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The Difference Between Active Income And Passive Income

Published: 02/06/2023 by Financial Samurai 17 Comments

After writing about building passive income since 2009, people still seem to be confused about the difference between active income and passive income!

Let me finally put this confusion to rest because I don’t want people to get tricked into thinking earning passive income is easy. It is not!

It took me from 1999 – 2012 to earn enough passive income to leave my investment banking job behind. Then it took another five years to earn enough passive income to support a family of up to four in expensive San Francisco.

Yet, despite earning enough passive income in 2017 to stay unemployed, I’m still generating active income to generate more passive income.

Why? About 60% of the reason is due to keeping up with inflation. Housing, healthcare, and tuition costs are rising even faster than headline inflation. When you have children, these costs are the most impactful.

The other 40% for generative active income is due to a combination of habit, greed, purpose, fun, and the nice feeling of financial security.

The Definition Of Active Income

Active income is defined as any income generated that requires your consistent time and energy. Active income refers to income received for performing a service. You can’t have permanent active income without putting in time and energy.

Yes, you can temporarily earn active income without inputting any time and energy. Examples include earning a salary while being out sick for two weeks or going on a paid sabbatical for a month.

However, in the long run, generating permanent active income requires permanent time and energy. Given nobody has everlasting energy, a rational person will seek to build enough passive income before their energy runs out.

Most Common Active Income Examples

  • Salary and bonus
  • Stock options and restricted stock units
  • Consulting / Freelancing
  • Tips and commission

The only way to earn the above active income examples is to put in consistent time and energy.

Example Of Active Income Confused As Passive Income

People ask me why I don’t include blog income as part of my passive income investments. After all, Financial Samurai generates passive income whether I write a new post or not.

The simply answer is because writing these posts takes time and energy! These posts don’t write themselves with AI technology. I take around two hours to write a post. Then it takes between 30 minutes to one hour to edit the post. Finally, I spend ten minutes sharing my posts on various social media channels.

While I’m not writing, editing, and sharing my posts, I’m spending time updating my archive of ~2,500 posts. There is often new pertinent information every year or two, such as the latest 401(k) employee contribution limit or the latest median income in America.

When I’m not updating old posts, I’m responding to e-mails from readers, journalists, and business development employees. I could also send outreach e-mails to help spread Financial Samurai’s message. However, I’m too lazy to do so.

All of these activities take a total of 15-20 hours a week of my time and energy. There is no way income from blogging and podcasting are considered passive income. If it was, more people would be creatives because creating is way more fun than most day jobs.

The Definition Of Passive Income

Passive income is defined as any income generated that requires none of your time and energy. You earn income while you’re sleeping, playing, or meditating in the hot tub.

Further, there are only two ways to possibly generate more passive income. The first way is if you invest more in the asset class. The second way is if the asset class increases its returns on its own. You have little-to-no ability to improve your investment’s operations to generate more passive income.

Finally, you can’t generate passive income without first generating active income. Your capital has to first come from active income savings to then reinvest in passive income generating assets.

Most Common Passive Income Examples

  • Stock dividends
  • Bond coupon payments
  • Certificates of Deposits
  • Savings at a bank
  • Private real estate investments
  • Venture capital returns
  • Venture debt returns
  • Social Security
  • Lending money
  • Royalties from books, music, and art
  • Licensing agreements
  • Lifetime pension

No time and energy is required to generate the above passive income examples. However, time should be spent staying on top of your passive income investments. You want to have a proper asset allocation based on your risk tolerance and financial objectives.

Example Of Passive Income Confused As Active Income

The debate between what is considered active income and passive income occurs when a small amount of time and energy is required to earn the income.

I consider my ebook sales of How To Engineer Your Layoff as passive income. Since publishing the book in 2012, I’ve earned over $500,000 in net profits. However, I do spend several hours updating the book every two years to ensure it remains fresh with the latest information and severance negotiation strategies.

The reason why I consider my ebook passive income is because it gives me ZERO stress to maintain. In fact, it brings me small amounts of joy every time my phone notifies me of a sale.

The reality is, hardly anybody gives me grief about classifying my ebook sales as passive income. Instead, everybody wonders why more active income sources aren’t classified as passive income.

Steady ebook sales

The Definition Of Semi-Passive Income = Semi-Active Income

Semi-passive and semi-active income are the same thing. I’ll go with semi-passive income because it sounds sexier.

Semi-passive income is defined as any income generated that requires some of your time and energy, but not an amount of time and energy equivalent to what is required to generate active income.

To be more specific, I define semi-passive income as requiring no more than 10% of the hours required to generate the same amount from working (active income).

For example, if it takes 40 hours a week to generate $1,000 a week in active income, it should only take at most four hours a week to generate $1,000 a week in semi-passive income. Most of the time, the time required will be less.

Semi-passive income could actually be the greatest type of income of all, depending on the investment. With semi-passive income, you can take action to increase your income. You might also really enjoy spending time on your semi-passive income sources.

Most Common Semi-Passive Income Examples

  • Rent from rental properties
  • eBooks (can be considered passive if you never update)
  • Online courses (can be considered passive if you never update)
  • Old posts
  • Old videos
  • Drop shipping (often takes way more than 10% of work time)

Example Of Semi-Passive Income Confused As Passive Income

Earning rent from rental properties is the most common example of semi-passive income people confuse as passive income. Being a landlord is anything but passive. There are always random maintenance and tenant issues that pop up. Even if you hire a property manager, you must manage the manager.

It is mainly due to these random reoccurring issues that I’ve shifted most of my real estate capital towards private real estate investing. I want the stability and income generation of real estate and none of the hassles.

As I’ve grown older and wealthier, my tolerance for dealing with rental property issues has declined. Thankfully, most landlords spend way less than 10% of what’s required at a day job to earn similar money. It’s just that when problems arise, they can be very stressful.

The semi-passive income I earn from rental properties is worthwhile because I’ve found my happy limit of owning four rentals. Anymore and the marginal benefit of owning rental property declines below the marginal cost.

Why You Might Be Confusing Active Income With Passive Income

The main reason why people get confused about the difference between active income and passive income is due to crafty marketing.

Somebody out there probably has an online course to sell you about how to make more passive income without having to do any work. If so, they are selling you a pipe dream. It’s hard to not be curious if they post their eye-popping revenue or profit figures.

As a consumer, you must differentiate between how the person got rich. Did they get rich by doing the thing they are trying to teach you to do or from the sales of the product that teaches you how they supposedly got rich?

For example, did the individual get rich from their investments? Or did the individual get rich by selling you a course on how to get rich through investments?

You should always wonder: If someone can get so rich from their investments, why bother selling courses? Just keep getting richer by investing!

There is nothing wrong with either way to earn so long as you, the consumer, are aware.

Here is a great example of a marketer advertising a passive income investment. It hooks you in and then says you can do the same if you buy their e-course for $999. It’s still the Wild Wild West on the internet.

Example of a marketer selling passive income to get rich

You Want Both Active Income And Passive Income

I’ve been earning both active income and passive income since 1999. Contrary to popular opinion, the ideal total income composition is not 100% passive income.

If 100% of your income comes from passive income, you will likely feel lost. It means you are not doing something you love, what you’re good at, and what the world needs. In other words, you have not found your ikigai.

Ikigai

Without ikigai, your life feels less meaningful. Without meaning, it’s easy to fall into a pit of despair. A 100% passive income composition is a dangerous situation to be in! You want to feel the constant reward of active income because you want to feel recognized for your efforts.

The reason why I continued to write on Financial Samurai long after fake retirement is because it gave me a reason for being. I was helping others with their financial problems and giving them the courage to make better decisions.

Once my son was born in 2017, I received a new reason for being. I could have dropped Financial Samurai and the active income it generates. However, I kept going because Financial Samurai can now be used to help educate my children about business and life.

Financial Samurai serves as a career insurance policy for them. Getting into a good university and landing a well-paying job is harder than ever.

The Best Combination Of Active Income And Passive Income

Now that we agree it’s always good to have some sort of active income, what is the best combination between active income and passive income to live your best life? The answer will be different for everybody. However, I have a baseline proposal.

Ideally, you want to have your passive income cover 100% of your living expenses. If so, you are financially free. With this baseline assumption, we can then assume the best percentage split is to have at least 51% of your total income be passive.

51% Passive / 49% Active Combination

In a 51% Passive / 49% Active scenario, you are feeling giddy. You don’t have to work, but you do because you love what you do. To be rewarded for doing something you love is a dream come true. You likely also have the greatest amount of time and energy.

Example: $102,000 passive income, $98,000 active income, $70,000 living expenses. You work because why not?! You get to earn about double the income if you do, boost your savings, and invest more. The stress at work has faded because you have the courage to engineer your layoff at any time.

60% – 80% Passive / 40% – 20% Active Is The Ideal Combination

If you can get your passive income to account for between 60% to 80% of your total income, I think this is the ideal scenario. All active income you earn feels like gravy. You have zero pressure to continue working on things you don’t enjoy.

Example: $80,000 passive income, $20,000 active income, $50,000 living expenses. With this combination, you’re feeling even more at ease. 100% of the work you do to generate $20,000 is because you want to. The work is either fun or meaningful or both. You can take a break from active work at any moment.

20% Passive / 80% Active Combination Is The Beginning

In terms of when you’ll start feeling great about your active income and passive income split, I think it’s when your passive income reaches 20% of total income. 20% will give you the confidence that building more passive income is an inevitability.

Of course, if you can cover all your basic living expenses with 20% of your income, then you’re sitting pretty. But the vast majority of people are not at this stage.

Example: $10,000 passive income, $40,000 active income, $30,000 living expenses. You’re not financially free, but you feel excited about the possibilities of living more free in the future. With more savings and more side hustling, it’s only a matter of time when your passive income covers 100% of your living expenses.

All Passive Income Starts With Active Income

The key is to generate enough passive income to cover your basic living expenses and then only do the things you love to earn active income. If you do these two things, you will always feel like you’re winning.

