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Financial Samurai

Slicing Through Money's Mysteries

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The Ideal Number Of Banking Relationships To Feel Safe And Secure

Published: 03/15/2023 by Financial Samurai 28 Comments

After the collapse of SVB and Signature Bank, I decided to review our existing banking relationships and see if we are well positioned to weather another potential bank run. I also wanted to share with you the ideal number of banking relationships to have to feel safe and sound.

When I first started Financial Samurai in 2009, I recommended having three banking relationships.

  • One for operations / working capital
  • One for borrowing
  • One for investing

Back in 2009, we were in the middle of the global financial crisis. Lehman, Bear Sterns, Washington Mutual, and a number of other financial institutions were failing. Spreading out your deposits if you had more than the FDIC-insured $250,000 per bank and ownership was a rational move.

At the time, having three banking relationships was more than enough to protect my cash. The main reason why I wanted three banking relationships was for optimization purposes.

Today, I still feel three banking relationships is the ideal number to have for those who have more than $250,000 in cash, investments, or loans. For those with less than $250,000 in assets or liabilities, I’d go with at least two banking relationships and work your way up to three.



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How To Prepare For Another Bank Run As The Contagion Spreads

Published: 03/10/2023 by Financial Samurai 104 Comments

Sadly, Silicon Valley Bank (SVB, $SIVB), the 16th largest bank in America at the end of 2022, experienced a bank run. Now the contagion has spread to other regional banks such as First Republic Bank, Signature Bank, Zions Bancorp, PacWest, Comerica, and Charles Schwab. Even the largest banks were getting hit as well.

Ultimately, The Federal Deposit Insurance Corporation (FDIC) said on March 10, 2023, it would take over SVB and that its depositors with up to $250,000 will have access to their deposits no later than Monday morning, March 13, 2023. In the meantime, the FDIC will find a buyer so that depositors with over $250,000 will also be made whole.

The bank had $209 billion in assets and $175.4 billion in deposits. Roughly 87% of Silicon Valley Bank’s deposits were uninsured as of December 2022, according to its annual report.

Thankfully, the Federal government decided to protect all SVB depositors on Sunday, March 13. The Feds also shut down New York’s Signature Bank and guaranteed all its depositors to help stop the contagion.

But will it be enough for the regional banks? Doubts are high.



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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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Americans Can Save A Lot Of Money If We Want To, Don’t Worry!

Updated: 12/01/2022 by Financial Samurai 38 Comments

During the pandemic, we learned that Americans can save a lot more money if we want to. Take a look at the historical American personal saving rate chart according to the U.S. Bureau of Economic Analysis and the St. Louis Fed.

American personal saving rate chart percentages

After lockdowns began on March 18, 2020, the U.S. personal saving rate skyrocketed from a respectable 9.3% pre-pandemic to an impressive 33.8% in April 2020! Americans suddenly decided that saving money during a time of great uncertainty was a priority. So that is what we did.

As the initial six-month shock of the pandemic began to wear off, Americans decided to lower our saving rate to 13.3% in November 2020. Then, when news of a new strain of COVID emerged in the beginning of 2021, Americans decided to increase our saving rate again, reaching 26.3% in April 2021.

Since April 2021, the personal saving rate has steadily declined thanks to vaccines, experience, and the desire for most of us to get on with our lives.

Today, the U.S. personal saving rate is around 3.1%, which is a low not seen since January 2008.



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Treat All Investments As Expenses If You Want To Grow Richer

Updated: 08/01/2022 by Financial Samurai 44 Comments

Some people who critique my various budget charts are annoyed I list retirement contributions and investments as expenses. Therefore, I thought I’d explain my logic in this post.

Once you start treating your retirement contributions and investments as expenses, you will begin to build much more wealth than the average person. And once you build more wealth than the average person, your frustration will subside, and you will feel more free.

The key is to go from a defensive mindset to an offensive mindset to build more wealth. Let’s start with a basic understanding of two financial statements.



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Being Called Overly Frugal Or Cheap Means You’re On The Right Track

Published: 06/25/2022 by Financial Samurai 51 Comments

Recently, I was told by a producer of a certain podcast that I was being overly frugal. This comment came after an interview covering my upcoming book, Buy This, Not That was done.

I had thanked her over e-mail, pointed out a spelling error in my name in the show notes, and also asked her to tell the host I had finally gotten a headset for potential future interviews. Here’s what she wrote:

“Re mic: I totally get the frugality mindset but treat yourself to a Shure MV7 or ATR2020 and write it off against tax. You’re a fab interviewee who deserves a better mic.”

Been Battling Frugality For A While

At first, I was slightly taken aback by the comment because I’ve been trying hard for the past couple of years to get out of the frugality mindset. I’ve admitted I suffered from frugality disease. So to be reminded that I may still be battling this affliction stung.

This year, at age 45, I’ve finally entered the decumulation phase of my life and have purposefully been spending more on things I care about, e.g. food, children’s education, and nicer travel accommodations. It’s been hard to spend more than usual, but I’m making progress. Heck, just the other day I ordered toro sushi instead of the usual salmon sushi!

Furthermore, I already have an external microphone for doing podcast interviews which I purchased a couple of months ago. It had been working great over multiple interviews until this podcast session. When we connected, the host said he heard an echo whenever he spoke. Therefore, he wanted me to put on a headset.

Unfortunately, I didn’t have a headset that could plug into my laptop because I didn’t have an adapter. I ended up not using my external microphone and doing the interview with my Apple earbuds plugged into my iPhone. As a result, the sound quality wasn’t as good as it could have been.

