we live in a country where you can pick up and move pretty much anywhere. That freedom is worth a lot.
As the days get shorter and the occasional cold blast returns to San Francisco, I’m looking forward to Hawaii for a couple weeks in December. And one thing I keep thinking about: maybe the main reason expensive cities are expensive isn’t primarily the wealth-building opportunities. It’s the climate.
If health is wealth, and wealthier people have greater freedom to live anywhere, it makes sense they’d migrate toward better weather. More people means more demand, which means higher prices for everything. Climate isn’t just a lifestyle perk. It’s a macro force.
It’s easy to get comfortable doing the same old thing in the same old place. But there are so many great options out there, it would be a shame not to at least explore them.
See: Live Where The Weather Is Great, Invest Where It Isn’t
AI Mania Continues
After Instinct’s fanfare (AI assistant via text) a couple of weeks ago, Meta had its own Steve Jobs moment at the Connect event, unveiling its Muse AI agent alongside a blitz of new hardware. Meta’s stock shot up to nearly an all-time high, and the $14.3 billion investment in a 49% stake of Scale AI, along with Alexandr Wang’s talent, is already looking like a smart bet.
Somehow I missed it, but ex-Google chief scientist Jeff Dean is reportedly in talks to raise a new round for his startup, Discovery Loop, at a $50 billion valuation. Dean and his team just raised at a $10 billion valuation less than two months ago. A 5x jump in weeks, with no product yet.
Obviously, there are no guarantees Discovery Loop, Instinct, or any of these hot private AI companies will work out. But the pace of funding rounds and valuations is unprecedented. We have never seen this much explosive growth so quickly.
If we’re really going to have recursive AI, where AI automatically makes itself smarter, we’re probably underestimating the technology’s growth, productivity, and impact. But then again, I’m living in the AI bubble capital of the world, captured by a certain level of FOMO and excitement.
Fortunes are literally being made overnight. Let’s go hunting.
To your financial freedom,
Sam
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The markets are moving fast and so is everyone’s financial picture. If you want to stress-test your own plan against higher rates and uncertain valuations, Millionaire Milestones: Simple Steps To Seven Figures (USA Today bestseller, Portfolio Penguin) walks through exactly how to build and protect wealth across every market cycle. Available wherever books are sold.