I’m in the decumulation phase of my life. Therefore, spending any amount of time on something I don’t enjoy to generate money is a non-starter. Letting go of the desire to always earn maximum money has freed my soul.

But make no mistake about it. In order to generate enough passive income to do what I want, I first had to work 60 hours a week for 13 years. Three of those years were comprised of going to business school part time. After 13 years, I proceeded to work another 10 years on Financial Samurai.

Eventually, I expect to no longer be able to earn active income online or offline. When that day comes, I will hopefully have found something new to do with my time.

After reading this article, I hope everybody knows the difference between active income and passive income. If you come across those who are still confused, please send them my way!

Related: Ranking The Best Passive Income Streams

Reader Questions And Suggestions

Why do you think there is confusion between active income and passive income? Do you think crafty marketing is the reason why some people think certain active income streams are passive and vice versa? What are some other passive income, active income, and semi-passive income streams that are not on my lists?

Pick up a copy of Buy This, Not That, my instant Wall Street Journal bestseller. The book helps you make more optimal investment decisions so you can live a better, more fulfilling life. 

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The Amount Of Money Needed To Retire Early And Live In Poverty

Published: 02/03/2023 by Financial Samurai 166 Comments

As more people look to retire early (<60), more people are looking for shortcuts in order to reach early retirement quicker. Some hate their jobs so much they are willing to retire early and live in poverty!

Instead of retiring early to live in poverty or near poverty, wouldn’t it be better to find a different job to live a more comfortable life? I think so.

Post-pandemic, I’ve made the argument early retirement / FIRE is becoming obsolete. No longer do we need to grind so hard and sacrifice to get out ASAP. Instead, there are now a plethora of new ways to earn money. Further, if you are able to work from home, you’ve got ultimate flexibility!

My goal for this article is to help you think about early retirement in a more healthy and balanced way. FIRE FOMO is real. Instead of feeling an intense rush to try and retire as early as possible, consider the alternatives.

  • Find a more enjoyable job with better hours that pays less.
  • Start a side hustle or side business that brings in supplemental income.
  • Encourage your spouse to work longer or harder so you can take things down a notch.
  • Take a sabbatical to recharge and rethink what you want to do with your life.
  • Go back to school to change careers and take a break

Be careful sacrificing so much only to retire early and live a restricted life.



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Why Early Retirement / FIRE Is Becoming Obsolete

Published: 02/01/2023 by Financial Samurai 57 Comments

Early retirement / FIRE is becoming obsolete and that’s a good thing! No longer do you have to grind as hard and save as much to quit your job ASAP. Today, you can find many better ways to earn a living, no matter your education level or current occupation.

As one of the pioneers of the modern-day FIRE movement, I’ve witnessed many changes since 2009. In the good old days, the goal was to simply generate enough passive income to cover your living expenses. You could then retire early because you were financially independent.

Achieving the traditional definition of FIRE was hard. Therefore, new terms popped up to help FIRE pursuers feel better and more motivated about their progress.

Barista FIRE was created as a solution for those who still needed supplemental income and health insurance to be financially independent. Instead of working at Starbucks, I was thinking of working at Coldstone Creamery in Honolulu to help supplement retirement life.

Coast FIRE emerged for those who were still working day jobs but wanted to feel good about the amount of retirement savings they already had. But Coast FIRE is an illusion. It’s similar to everyone getting a trophy just for being.

Post-pandemic, however, I’ve come to realize early retirement / FIRE is now becoming obsolete. We no longer have to invent new definitions of financial independence. We no longer have to retire early either!

Let me explain why.



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Rolling Over Leftover 529 Funds Into A Roth IRA: Who Really Benefits?

Published: 01/30/2023 by Financial Samurai 28 Comments

A 529 plan is one of the best generational wealth transfer vehicles. Instead of just giving our kids or grandchildren money, it’s way better to give them the gift of education. Thanks to the SECURE Act 2.0, we will be able to roll over leftover 529 funds to a Roth IRA without taxes or penalties.

As a parent, it was rational to feel hesitant about funding a 529 plan or contributing too much. With restrictions in place on how the plan’s money could be spent, parents rationally hedged the way they saved for a college education.

In fact, one of the main questions that has come out of my 529 savings guide by age post is whether to contribute to a Roth IRA or a 529 plan to pay for college. Contributing to both plans, if you are eligible, is a smart move.

In the past, the only real option for 529 funds that were not used for some kind of secondary education program was to roll the money over to another beneficiary, either for school expenses or to repay student loans.

Thanks to the SECURE Act 2.0, the 529 plan becomes more valuable due to the Roth IRA conversion option. Here are the details.



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The Best Reason To Retire Early: Years Of Greater Happiness

Published: 01/27/2023 by Financial Samurai 51 Comments

I’ve finally discovered the best reason to retire early. A longer steady-state period of happiness. It has taken me 10 years of fake retirement to come up with this epiphany because I had to experience the process myself.

In the past, I’ve written that early retirement isn’t all sunshine and rainbows. I went through plenty of struggles trying to find meaning and purpose during my first two years post traditional work.

On my financial independence journey, I’ve also encountered plenty of miserable rich people. They’ve got F You Money out the wazoo. Yet, they’re like black clouds of bitterness because they’re always comparing themselves to those with more.

No matter how much money we have, ultimately, we want to feel happier. Therefore, it is with great pleasure that I can confidently tell you retiring early makes you happier. Let’s dig into why!



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The Triple Benefit Of Paying Off Your Mortgage Early

Published: 01/23/2023 by Financial Samurai 85 Comments

In 2022, my wife and I paid off our vacation property mortgage after 15 years of ownership. Now that it’s been a while since we paid off the mortgage, I realized there is a triple benefit to paying it off early.

I didn’t realize one of these benefits when we paid off another rental property mortgage early back in 2015. Sure it felt good to pay off our mortgage early. But back then, there was more hesitation since risk asset returns looked relatively more promising.

Instead of writing about the benefits of paying off your mortgage early, I wrote about mortgage payoff fees and procedures. This way, homeowners don’t get blindsided once they do pay off their mortgage and expect everything to automatically handle itself.

In addition, I wrote about the biggest downside to paying off a mortgage early. And that is a fade in motivation to make money.



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Foreign Real Estate Investors Are Coming To Buy American Homes

Updated: 02/05/2023 by Financial Samurai 115 Comments

Although COVID has been bad for many of us in so many ways, the pandemic did one good thing. The pandemic helped protect American homebuyers from a resurgence in foreign real estate investors. In a big way, the pandemic has throttled the demand from foreign real estate investors to buy American homes.

Before the pandemic hit, 2020 was shaping up to be another solid year. There were growing talks that capital restrictions out of China would ease. Foreigners wanted U.S. assets, and they wanted them bad, partially thanks to a tremendous current account surplus.

Currently, mainland Chinese residents can convert up to US$50,000 per year on foreign currencies for travel, overseas study or work, but not for buying overseas property, securities or life insurance policies.

But before 2018, Chinese foreign buyers were buying United States property in droves. It was easier for citizens to pull resources to buy U.S. property. Then, the Chinese government started cracking down.

Once lockdowns and travel restrictions were in place in the United States and many foreign countries, it became very difficult for foreigners to transact. As a result, COVID gave U.S. buyers the opportunity to buy up our own real estate with less competition. And as a result, Americans who bought homes are much richer today!

With the Ukrainian Russian war, the demand by foreigners to buy American real estate has now increased even further. International capital from Eastern Europe is now also looking for a safe haven.



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Economic Devastation Might Be Exactly What We Need To Win

Published: 01/18/2023 by Financial Samurai 39 Comments

Since I left my day job in 2012, I’ve been constantly preparing for economic devastation. I had to because I no longer had a safety net. My plan was to take a leap of faith and succeed. It would have been too embarrassing to ask for my old job back if I had failed.

Besides, going through the 2008 financial crisis was not something I ever wanted to experience again. For those who were still in school during our previous economic meltdown, be thankful!

Psychologically, if you can prepare for doom, you will likely be happier and less stressed if the time comes. Then when the economy inevitably rebounds, you’ll feel blessed to be making easy money again.

If the worst never comes, you’ll also feel grateful. Sure, you’ll have to contend with not getting as rich as you could have due to having a more defensive portfolio. However, you’ll still feel like you’re winning.

If the Fed hikes the Fed Funds beyond 5% and keeps it there for six months or longer, we will likely go back into a recession. With the 10-year bond yield at ~3.4%, a 1.35% inversion, the bond market is telling the Fed it is already making a grave mistake.

If the Fed doesn’t relent, let us look at the bright side of economic devastation!



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The One Ingredient Necessary For Achieving Financial Independence

Published: 01/16/2023 by Financial Samurai 162 Comments

In the good old days, several friends and I liked having beers after each softball game. We got to discussing what is the one ingredient necessary for achieving financial independence early.

Here were some of their responses:

  • Saving aggressively
  • Investing in stocks
  • Investing in real estate
  • Earning side income
  • Taking bigger risks in our careers
  • Leveraging the internet
  • Working ungodly long hours
  • Relocating to areas with huge job growth despite the higher cost of living
  • Starting a business

All of these ingredients are important for helping all of us achieve financial independence.

However, the #1 ingredient that drove me to FIRE, which nobody mentioned, was FEAR.

More specifically, the fear of failure. The more you fear something bad happening, the more you take action to make sure it doesn’t come true.

Let me share some examples to explain what I mean. Then perhaps you can share your own examples in the comments section below. 



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What If You Take A Leap Of Faith And Your Dreams Don’t Come True

Published: 01/11/2023 by Financial Samurai 51 Comments

Sometimes you take a leap of faith and your dreams don’t come true. That’s OK because at least you won’t regret never trying!

In this article, taking a leap of faith means trying your hand at entrepreneurship. Entrepreneurship means leaving the comfort of a steady paycheck and benefits to make money from an idea.