I don’t think I was being overly frugal. I’m just a newbie at doing podcast interviews and didn’t have the ideal setup. I’m also technically challenged. Or, maybe I am actually cheap and just don’t realize it!



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Mortgage As A Forced Savings Account To Build Wealth

Updated: 02/16/2023 by Financial Samurai 72 Comments

A forced savings account will help make you rich over time. It forces you to save versus relying on your own discipline to do the right thing. A mortgage is exactly this, a forced savings account.

Every month you pay your mortgage means a portion of principal gets paid down. This forced savings account builds you a ton of equity over time.

One of the main reasons why the average net worth of a homeowner is 40X greater than the average net worth of a renter is due to forced savings. People think they can consistently save and invest the difference while renting. The reality is, unless the savings is automatic, it’s hard to sustain the discipline.

There are too many temptations to spend our money on things we don’t need. This “economic leakage” acts as a huge drag on wealth creation over time. As a result, I believe investing in real estate is the best asset class to build long-term wealth for the average person.

Mortgage As A Forced Savings Account

Back in 2000 and 2007, many investors were cocky, much like investors were in 2021. Then, of course, a bear market wiped out tremendous gains, reminding my why I prefer real estate over stocks.

I remember asking my Director at the time what he thought about the concept of the mortgage as a forced savings account? At the time, as an investor, it appeared he could do no wrong.

He said, “I don’t need no forced savings account. Only irresponsible people who don’t have the discipline to save every month would consider their mortgage as savings. I’d rather have as big of a mortgage as possible so I can make money in the stock market!“

My Director ended up losing millions when the dotcom bubble collapsed. He no longer looked down on people who slowly grew their wealth. At least, unlike most people, he had millions to lose!

If you have a traditional mortgage that pays down principal and interest, the mortgage “forces” you to save because you are forced to pay your mortgage every month if you want to keep your property. A percentage of each mortgage payment goes towards principal, which can be considered savings.

I’m also in the camp that it’s better for most people to receive a tax refund, even though it’s like giving the government an interest free loan, because most people can’t save for crap!



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Perpetual Failure: The Reason Why I Continue To Save So Much

Updated: 01/25/2023 by Financial Samurai 158 Comments

One of the reasons why I continue to save so much is that I’m a perpetual failure. I’ve made so many mistakes in my life that I need a financial buffer to constantly bail me out. A landmine-filled upbringing has also embedded in me the necessity to save.

If it’s not an investment mistake, it’s a career mistake. If it’s not a career mistake, it’s a lifestyle mistake. Now that I’m in my mid-40s, random health issues are slowly popping up. Gotta save!

Over time, the self-inflicted mistakes have declined in frequency. However, I know they will still keep coming now that I’m a father to two young children. Parenting is tough.

Even after negotiating a severance and leaving Corporate America in 2012, I still save most of my passive income and online income each month.

It feels like eventually, this dreamworld my wife and I have been living in will come crashing down on us. Need to save.

Always Question The Sustainability Of Your Good Luck

Whenever things are going well for an extended period of time, I begin to worry. Where did all the bad luck go? Something must be wrong. 

I’m not sure why life has turned out OK for me when there are plenty of smarter, more deserving people out there who still struggle. Maybe the exhausted fumes of good karma from a past life?

The longer you live, the longer you realize nothing good lasts forever. Something bad is bound to happen – a break of an ankle, a bad investment, a friend who disappoints, a boss who lies, a disease that debilitates, a black swan global event, etc.

The pandemic began just months after our daughter was born. Then, preschools shut down. Then, stocks crashed in March 2020. If there’s one thing 2020 taught us, it’s that anything and everything can happen!

Instead of waiting for disappointment, I sometimes like to seek out failure to knock some reality back into my life. Getting rejected is also a great way of keeping the ego under control.

Most of our wealth is mainly due to luck. To start thinking our wealth is mostly due to hard work and skill will likely set you up for disappointment in the future. Don’t be fooled into thinking you’re a wunderkind.



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Keep Your Donations A Secret: Giving Time And Money Is Personal

Updated: 02/06/2022 by Financial Samurai 13 Comments

Practicing Stealth Wealth is the act of keeping your overall wealth a secret. It helps with keeping haters at bay and your family safe. For your well-being, it’s much better to blend in with the majority than stick out when it comes to your finances.

When it comes to money, people have all sorts of ideas. Think about this situation. The security detail for Elon Musk’s seven children must be extraordinary.

Given Elon has a ~$300 billion net worth, his family may be constantly at risk. Luckily, Elon could easily pay a ransom in the tens or hundreds of millions of dollars, which ironically makes his family even more of a target.

Not sticking too far out of the crowd is wise. However, is it equally wise to be stealthy with your donations? To appease his haters, he could announce a $10 billion donation to helping eliminate poverty where he lives. If so, how can you still hate someone after giving that much?

Even so, let’s discuss why we should still probably keep our donations a secret.



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Can Your Lifestyle Inflation Keep Up With Investment Inflation?

Updated: 01/01/2022 by Financial Samurai 26 Comments

Making sure lifestyle inflation never gets ahead of our income and wealth inflation is a core fundamental in personal finance. Ideally, we want to widen that gap between income and expenses so that we can one day live free.

However, what if you are already living free? Or what if your investment returns are so strong that you end up dying with too much? Dying with too much money is as suboptimal a situation as never having enough money to retire comfortably.

Therefore, for disciplined investors, I thought it would be worthwhile to discuss whether your lifestyle inflation can keep up with your investment inflation. I’ve noticed that a lot more people are now concerned about how to properly spend down their wealth.

Let’s go through a quick example.



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