Entrepreneurship is scary because you’re responsible for everything. There is nowhere to hide if something goes wrong. The more years of education you have, the greater the opportunity cost to become an entrepreneur.

But when things go right in entrepreneurship, there might be no better feeling professionally. No promotion or raise comes close when reward is perfectly correlated to merit.



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How To Survive The War On Merit: When Hard Work Isn’t Enough

Updated: 01/17/2023 by Financial Samurai 68 Comments

Getting ahead based on merit is the ideal scenario. Having success given to you based on anything else strips away the satisfaction of earning what you deserve.

Since 2020, however, there seems to be a growing “war on merit.” The San Francisco School Board voted to end Lowell High School’s entrance exam so that every student could attend in the name of opportunity and equality. As a public school, I understand the rationale.

Over on the east coast, Virginia’s Thomas Jefferson High School also decided to eliminate its entrance exam. TJ, as the school is commonly known, is also a public school and is consistently ranked one of the top high schools in the nation.

Growing up in Northern Virginia, I never considered applying to TJ. My parents didn’t push me nor did I have a particularly keen interest in math or science.

I just remember losing a tennis match to TJ’s #1 player, who went on to attend Harvey Mudd College. He’s now a computer engineer at a tech firm and probably makes about $500,000 a year.



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Losing All Your Money Investing On Margin Is Not The Worst Thing

Published: 01/06/2023 by Financial Samurai 36 Comments

“What happened to your friend who bought Tesla stock on margin,” a reader asked. He likely lost a lot of money, but I haven’t asked for details. That would be rude.

On March 31, 2021, I published a post entitled, Buying Stocks On Margin Is A Bad Idea: You Could Lose Big. I wrote the post because I was alarmed by my softball friend’s excessive risk-taking.

When compared to what he was earning as an educator, his position was a huge red flag. Given he also wanted to start a family, I tried to encourage him to be more conservative during 2021’s stock mania.

I learned my lesson during the 1999 – 2001 dotcom bubble collapse while working at Goldman Sachs. Fortunes are easily made and lost, which is why I encourage readers to regularly convert funny money into real assets. This way, you increase your chances of protecting your gains.

Unfortunately, my advice fell on deaf ears. In his eyes, I was a lazy softball player who didn’t dive for balls, slide, and run at 100% speed. No matter how many times I explained to him I didn’t want to injure myself as a dad to two young kids, he continued to chide. So he’s not really a friend, but let’s call him one anyway.

What I realize from writing this post is that losing all your money may not be the worst thing when buying stocks on margin. Let me explain.



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2023 Financial Samurai Goals: Back To Easy Living

Published: 01/03/2023 by Financial Samurai 58 Comments

Happy New Year everyone! I’ve made goals publicly for over ten years because it helps keep me accountable. Making goals also makes the year more exciting and challenging. Hence, here are my goals for 2023.

Once again, I’ve divided the goals into five categories: Health, Wealth, Family, Financial Samurai, and X-Factor. My goal is to achieve 70% of my goals.



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2022 Financial Samurai Year In Review: Family Over Money

Published: 12/30/2022 by Financial Samurai 22 Comments

We made it! My goal for 2022 was to do less work and have more fun. 2020 and 2021 were difficult years thanks to the pandemic so I needed a break.

Overall, I give 2022 a B+. The year was great from a family and health standpoint. But the year was piss poor from a financial standpoint due to the bear market.

As I start this post, I can’t remember what happened in the first half of 2022. You might not either, which is why I recommend you do a year in review as well. Time for me to scroll through my picture library and jog this old brain.



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2023 Housing Price Forecasts: More Bears Than Bulls

Published: 12/18/2022 by Financial Samurai 37 Comments

2023 housing price forecasts from various institutions range from -22% to + 5.4%. There is no consensus as to which way house prices will go. However, the bias is towards the downside.

There is also the issue of forecasting the national median home price and the price of your local housing market. While we care about the national median home price forecast, we care way more about our local housing market forecast.

For background, I expected the median sales price in the United States to rise by 8% to 10% in 2022. My estimate was less bullish than the majority of firms expecting 12% – 18% price increases.

The 4Q2021 median home price was $423,600. The latest pricing data available, 3Q 2022, shows the median home price of $454,900, or a 7.4% increase. 4Q 2022 housing price data will be released in 1Q 2023.

Median sales price of houses sold in the United States


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2023 Wall Street Forecasts For The S&P 500: Huge Dispersion

Updated: 01/25/2023 by Financial Samurai 50 Comments

Below are the newest 2023 Wall Street S&P 500 forecasts. The S&P 500 price targets range from 3,675 to 4,500. This implies returns of between -4.6% and +16.8% from the Dec 16, 2022 close of 3,852.

The key risks to the S&P 500’s performance include earnings cuts and valuation compression. If these two things were to happen, the S&P 500 could easily decline by 10% or more from current levels.

The S&P 500 could also see greater-than-expected earnings cuts and a valuation increase. This would occur if the market looks beyond the earnings cuts and expects better times ahead. The Fed could also pivot sooner-than-expected, thereby reigniting the bull market.

Personally, I believe the worst of the bear market was over when the S&P 500 hit 3,577 in October 2022. What matters most is what the Fed plans to do with interest rates. Come 1Q 2023, I think the Fed will have to pause its hikes and start cutting by the end of 2023. Sadly, Jerome Powell is now talking about a 5.125% terminal Fed Funds rate, which is way too high.

As Asana billionaire CEO Dustin Moskowitz wisely quipped, “I’m CEO of the Asana company, but lately, Jay Powell has been CEO of the stock price.” Sadly, this scenario will likely continue to be true for the next 12 months.



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How To Enjoy Your Life After The Fed Ruins The World

Published: 12/15/2022 by Financial Samurai 191 Comments

Enjoy your life, no matter the economic situation. If you do, then you’ll always be winning. The key is to recognize reality and take appropriate action.

The Fed hiked another 50 basis points to 4.25% – 4.5% on December 14, 2022. Despite two consecutive lower-than-expected monthly CPI numbers, the Fed indicated it will hike to a terminal rate of 5.125%. Most investors were hoping the Fed would stop at 5%.

Meanwhile, the 10-year bond yield is only at 3.45%, meaning there is a huge yield curve inversion. It’s the largest inversion in over 40 years. The bond market is screaming for the Fed to stop hiking, but it just won’t listen.

As a result, the United States will inevitably go into a recession again in 2023 thanks to the Fed’s overly aggressive tightening. Over a million people will lose their jobs, banks will go bust, and trillions of wealth will evaporate. Instead of expecting inflation in 2023, we should start worrying about deflation again.

All the good done by governments to support billions of people during the pandemic will have been for nothing. Can you imagine struggling through a pandemic for three years, finally coming up for air only to be run over by a speedboat driven by a rich central banker?

When you are worth ~$100 million, as Fed Chair Jerome Powell most certainly is, you may not care as much about the middle class as you do about your legacy. Instead, you want the history books to emphasize how you were tough on inflation and gloss over the human suffering caused by your decisions.

Federal rate hike speed versus other times in modern history. Fed is hiking further and faster than any other time.


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The Second Biggest Financial Mistake You Can Ever Make

Updated: 01/02/2023 by Financial Samurai 50 Comments

The first rule of financial independence is to not lose money. If you lose lots of money, you are ultimately losing valuable time. Losing time is the biggest financial mistake you can make because time is the most valuable asset.

Now let me introduce the second rule of financial independence: never expect your income to always go up. Expecting your income to always go up and to the right is the second biggest financial mistake you can ever make.

Life is not a straight line. Bad things happen all the time. If it’s not a pandemic that crushes your income, it might be a bear market. And if it’s not a bear market that leaves you jobless, it might be a health issue that prevents you from working.



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Minimalism And Early Retirement Go Perfectly Together

Updated: 01/06/2023 by Financial Samurai 34 Comments

Minimalism and early retirement go together like peanut butter and jelly. Each item compliments the other. Minimalism helps get you to early retirement sooner because you are lowering your cost structure. Early retirement makes you want to simplify life so you can remain retired and enjoy your time more efficiently.

Since 2012, I’ve worked on becoming a minimalist with uneven results.

Ten years ago, I tried to sell my oversized house, but got no takers. It had two empty bedrooms we didn’t need. In 2017, we finally downsized. It felt much better to not have wasted space.

After giving away most of my dress clothes, my closet is pretty barren. But I still have a difficult time getting rid of old t-shirts that provide a lot of good memories.

Finally, I’ve maintained my one-car household for over 20 years. It’d be nice to go car free, but I’ve got two little kids to shuttle around.

For two years, I gave up on minimalism by buying a larger house in 2020. With the larger house came more furniture, more maintenance issues, and more cleaning time.

Now I’m intent on going back to minimalism and early retirement due to a series of unfortunate events. We have a tendency to collect more of everything. As a result, we naturally complicate our lives over time.



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How I’d Invest $250,000 Cash In Today’s Bear Market

Published: 12/01/2022 by Financial Samurai 107 Comments

Let’s say you’ve currently got a good amount of cash to invest. With the global financial recession building, opportunities are piling up. However, things could get worse in this bear market given we’re only nine months in. How would you invest it?

2022 has so far been a terrible year for both stocks and bonds. Real estate has outperformed stocks by over 20%. But even real estate is starting to fade as mortgage rates surged higher.

US treasury bond performance versus stocks - How to invest cash in this bear market
Nowhere to hide in 2022


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Your Outsized Wealth Is Mostly Due To Luck: Be Thankful!

Updated: 01/21/2023 by Financial Samurai 146 Comments

Are you confusing your good fortune due to your own skill rather than due to luck? I’m here to argue that above average wealth is mostly due to luck. Therefore, stop deluding yourself into thinking you’re so great!

As President Obama said in a July 13, 2012 campaign election speech, “If you’ve got a business, you didn’t build that.“

When I first heard Obama say this sentence, I was taken aback. From 2009-2012, I had been working on Financial Samurai for three years from about 5 am – 7 am and from 10 pm – 12 pm after working 12-hour days in finance.

If I wasn’t building Financial Samurai, who was?!

I had also recently left my finance job because I wanted to be free. All I really desired to do was write while traveling around the world, so that’s what I did.



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How To Become A Good-Enough Investor: Investing Lessons Since 1996

Updated: 12/13/2022 by Financial Samurai 34 Comments

You don’t need to be a great investor to make lots of money. You just need to be a good-enough investor. Once you’re good enough you’ll be able to ride an almost constant tailwind toward financial independence. Further, you’ll learn to no longer blow yourself up and lose all your progress.

One of my favorite things about investing is that it is a relatively meritocratic activity. You don’t need a fancy college degree, a good personality, or be of a certain race or sex to invest. So long as you have internet access and at least $10, you can get started.



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The Ideal Retirement Age To Minimize Regret And Maximize Happiness

Updated: 02/05/2023 by Financial Samurai 236 Comments

Contrary to popular belief, the ideal retirement age isn’t as soon as possible. Retire too soon and you may feel empty for never living up to your true work potential. Retire too late and you might always be left wondering what could have been if you had changed course sooner.

For example, a 35-year-old couple making $400,000 might love their jobs. With two young kids under three, both parents might both want to work for 20 more years. This way, they can maximize their capital and support their kids through college. But will they regret retiring after both kids have left home? Maybe.

Then you might have a 30-year old couple making a combined $80,000. They don’t have kids and don’t want kids. Instead of needing a 4-bedroom, 3-bathroom home, they are happy living in a 1-bedroom condo for much less. All they want to do is travel and lead a simple life. In their mind, the ideal retirement age is 40.

Ideal Age To Retire For Less Regret And More Happiness

To minimize regret and maximize happiness, I believe the ideal retirement age range is between 41-45. By this age range, most will have had ~20 years to save and invest. Most will also be healthy enough to explore the world and do the things they’ve always wanted.

After retiring since 2012, I’ve also come to realize the best reason to retire early is more happiness. Your happiness curve shoots up sooner, reaches a higher peak, and stays higher for longer the sooner you retire.

See the happiness by age chart below.

Ideal retirement age to minimize regret and maximize happiness


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It’s Easier To Generate More Passive Income In A Bear Market

Published: 10/28/2022 by Financial Samurai 81 Comments

Although going through another bear market is a bummer, the positive is we can all generate more passive income! And given we can now generate more passive income we can also get that much closer to financial freedom.

As a reminder, financial freedom means having enough passive income to cover your desired living expenses. When this happens, you can do whatever you want.

For investors, this bear market with its surging interest rates may very well be a gift. The key is to not get too depressed about your declining portfolio’s value because you have the appropriate asset allocation. Eventually, portfolio values will recover.

Another important component is to maintain your active income streams to take advantage of depressed asset prices. Unless you have a guaranteed pension, retiring early and depending only on passive income sources may not be the optimal strategy.

However, even if you are a traditional retiree with zero active income, you should still see higher Social Security cost of living adjustments. Further, your income-producing investments may automatically generate more income in a higher interest rate environment.



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Private Real Estate Investing: Seven Takeaways After Five Plus Years

Updated: 01/29/2023 by Financial Samurai 82 Comments

As someone who has been consistently invested in private real estate deals since late 2016, I’m now firmly in the window for receiving distributions. My investment thesis to invest in heartland real estate has turned out well, partially thanks to the bad luck of the pandemic.

Although a couple of my investments in one fund turned sour due to a lack of equity cushion, poor execution, and the shutdown of commercial offices, the vast majority of investments have provided positive returns.

One such investment was a multifamily investment that paid out $122,423.04 in distributions on July 6, 2022. The invested capital should be about $60,000 for a ~15.3% compound annual return over five years. I say should be because it is part of a fund that invested in over 10 properties.

Private real estate passive income


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How To Buy Treasury Bonds And Buying Strategies To Consider

Updated: 02/03/2023 by Financial Samurai 45 Comments

With U.S. Treasury bond yields zooming higher, the interest in buying Treasury bonds has followed suit. Let me show you how to buy Treasury bonds online. I’ll then share some buying strategies to help maximize returns and liquidity.

Treasury bonds are risk-free investments if you hold them until maturity. You don’t have to pay state or local taxes on Treasury bond income or gains either.

Treasury bonds are issued by the United States federal government to finance projects or day-to-day operations. As inflation and inflation expectations rise and fall, so do Treasury bond yields and vice versa.



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The Negatives Of Early Retirement Life Nobody Likes Talking About

Updated: 01/27/2023 by Financial Samurai 187 Comments

Early retirement sounds great and it is great for the most part. But there are negatives of early retirement life that also needs to be discussed. I retired early in 2012, at the age of 34. Then I unretired a year later because early retirement felt unnatural.

Since leaving my day job in 2012, I’ve redefined what early retirement means to me. As a result, I now call myself a “fake retiree.”

Over the past 10+ years, I ended up actively doing a lot of things that provided meaning and purpose. And such things ended up making me money, hence my fake retirement.

The Desire To Really Retire Again

Today, however, I want to truly re-retire by 2023 because I’m so damn tired after the pandemic! I’ve been a stay-at-home father of two young children, 2.5 and 5.5. Fatherhood during a pandemic has been at least 50% harder than even the hardest years I had in banking.

Taxes are going up, reducing the return on our effort. With the economy also slowing, grinding harder if you don’t need to grind harder is a suboptimal choice. Finally, spending two years writing and six months marketing my new bestselling personal finance book has taken a lot out of me.

You won’t really know what early retirement life feels like until you actually walk away from a steady paycheck. It’s easy to pontificate what you should and shouldn’t do in retirement. Further, you can assume a high safe withdrawal rate when you are gainfully employed.

However, I promise you your expectations about retirement and the reality once you are in retirement will be different. Don’t be fooled by early retirees who only crow how amazing early retirement life is. Be wary instead. The Instagram life is not reality.

For all the positives of living an early retirement lifestyle, there are plenty of negatives as well. I know why we revert back to our baseline state of happiness, no matter how much freedom and money you have.



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Why I Wrote A New Personal Finance Book: Buy This, Not That

Updated: 01/18/2023 by Financial Samurai 99 Comments

After two of brainstorming, writing, rewriting, and editing during the pandemic, my book, Buy This, Not That: How To Spend Your Way To Wealth And Freedom is now available!

The book became an instant Wall Street Journal bestseller and can be purchased on Amazon, B&N, and in bookstores everywhere. Buy This, Not That also became a #1 bestseller on Amazon in Retirement Planning. Hooray!

I’ve spent a combined 30+ years working in finance, studying finance, and writing about finance. As a result, I firmly believe Buy This, Not That (BTNT) is one of the best personal finance books out there. It is the book I’ve always wanted to write to help readers everywhere live better lives on their terms.

A Personal Finance Book Based On Firsthand Experience

During the course of my writing process, I also read over a dozen nonfiction books to understand what makes good books great. I then worked in my ideas with my editors at Portfolio Penguin Random House to make the book shine.

Money is too important to be left up to pontification. Therefore, everything I’ve written in the book is based on firsthand experience from a finance veteran. This way, I can share with you the good and the bad to help you make better decisions.

The secret to stop saying, “If I knew then what I know now,” is to simply learn from someone who has been through what you will go through.

I’ve also set up financial frameworks to help guide you on your path to financial freedom. Think of BTNT as your financial coach who gives you the confidence and the motivation to overcome life’s biggest dilemmas in a smart and practical manner.

Order a hardcover copy of Buy This, Not That by clicking one of the retailers below. My book is your unfair competitive advantage for getting ahead in this brutally competitive world!

Buy This Not That_Amazon
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Buy This Not That_Indiebound

Financial Independence Is Only Part Of The Journey

Once you get your money right, you can start better focusing on things that really matter to you. After all, money is only a means to an end. And for those of you who treat money as the end all be all, I hope my book will help change your philosophy.

Once you achieve a certain level of financial independence, where your passive investment income covers your living expenses, the world opens up.

The ultimate goal is to move money into the background so you can stop obsessing over it and start focusing on doing things that matter.

I show you how in the first half of my book. With actionable advice under a logical framework, I help you move forward with confidence.

Solving Dilemmas We May One Day Encounter

In the second half of my book, I tackle many of life’s dilemmas and how to approach them using my 70/30 decision-making framework.

If you believe there is a 70% probability or greater you will make the correct decision, go for it! At the same time, have the awareness of knowing you may get things wrong 30% of the time. Unless the outcome is death or financial ruin, you will be able to learn from your mistakes, recover, and make better choices over time.

My book encourages you to think in probabilities, not absolutes. If you think in absolutes, you will likely miss out on a lot of great opportunities because you’ll feel you need 100% certainty before moving forward. However, if you start thinking in probabilities, plenty of new possibilities opens up.

Here are some dilemmas the book explores:

  • Pay for private school or public school
  • Join a startup or work for an established company
  • Start a lifestyle business or go for the grand slam
  • Job hop or stay a loyal soldier
  • Live in an expensive coastal city or move to a low-cost area 
  • Invest in real estate or stocks
  • When to rent or buy
  • When to invest in tax-advantaged versus taxable accounts
  • Angel invest or don’t
  • Buy a fixer or a fully remodeled home
  • Marry or cohabitate
  • Marry for love or marry for money
  • Have children early or late
  • Return to work or be a stay-at-home-parent
  • Combine your finances or keep separate accounts
  • Get a divorce or stay married
  • Seek fame to boost your wealth or stay low key
  • Support your adult children or let them learn to swim

And so many more topics.

Again, money is just one part of the equation. It’s how we use our money to make better choices that matters most. If any of these topics interest you, Buy This, Not That will help you minimize regret and maximize satisfaction.

Why I Wrote Buy This, Not That

I wasn’t planning on writing a traditionally published book. As a tired father of two young children who also publishes three times a week on Financial Samurai, I already had my hands full. However, when Noah, an editor at Portfolio Penguin approached me on December 2, 2019, about the idea, I was intrigued.

When the pandemic hit in March 2020, I thought why not! If I was going to be stuck at home anyway for who knew how long, I might as well make the most of a suboptimal situation. This is the Financial Samurai mindset!

Back in 2008, something similar happened. The global financial crisis was starting to deepen and I was losing a boatload of money. However, it was in the summer of 2008 that I finally decided to propose to my girlfriend of nine years. I knew that even if I lost all my money, I didn’t want to lose her.

Now, every time I think back to the global financial crisis, I immediately think about our small beach wedding, not the economic calamity during that time period. By writing Buy This, Not That during a pandemic, I’ll look back and feel good knowing I did something productive to help others.

Here are some more reasons why I wrote my latest book.

1) It Had To Be Written

Buy This, Not That: How To Spend Your Way To Wealth And Freedom Bestseller

One of the reasons why I started Financial Samurai in 2009 is because I noticed there weren’t any personal finance bloggers with finance backgrounds. Therefore, I thought it would be a good idea to fill this obvious hole. I thought about money differently and wanted to bring my expertise and perspectives to the world.

When I was approached by Portfolio Penguin Random House with the book idea, I noticed there also weren’t many nonfiction finance books that were written by people with finance backgrounds. Further, both my wife and I are practitioners of early retirement, not pontificators with steady paychecks. Therefore, I figured I might as well fill the hole again and share my perspectives!

After being able to escape corporate America at 34 and live the life I want for the past 10 years, I just had to write a book that could help other people potentially do something similar. Once you see how something is done, it’s much easier to believe a similar path is possible for you.

2) The Importance Of Financial Education

There’s a whole world of consumers out there who love to read books and not blogs. Therefore, it was only logical to write Buy This, Not That to try and reach them.

Creating maximum impact in an affordable way is important. I could create $2,000+ e-courses like some peers do. However, I felt packing in all the information in a book that costs $27 or less was a more accessible solution.

After 13 years of writing on Financial Samurai, I’ve also gathered a wealth of different perspectives from over 90 million visitors. These perspectives have helped me make better decisions and be a more empathetic person along the way. Buy This, Not That includes many blindspots I’ve had to potentially help others see things more clearly.

The world is in need of more financial education. A personal finance course should be mandatory in high school or college, but it is curiously not. I live in this bubble where I studied economics in college, got my MBA, worked in investment banking for 13 years, and have written over 2,500 personal finance articles since 2009.

The things that seem obvious to me or others with finance backgrounds don’t seem as obvious to those without financial backgrounds. Therefore, my goal is to bring more financial education to those who seek to grow their wealth in a risk-appropriate way. It’s our duty to share what we know.

3) Narrow The Growing Inequality Gap

Since the global financial crisis in 2008-2009, the rich have gotten extraordinarily rich compared to the middle class. Meanwhile, those in the top 0.1%, have blown past the top 1% as well. I want to bring their secrets and ways of investing and thinking to the public in order to help more people build wealth.

While writing Buy This, Not That I also had an epiphany as to why so many personal finance authors write mainly only about saving money, budgeting, and index funds. I kept wondering why not also write about more interesting and potentially lucrative topics? After all, you can only save so much. But income and investment returns are unlimited!

After over a year of writing and re-writing my book, I finally understood why. Without a finance background, writing about anything else beyond budgeting and saving is much more difficult. No wonder why so many personal finance books just scratch the surface of so many important topics.

Hence, I’ve introduced helpful financial concepts, gone deep with multiple subject matters, while also making them easy to understand. There are two levels of rich. The highest level didn’t get there through just saving and investing in index funds.

My hope is with the knowledge you will gain from reading Buy This, Not That, you will build way more wealth in your lifetime than you thought possible. And if this happens, your standard of living will go up and the growing inequality gap will ultimately narrow.

Why I Wrote A New Personal Finance Book: Buy This, Not That - net worth levels by class

4) New Perspectives With More Representation

As an Asian person who lived in Asia for 13 years, I used to be part of the majority. Then when I came to Virginia for high school and college, I became part of a minority that made up only six percent of the U.S. population. The juxtaposition was eye-opening.

At times, it was hard to fit in. I got into fistfights and was suspended once. I often felt like I had to battle to be given an equal opportunity to participate. Although some of the experiences were harsh, they also gave me tremendous motivation to try harder.

By high school, I clearly realized the world isn’t fair and never will be. Therefore, instead of complaining, I accepted the way things were and focused on what I could control. I bring this fighter’s mindset to the book. It will give you the motivation to push on through no matter who you are or how difficult your struggles.

BTNT is your unfair competitive advantage to getting ahead!

We know people are biased towards people who look, think, and talk like them. It’s why podcast interviewees, award-winners, bestsellers, and families who attend elite schools tend to be quite homogenous.

Therefore, I thought it would be nice to change things up a little and provide new perspectives. Maybe there will be more love and understanding for Asian folks in America if they read a good book by an Asian person who helps them. Perhaps kids who seldom see anybody who look like them will be inspired to write their own book or do something out of the ordinary.

Including People Who Live In High Cost Areas

In addition, a large percentage of every country’s population lives in more expensive urban cities. High cost of living areas presents some unique challenges which I address in the book.

With how bifurcated America is, I’m hoping to create an understanding bridge between those who live on the expensive coasts and those who live inland. Ultimately, we all have the same goals of supporting our country and doing more of what we want.

I’m convinced most conflict in this world is due to a lack of understanding of other people and their personal situations. Let’s spend more time getting to know each other and less time judging people for their choices.

5) Steady Navigation Through Bad Times And Good Times

As someone who has worked in finance since 1999, I’ve gone through the euphoria and despair of the first Dotcom bubble. Then I went through the investment mania of 2007 and the devastation a few years later with a significant amount of capital.

After each collapse, I’ve learned how to strengthen my finances so that no matter what happens, I’ll most likely be OK. I want to share what I’ve learned to help more people survive downturns without too much harm. Reading Buy This, Not That will help armor your finances and provide security for your household. The book will also give you the courage to do more of what you want.

For so long, it’s only been good times. And you may have read only the perspectives of people who’ve only experienced good times since 2009. This can be very dangerous. Bad times will eventually come, which is when you’ll need financial guidance the most.

It is hard to understand your true risk tolerance if you don’t go through a prolonged bear market yourself. Although the March 2020 crash was violent, it was also quick to rebound. Now things are once again very uncertain, which is where BTNT readers will outperform.

Buy This, Not That will help you navigate through stormy waters so that no matter how wretched the economy, you will not drown but thrive. Having peace of mind during difficult times is priceless.

Below is a snap shot of BTNT making the Wall Street Journal bestseller list. It felt good to be the only new entrant and the only person with black hair to do so. Breaking the status quo is awesome!

Buy This Not That Wall Street Journal Bestseller
BTNT is a WSJ Bestseller

Thank You For Reading Buy This, Not That!

I’m thrilled for y’all to read Buy This, Not That: How To Spend Your Way To Wealth And Freedom. I actually violated my publisher’s recommendation of keeping the word count to 80,000 words. Instead, I wrote about 111,000 words. I wanted toadd as much value as possible given nonfiction books are all about the same price.

It is a big book full of vital information to help you enjoy a better life. There are so many important subjects that I believe you’ll actually be left wanting for a book two!

Buy This, Not That is meant to be read and discussed with friends and loved ones. You’ll have a great time debating my reasonings and making your own cases. I truly believe discussion and listening to the perspectives of others is the best way to learn and grow.

Order a hardcover copy of Buy This, Not That by clicking one of the retailers below.

Buy This Not That_Amazon
Buy This Not That_Barnes-Noble
Buy This Not That_Books-a-million
Buy This Not That_Hudson-booksellers
Buy This Not That_Indiebound

Virtual Speaking For Buy This Not That

If you’re interested in doing an author chat, shoot me an e-mail at sales AT financialsamurai DOT com. BTNT is meant to be read with others and discussed. And who better to lead the conversation than the author of the book!

So far I’ve video talks with folks at Google, Yelp, William & Mary, Facebook, and several other organizations. They’ve all been a lot of fun and insightful.

Finally, if you’re thinking about becoming a professional writer, here are my thoughts about how to make it work. It’s not easy. But you will feel proud once you’re done. Write because you love to write, not because you want to make money!

Thanks for picking up a hardcopy of Buy This, Not That. If you enjoy it, please leave a nice review on Amazon or wherever you purchased it. It’s the best gift an author could receive. So far, the Buy This Not That book reviews have been great. Thank you all!

Buy This, Not That: How To Spend Your Way To Wealth And Freedom Bestseller

To Your Financial Freedom,

Sam

10 Years Of Fake Retirement Later: The Most Important Takeaways

Updated: 01/27/2023 by Financial Samurai 53 Comments

In February 2012, I decided to negotiate a severance to break free from corporate life. By mid-June 2012, I had received a severance check and the last of my three months of WARN Act pay. Ten years of fake retirement later, I want to share with you some of my biggest takeaways.

Overall, it’s been an incredible journey. However, I’m also melancholy I’ll never get back these past 10 years. The greater your appreciation of time, the less you will want to waste it.

For those of you thinking about permanently leaving your day job to go on a great adventure, this post is for you.



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Why Cash Flow Is More Important Than Net Worth: Focus On What’s Real

Updated: 08/11/2022 by Financial Samurai 64 Comments

Whether you are a fake retiree, a traditional retiree, or someone with a day job, cash flow is more important than net worth, especially during an economic downturn.

Net worth is often an illusion that only helps to boost your ego when times are good. When times are bad, calculating your net worth loses it’s appeal because it mostly hurts your ego.

During an economic downturn, if you don’t invest in cash-flowing assets, your portfolio will likely underperform. If your investments also have weak balance sheets, then they will likely underperform even further.

The starkest performance difference during a bear market is between growth stocks and dividend stocks. Therefore, if you are a growth investor, it’s important to take some profits when times are good to capture the outperformance. Otherwise, growth investors won’t ever be able to capitalize on their investments since they receive no dividends.

When growth company CEOs like Elon Musk and Satya Nadella were dumping Tesla and Microsoft stock aggressively near all-time highs, it’s worth paying attention.



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The Two Levels Of Rich: One Of Which Doesn’t Rely On Index Funds

Updated: 12/20/2022 by Financial Samurai 132 Comments

It’s safe to assume the vast majority of you reading Financial Samurai want to be rich. I trust those of you who’ve been reading this site between 2009 and 2012, when I was writing heavily about investment strategies, have indeed become much richer. The compounding forces since then have been enormous.

We are probably one of the richest communities on the internet today based on all the surveys I’ve conducted. For example, 35% of you have a net worth of between $300,000 – $1 million. While 25% of you have a net worth over $1 million. Not bad compared to the median net worth figures who have less than $100,000.

Despite our good fortune, it’s worth discussing the two levels of rich. Because since I started this site, it’s clear one level of rich has pulled far ahead. And that one level of rich didn’t do so by investing in index funds.

Index Funds And The Rich

I know we all love index funds. They are the personal finance community’s #1 recommendation for where to invest our money in stocks. However, it’s hard to get really rich off index funds alone.

In addition, if you want to achieve financial independence well before the traditional retirement age of 65, investing only in index funds is probably not going to cut it.

The only way to get rich sooner off index funds is to consistently invest large sums of money. But that’s kind of like saying to get richer, start with a lot of money.

The reality is, there’s a whole other level of rich that has little to do with investing in index funds. As one centi-millionaire once told me, “Investing in index funds is what middle-class people do who don’t know what to do.”



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Reasons To Get Whole Life Insurance Even Though It’s More Expensive

Updated: 10/30/2022 by Financial Samurai 43 Comments

So you’re wondering whether to get whole life insurance even though it costs much more than term life insurance. Our partner Policygenius shares the main reasons to get whole life insurance. You can get real insurance quotes all in one place with Policygenius.

Whole life insurance is permanent coverage that lasts your entire life. If you have strong disposable income and are looking for extra ways to invest, it can double as financial protection for your family and a low-risk savings or investing vehicle throughout your life.

Here’s how whole life insurance works. In exchange for premiums, your insurance company pays out a tax-free death benefit to your loved ones when you die. Most whole life insurance policies also include a cash value savings component. This comes with added financial benefits you can use throughout your life. 

Whole life insurance is not the most popular type of life insurance. Term life insurance is usually the better choice for most people due to its simplicity and affordability. However, it’s helpful to learn about the circumstances that can make whole life insurance a better choice.

Whole Life Insurance Quick Facts

Who Is Whole Life Insurance Best Suited For? Whole Life insurance quick facts


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Your Financial Independence Number Is Not Real If Nothing Changes

Updated: 01/25/2023 by Financial Samurai 63 Comments

Your financial independence number is the amount of money you think you need in order to be free. Unfortunately, if nothing changes in your life after reaching your financial independence number, then the number simply is not real. You need to accumulate more capital.

In this low interest rate environment, some people continue to believe once they achieve a liquid net worth equal to 25 times their annual expenses, they’re financially independent. Yet, once they get there, they continue to work at a job they dislike for years.

Why? Fear. They fear not having enough money to safely retire early or do something else. They fear a bear market will wipe away 20%+ of their net worth. As a result, they continue to work in order to accumulate even more money.

So much about money is mental. Since leaving my day job in 2012, I have seen countless examples of the one more year syndrome play out. If you actually want to change your life, please put the 4% rule to rest.



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Why Invest In Private Funds Even Though They Charge Higher Fees

Updated: 09/15/2022 by Financial Samurai 45 Comments

Recently, I decided to invest in two private funds: 1) Kleiner Perkins 20 (KP20), and 2) Kleiner Perkins Select2. This article will explain why I invest in private funds even though they charge higher fees.

KP20 is an $800 million venture fund focused on early-stage investments in enterprise, consumer, hard tech, or fintech, and healthcare companies. Select2 is a $1 billion fund that extends its core investment strategy to focus on high inflection investments across those same five areas.

Investing in these private funds does not come cheap. The management fee is 1.5% – 2.5% (fades over time) and the funds charge 20% – 30% of profits (increases after a return hurdle has been met). If you want to make a lot of money, I highly recommend being a venture capitalist!

These fees are much higher than your favorite Vanguard ETF or index fund. The average Vanguard mutual fund expense ratio is only 0.10%. Meanwhile, the industry average mutual fund expense ratio is about 0.6%.

So why invest in these private funds even though they charge much higher fees? Let me share some of my reasons. Some are obvious, while some are not so apparent.



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The Problem With Owning Beachfront Property: The Ocean

Updated: 01/06/2023 by Financial Samurai 57 Comments

Are you interested in owning beachfront property? I was for many years, but no longer. Climate change is negatively affecting beachfront property. Water is also the most damaging element for homes. And as an investor, I don’t want to take that risk.

Before you plunk a large chunk of change on a villa by the sea, it’s worth understanding the downsides. The biggest problem with beachfront property is also what makes it so special: the ocean.

Real estate is my favorite asset class to build wealth because you can also enjoy it. Can you imagine making millions of dollars on your beachfront property while also living your dream life? I don’t care how much stocks go up if you’re never going to use the proceeds.

However, unless you are able to get a steal, beachfront property may have a more difficult time appreciating in the future.



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How I Finally Got Affordable Life Insurance With No Medical Exam

Updated: 12/03/2022 by Financial Samurai 48 Comments

At last! After more than three years of deliberating what to do about life insurance, I finally got myself an affordable life insurance policy with no medical exam with Policygenius! If you’re looking to get the same, here’s how I did it. Let me share a bit of background first.

Back in January 2012, at the age of 34, I decided to get a 10-year, $1 million term life insurance policy. Because I had about $1 million in mortgage debt at the time, I thought getting a $1 million term policy was the responsible thing to do.

In case I passed prematurely, I didn’t want to saddle my wife with so much debt. She made about $120,000, which was not enough to comfortably afford a $1 million mortgage based on my 30/30/3 rule. Further, at the time I was determined to negotiate a severance and cut my overall income by ~80%. We were in a precarious financial position and I wanted financial assurances.

Back then, we also weren’t certain whether we wanted kids either. When you light your earnings on fire, starting a family is generally not top of mind. Adapting to a new financial normal is. Therefore, I got a 10-year term policy, which I thought was long enough to pay off the mortgage or sell the house.



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The Best Time To Own The Nicest House You Can Afford

Updated: 09/12/2022 by Financial Samurai 102 Comments

The best time to own the nicest house you can afford is when you have the most number of people living in it at one time. This way, your house is providing for the most number of people, the most number of people are enjoying it, and the cost is spread out and provides better value.

Therefore, the best time to own the best house is when your kids are at home. If you are taking care of elderly parents or other relatives, all the more reason to own the nicest house you can afford too. When we’re all spending more time at home, the intrinsic value of our homes have gone way up!

More People Are Appreciating Their Homes Today

Given we are all spending more time at home, more people are remodeling their homes to make them more comfortable. Homeowners are building decks, installing hot tubs, creating amazing landscaped gardens and so forth.

The best time of the year to buy a house to get a deal are usually the summer months when school is out and people have already decided on where to live. Finally, my favorite time to buy a house is during the winter holidays. The weather is generally the worst and fewer people are looking.

If there’s one thing I love, it’s living in a fabulous house. Nowadays, I spend between 18 – 20 hours at home on average. Robbers beware! Therefore, it’s only logical to own the nicest house I can comfortably afford.

For those who went from being outside the house for 12 hours a day to now working from home and not having to commute, the desire to live in a nicer house has likely also gone up. I’m assuming millions of people started to feel this way since the pandemic began.

My wife and I have been living the majority of our hours at home since we left our day jobs years ago. Spending more time at home is why I wanted to buy a house with an ocean view. It’s also why we built a big deck in 2014. Mai Tai’s while feeling the sea breeze during sunset, check!

Given we’ve been homebodies for a while, our incremental desire to own a nicer house since the pandemic began probably wasn’t as strong as most people’s. That said, we still had enough urge to buy our “forever home” soon after initial lockdowns began in 2020.

Curiously, after only one year in our new house, my desire to own an even nicer home has increased! Talk about lifestyle creep and not being satisfied with what I already have.

For those of you looking to buy the nicest house you can afford, let me share a recent epiphany. Once I tell you what it is, it may seem stupidly obvious. But I also bet plenty of homebuyers haven’t thought about this logic yet.



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A Roth IRA Conversion Is Probably A Waste Of Time And Money For Most

Updated: 08/13/2022 by Financial Samurai 104 Comments

To contribute to a Roth IRA in 2022, single tax filers must have a modified adjusted gross income (MAGI) of $144,000 or less, up from $140,000 in 2021. If you make $129,000 or less, you can contribute the full maximum to a Roth IRA. However, if married and filing jointly, your joint MAGI must be under $214,000 in 2022 (up from $208,000 in 2021). If married couple makes $204,000 or less, they can contribute the full maximum to a Roth IRA.

For those who have a traditional IRA and are now making over $144,000/$214,000, you can currently do a backdoor Roth IRA conversion. You pay taxes upfront so you don’t have to pay taxes upon withdrawal.

As a reminder, you can contribute a maximum of $6,500 to a traditional IRA tax-free in 2023. You can deduct the contribution from your current income, which lowers your current federal tax bill. Upon withdrawal, you must pay taxes based on a future unknown income tax rate.

For a Roth IRA, you contribute after-tax money. The money and all future gains are tax-free upon withdrawal. This article discusses why a Roth IRA conversion is probably a waste of time and money for most people.



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Invest In The Single-Family Real Estate Boom Without Being A Landlord

Updated: 12/21/2022 by Financial Samurai 36 Comments

I’m bullish on single-family homes due to rising rents, rising home prices, negative real mortgage rates, undersupply, and declining vacancies. As prices soften over the next 12 months due to higher mortgage rates, i’m looking to buy more property.

I would buy another single-family homes, however, I’m tapped out because I bought a new single-family home in 2020. Further, with two young kids, I’m at my energy limit in terms of being a landlord.

Therefore, let’s look at how to benefit from the single-family real estate boom without being a landlord. The following is a post from Financial Samurai partner, Fundrise. Fundrise was founded in 2012 and is one of the leading real estate crowdfunding platforms today with over 320,000 investors and $3 billion in assets under management.

Demographics are benefitting the single-family real estate market for the next couple decades. As a result, owning single-family rentals is one of my favorite assets.



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Primary Residence Value As A Percentage Of Net Worth Guide

Updated: 11/05/2022 by Financial Samurai 102 Comments

Given our primary residence is likely one of our largest assets, buying responsibly is prudent. At the same time, living a better lifestyle by owning a nicer home as we get wealthier is also something many people desire.

Therefore, let’s try and figure out what our appropriate primary residence value should be as a percentage of net worth. I’ve got a certain percentage in mind that will help maximize lifestyle. The percentage will also provide enough investment exposure and minimize financial worry for being too house rich.

One great thing about a bull market is that the unnecessary big-ticket stuff we buy declines as a percentage of our net worth over time. If we can survive the initial liquidity crunch after purchasing a house, things tend to turn out well. You could actually make more from your house than your salary too.

For example, let’s say you have a $100,000 net worth that is all in your company’s stock. You inexplicably purchase a $50,000 BMW even though you only make $80,000 a year. That’s unwise because you just spent 50% of your net worth and 62% of your gross income on a car. Driving a beater or taking public transportation would have been more appropriate.

However, let’s say your company hits it big and your company stock grows to $5,000,000 in 10 years. If you still own your car, its original purchase price only ends up being less than 1% of your net worth. Meanwhile, you were able to enjoy a fun vehicle for 10 years. Therefore, purchasing a $50,000 BMW 10 years ago turned out to be a good gamble.

I want to do the same type of thought exercise with a house. How much should we really “gamble” to live a better lifestyle today?

Using net worth as a variable to determine how much home one should buy or continue to own is a useful exercise.



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The Best Age To Get Life Insurance Based On Logic And Reasoning

Updated: 12/03/2022 by Financial Samurai 36 Comments

There’s no one-size-fits-all best age to get life insurance. However, I believe the best age to get life insurance is around age 30. And the best life insurance term to get at around age 30 is a 30-year term life insurance policy.

If you get life insurance at 30, you will likely get the best rates starting at the most important time of your life. It’s like locking in a 30-year fix rate mortgage at the lowest rate. You can always pay off your mortgage early or cancel your life insurance policy if you don’t need it any longer.

One of my financial mistakes was not getting a $1+ million, 30-year term life insurance policy before I had children. Now that I have two children, a similar 30-year policy costs 7-10X more due to age and health reasons.

I don’t want you to make my same mistake because I was unable to properly forecast my future. The longer I live, the more apparent it is that most of us go through a similar life arc. Most of us are also governed by the same rules.

Life is already complicated enough. We often forget what we should do until after the fact. If you are around age 30, you should put getting life insurance on your to-do list.



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Focus On Trends: Why I’m Investing In The Heartland Of America

Updated: 12/10/2022 by Financial Samurai 186 Comments

If you want to get rich, you should focus on trends. I believe one of the best long-term trends is investing in the heartland of America due to growth of technology and remote work. People want to live in a lower-cost area of the country that is less dense. Thanks to the pandemic, work-from-home is here to stay.

Making a small fortune is really fun. You can do so more easily if you can correctly predict a trend. Not only will you earn a much higher return on your investment, you’ll also suffer less anxiety and grief.

Investing in the heartland of America is going to be a multi-decade-long trend. Thirty years from now, I’m confident investors in heartland real estate will do very well. Before digging deep into the subject, let me share some other trends I’ve invested in to show the importance of long-term investing.

What’s amazing is that when I first wrote this post in 2016, not too many people were talking about investing in middle-America. Post-pandemic, investing in rental properties in the Sunbelt through a real estate investing platform like Fundrise is all the rage!

The Investment Trends I’ve Ridden

In 1997, I studied abroad in China for six months. There I realized its economy was on the verge of explosive growth. So I minored in Mandarin and joined the Asian Equities department at a major investment bank. It was my way to ride the opening up of the Asian region.

I was probably the dumbest donkey in the industry. However, being Asian, knowing how to speak Mandarin, and having the good sense to hustle for 13 years was good enough for me to retire at the age of 34.

By 2001, after the dotcom bubble burst, it was clear the public’s love affair with the stock market was over. So I shifted the majority of my wealth from stocks to real estate. San Francisco property prices ended up soaring while stocks languished for a decade.

During the financial crisis, I realized it was now or never to start a website to at least try and take advantage of web 2.0. I had no plan. All I knew was my happy days were numbered due to a structural decline in the banking industry. Increased regulation and narrowing spreads made work less fun.

13 years later, Financial Samurai is now an established brand in the personal finance space that’s generating a healthy amount of online income.



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10 Million Dollars: The Ideal Net Worth Amount For Retirement?

Updated: 01/25/2023 by Financial Samurai 261 Comments

Curious to know the ideal net worth for retirement? As someone retired in 2012 at age 34 with $3 million, let me tell you.

I was talking to a tennis friend of mine who said his sister checked out once she cleared 10 million dollars. She was 37 when she decided to quit her job and go on an Eat, Pray, Love journey to Southeast Asia. She had made a bulk of her fortune as an early investor in an internet consumer company.

My friend and I then got to talking about other people we knew who checked out in their 30s and 40s. They too, had cleared over 10 million dollars in net worth or investable assets. They had all been early employees at successful startups. Or they had risen up the ranks at a big tech company while holding a lot of shares.

Even a 30-year-old softball buddy of mine who worked at Uber said he’s shooting to have a $10 million net worth before he retires.

As a personal finance blogger, I subsequently got to thinking: Is 10 million dollars the ideal net worth amount for retirement? Is 10 million actually the new one million due to inflation? It seems to me that a net worth of $10 million or greater is ideal before leaving work behind.

$10 Million Is A Top One Percent Net Worth

10 million dollars is a lot of millions. If you have a 10 million dollar net worth or higher, you have a top one percent net worth in America. Therefore, if you can’t retire off 10 million dollars comfortably, you’ve got some serious problems!

The sad part about wondering whether 10 million dollars is enough to retire comfortably is that plenty of people who make a lot of money still go broke. Just look at so many ex-NFL players who end up with very little soon after their careers are over. The reason why they end up broke is due to a lack of financial education.

Good financial education will compound on itself. It will pay dividends for years to come. One of the main reasons why I’ve consistently been publishing on Financial Samurai since 2009 is to help people reach financial freedom sooner. We’ve only got one life to live and schools aren’t willing to impart any personal finance wisdom.

For fun, because this is what personal finance enthusiasts do, let’s discuss whether 10 million dollars is the ideal net worth for retirement. Of course, we can always retire with less. Most have. But where’s the fun in that?



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Fundrise Overview And The Future Of Real Estate

Updated: 01/07/2023 by Financial Samurai 43 Comments

I’m bullish on real estate for the next several years. With multiple efficacious vaccines, high inflation, continued low and negative real mortgage rates, plenty of stimulus, work from home here to stay, and the desire to own income-producing assets, real estate has a bright future. Here is the latest Fundrise overview.

Fundrise is a leading real estate crowdfunding platform for unaccredited and accredited investors alike. Founded in 2012, Fundrise pioneered the eREIT asset, a private diversified real estate investment trust that enables everyday people to invest in private real estate once reserved for ultra-high net worth individuals or institutions.

As of 2022, Fundrise manages over $3.2 billion in equity and has over 400,000 active investors on its platform. This is an acceleration of assets under management and investors versus 2021. Back in 1Q2021, Fundrise managed $1 billion and had 150,000 investors.

For those of you looking to diversify into real estate passively or increase your real estate exposure, below is an in-depth interview I did with Ben Miller, Founder and CEO of Fundrise. I also had a one-hour video conference call with Ben in 2022 to provide us the latest Fundrise overview.

Not only do I appreciate the innovation that has come out of Fundrise since the company began, I also appreciate their investment analysis and annual market outlook. Their focus on market fundamentals is something I really appreciate. As you’ll learn further in this Fundrise overview, their investment philosophy is also aligned with my own.



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The Proper Safe Withdrawal Rate: 4 Percent Rule Is Outdated

Updated: 08/09/2022 by Financial Samurai 385 Comments

For those of you without cushy pensions, I’m sorry folks. The 4 percent rule is outdated. The rule was popularized in the 1990s. It is now unwise to follow the 4 percent rule as a proper safe withdrawal rate in retirement, especially if you are part of the FIRE movement.

Instead, I highly recommend lowering your safe withdrawal rate for the first year or two after you retire, especially if you retire early. Retirement life will likely be much different than you expect. You may be filled with uncertainty and doubt. As a result, the proper safe withdrawal rate should be more conservative.

The idea of having a low safe withdrawal rate once you retire is to train you to live off less. The first couple years is a big adjustment period. By lowering your safe withdrawal rate, you will also be encouraged to do things you enjoy that may generate supplemental retirement income.

I “fake retired” in 2012 at age 34 with about $80,000 in passive income investments. However, after a year of traveling and wondering whether this was all to life, I went back to work growing Financial Samurai. Early retirement life was not for me. I needed purpose.

Today, I still don’t have a day job. But I am still writing on Financial Samurai. I’m paying $2,350/month for unsubsidized healthcare. Further, I have a couple young children to raise in San Francisco. In other words, I’m sharing with you firsthand experience of life after work, during retirement, and post retirement.

I’m not pontificating what retirement life is like as a gainfully employed employee. Instead, I’m living this reality every day as a practitioner.



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Your Chances Of Becoming A Millionaire By Race, Age, And Education

Updated: 08/26/2022 by Financial Samurai 333 Comments

Everybody wants to become a millionaire. Unfortunately, not everybody’s chances of becoming a millionaire are the same, partially because the playing field is not even. This article looks at historical data on your chances of becoming a millionaire by race, age, and education.

Getting to at least one million dollars in net worth is a nice milestone to achieve. However, due to inflation, you need more than $3 million to live the traditional millionaire lifestyle today. Thankfully, I firmly believe the majority of people reading Financial Samurai and other personal finance sites will be able to achieve millionaire status.

If I were to guess the exact percentage of Financial Samurai readers who become millionaires in their lifetimes, I would say 60 percent. This doesn’t seem like a particularly high percentage. But once you’ve read the statistics below, you’ll come to agree that 60 percent is a home run figure.

For the remaining 40%, even if you don’t become millionaires, you’ll likely still build way more wealth if you keep on reading Financial Samurai and other finance sites than the average person who does not.

Since 2009 I’ve received dozens of e-mails from readers saying they’ve busted through the $1 million net worth figure thanks to aggressive saving and investing. Many have mentioned they wish they had discovered the personal finance world sooner. But better late than never I say!

So what about the rest of the 330+ million Americans who were fortunate enough to be born or gain citizenship to our great country? What are their chances of living the champagne dream and caviar lifestyle? Let’s have a look.



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The 30/30/3 Home-Buying Rule To Follow

Updated: 11/28/2022 by Financial Samurai 164 Comments

The best home-buying rule I can offer you is my 30/30/3 home-buying rule. I came up with the 30/30/3 home-buying rule back in 2009 and many publications and industry pundits have promoted it since.

If you follow my home-buying rule, you will have a greater chance of surviving any financial downturn. My 30/30/3 home-buying rule will also help you keep you disciplined when buying property during a hot market like the one we’re in now.

Even if you just follow one part of the rule, you will also be able to enjoy your property more because you will be less stressed about your finances. But ideally, you follow two or more parts of the three-part home buying rule.

Way too many homebuyers overextended themselves during the 2008-2009 financial crisis. As a result, most of us paid the price. Having your neighbor conduct a short sale or foreclosure isn’t good for your wealth even if you borrowed well within your means.

There is a lot of demand for real estate during the pandemic. Work from home is growing and people want to own a real asset that appreciates in value over time. My housing market outlook over the next 10 years is bullish. However, I also expect home prices to fall by 10% – 20% from peak to trough after a surge in mortgage rates.

I just want all of us to buy a home responsibly. Please follow my 30/30/3 home-buying rule. Not only will the rule save you from a lot of stress, but it will also better protect our economy.



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How Much Savings Should I Have Accumulated By Age?

Updated: 01/15/2023 by Financial Samurai 238 Comments

Savings is the foundation of good personal finance. This article will discuss how much savings to accumulate by age so you can achieve financial independence and retire comfortably. It’s important to have savings targets at every age to keep you on track. When it comes to building wealth, you don’t want to just wing it!

I don’t want to hear excuses as to why you can’t save if you want to be free. Go somewhere else please. During the height of the pandemic in March 2020, the U.S. personal saving rate rocketed above 33% from ~9%. Therefore, we can all save more if we want to.

If you are serious about living life on your own terms, study my recommended savings by age chart carefully. The more you save, the sooner you can achieve financial freedom.

Recommended Saving Rate By Age And Income

How Much Savings Should I Have Accumulated By Age?

Your saving rate should increase the more you make. To do this, you’ve got to spend at a slower rate than the rate of your income increase. I’m trying to use realistic numbers here so that folks don’t overly bitch and moan. I started saving 50% of my after tax income when I began earning more than $60,000, so please, save your excuses for the government instead.

Savings amounts are important, but what’s more important is your expense coverage ratio given everybody has different lifestyles. In other words, how many years (or months) of expenses can your savings cover in case your income goes to zero?

Given nobody can work forever, we must increase our expense coverage ratio the older we get because we will have less ability to earn. At this point, it’s time to start drawing down our savings. Let’s review my savings by age chart below.



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The Real Estate Investing Rule To Follow: Buy Utility, Rent Luxury

Updated: 01/29/2023 by Financial Samurai 204 Comments

If you plan to invest in real estate, there’s a key real estate investing rule you should follow. It’s called Buy Utility, Rent Luxury or BURL for short. Using the BURL method, you increase your chances of making a higher return on your real estate investment while also maximizing your capital for a better lifestyle.

Let me first share some of my experiences investing in real estate since 2003. Next, I’ll explain in detail what BURL is why you should follow this real estate investing rule.

Part of the reason why I bought a smaller house in 2014 was because I wasn’t willing to be a renter of my own house for its market price. At that time, the market rent price was ~$8,500/month. Crazy high, I know!

The price to rent my house had grown from about $5,000/month when I first bought it in 2005. If I had kids and a penchant for throwing tons of money away on rent, maybe I would have stayed.

BURL is a way for all real estate investors to stay disciplined when looking for the next property. As we exit the pandemic, the real estate market is very strong. As a result, even more discipline is necessary to get a good deal.

Rental Opportunity Cost And BURL

To optimize my finances, I figured I should buy a new house more suitable to my house-spending desires. At the time the max I was willing to pay to rent was ~$5,000/month. Next, I should rent out my old house at market to those willing to pay $8,500/month in rent. This way, economic waste is eliminated, and everybody is happy. This is the BURL rule in a nutshell.

Conduct the same mental exercise with your existing home. If you haven’t rented in a while, you may be surprised by how much your primary residence can command for rent in the open market. Inflation is a beast, which is one of the reasons to own real estate over the long term.

The cost of living in your home isn’t the actual money you are spending to live there. The actual cost is the opportunity cost of not renting it out at market rate.



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Scraping By On $500,000 A Year: Why It’s So Hard To Escape The Rat Race

Updated: 01/22/2023 by Financial Samurai 665 Comments

Can you imagine scraping by on $500,000 a year? Well, believe it. Thousands of households living in expensive cities are running on this never-ending treadmill. It’s only when you can lock down expenses, save and invest aggressively, will you ever escape the rat race.

They’ve got big mortgages, private school tuition to pay, and fancy cars to drive. No matter how much they make, these households tend to spend all their income and not save as much as they should. Now with inflation running near 40-year highs, important costs are simply going up further.

I’ve highlighted in a previous article how living off $200,000 a year in an expensive city is really just an average lifestyle. In this article, I’ll discuss how one couple is living paycheck to paycheck while making a combined $500,000 a year. They are a real couple who shared with me their financial details to anonymously share with you. Judging others, after all, is an American pastime!

$500,000 a year or higher is a level which I think is considered rich. Anybody who thinks otherwise has no concept of financial reality. Even the government agrees after compromising by raising the income level for when the highest marginal tax bracket kicks in to ~$400,000 from $200,000 back in 2013.

But starting in 2018, things got even more painful for the upper middle class. The SALT tax cap capped mortgage interest deduction and limited property tax deduction to $10,000.

Now Joe Biden is looking at raising taxes for households making over $400,000. Can you imagine working 60+ hours a week, never seeing your family, and still paying more in taxes?

No wonder why more high-income households are looking to retire early and enjoy the YOLO Economy to the maximum. Life is short and this pandemic has really motivated millions to finally live it up!



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Once You Have F You Money, It’s Hard To Tell Others To F Off!

Published: 01/25/2023 by Financial Samurai 139 Comments

F you money. FU money. F*ck you money. It’s all the same. F You Money is having enough money to tell others to F Off without fearing financial repercussions.

I’m sure some of you have dreamt of telling your annoying micromanager to F Off. But you can’t because you still want that raise and promotion.

If you spend any amount of time online, you probably want to tell some folks to F Off as well. But given online is generally forever, you tend to hold your tongue unless someone really offends you.

If you live in an expensive city, you need at least $3 million per person to have F You money. If you live in the heartland, where I continue to buy real estate, you may only need $1 million per person to have F You money.

Hence, one way to get F You Money is to conduct geoarbitrage!

The Origin Of F You Money

The term F You Money seems to have first been mentioned by Johnny Carson in a Rolling Stones interview in 1979 and then by Burt Reynolds in the 1986 movie, Heat.

I’ve heard the term since the 1990s on Wall Street. When Goldman Sachs finally went public in 1999, there were plenty of partners with F You Money walking around the halls.

In fact, I still remember randomly bumping into a 20-year GS partner in Montreal post IPO. He was at a coffee shop on a date with a young woman other than his wife. I was there taking an Asian company management around visiting Caisse de dépôt, a Canadian money manager.

I guess the partner said F You to his marriage! Or maybe not. We never discussed the encounter upon our return to HQ in NYC. That might have been a career-limiting move.

All I know is the GS partner was living it up with his tens of millions in new liquidity. He couldn’t give a damn what anybody thought of him, let alone some peon second-year analyst!

How Much Is Considered F You Money?

Based on over 9,000 votes in the Financial Samurai poll below, $5 million is the #1 vote-getter to feel financially free. To be clear, $5 million is the minimum net worth hurdle, not the maximum.

I personally chose $10 million because $10 million is what’s necessary to generate ~$350,000 in risk-free income based on today’s risk-free rate. However, by taking slightly more risk, $10 million should be able to generate $400,000 – $500,000 a year to live the F You Lifestyle.

When your investments can generate a top 1% income by themselves, that’s clearly F You Money.

Therefore, between $5 million to $10 million seems like a reasonable minimum range before you can consider having F You Money.

The more expensive the location you live in, the higher the hurdle and vice versa. Just don’t forget to keep up with roaring inflation.

How much money do you need to feel financially free? (What is your FU money amount?)

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