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

Published: 06/25/2022 by Financial Samurai 49 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: 06/28/2022 by Financial Samurai 70 Comments

A forced savings account will help make you rich over time. It forces you to save versus relying on relying on your own discipline. 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.

Mortgage As A Forced Savings Account

Back in 2000, many investors were cocky, much like investors today with the stock market at record highs.

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: 01/06/2022 by Financial Samurai 156 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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How Rich Do You Have To Be To Attend The Met Gala?

Updated: 10/01/2021 by Financial Samurai 32 Comments

The Met Gala is an annual fundraiser for the benefit of the Metropolitan Museum of Art’s Costume Institute of New York City. If you want to attend, a ticket costs $35,000 and a table costs between $200,000 – $300,000. However, even if you have the money, you might not be able to go.

Anna Wintour, Editor-in-Chief of Vogue and Gala chair since 1995, controls a tight guest list of around 600 people. These people often include celebrities, artists, politicians, and obviously very rich people.

Given tickets cost $35,000 and up, I thought it’d be fun to calculate the minimum amount of rich you need to be to attend.



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The Boot: A Smart Solution To Spending More Money Guilt-Free

Updated: 12/30/2021 by Financial Samurai 25 Comments

As a lifelong saver, it has been hard for me to spend more money and live it up. It didn’t matter whether I got a raise or made a profitable investment, the extra money would almost always get reinvested. The Boot is a concept I came up with to help us spend money more freely.

The fear of being trapped in a job I disliked was far greater than the fear of missing out on nice things or experiences. Therefore, it was only rational for me to keep on saving and investing to one day be free. But I’ve discovered that even after extricating myself from Corporate America in 2012, it’s still hard to ball out.

In some ways, the pressure to generate enough passive income is greater today because my wife and I are parents. Since we don’t have day jobs, we don’t receive any company-sponsored healthcare or retirement benefits either. When little ones are depending on you to survive, you can’t lose too much focus.

But consumption smoothing is also important for a better life. There’s no point making money if you’re never going to spend it. If we end up dying with too much money, we will have ultimately wasted time and energy. Instead of grinding away for hours at work or on our business, we could have spent that time on something more enjoyable.

Example Of Using The Boot To Spend More Money

The Boot equals any investment return above its long-term historical average. The larger your Boot, the more you can spend money freely and kick butt.

For example, let’s say your $1 million stock portfolio returned 18% one year. Given the long-term historical average in the S&P 500 is about 10%, your Boot is 8%, or $80,000. If you’ve been itching to spend more money, you now have the option to spend up to $80,000 before taxes on whatever your heart desires.

I struggled for two years to buy myself a new laptop. Even though I probably type more than 99% of people in the world due to Financial Samurai, I refused to replace my six-year-old laptop. Four keys were half broken and sticky, which meant I had to retype words over and over again. In addition, the battery no longer held its charge and the monitor would occasionally flicker out.

The Boot concept helped me realize I could spend $1,500 before tax on a new MacBook Pro 13″ due to my portfolio’s outperformance in 2020. But of course, I first researched how much it cost to change the battery ($250) and keyboard ($150) at my local repair shop. And of course, I waited for a sale before finally pulling the trigger. Hooray!

The Boot is also my capital source for revenge spending. After saving even more aggressively during the pandemic, I promised myself I would open up the wallet wider. However, I’m having a difficult time spending even 1/100th of my Boot. Let me explain.

The Problem With The Boot

Although my stock portfolio outperformed the S&P 500 in 2020 due to tech, my stock portfolio is severely lagging the S&P 500 in 2021 because big tech and growth stocks are sucking wind.

Hence, I have this worry that if I don’t make changes to my portfolio, I will end up losing a lot of my Boot. And if I lose my Boot, then I will regret spending money that I never locked in. Therefore, I end up not spending or not spending nearly as much as possible.

This type of thinking is not uncommon for super-savers and investors. The “what if” mentality is always lingering. However, it is because of this paranoia that many of us have been able to build much greater wealth than the average person.

Therefore, if you are unable to fully embrace The Boot concept, let me share a modified version: The Boot Plus.

“The Boot Plus” For The Super Frugal

In 2020, the S&P 500 returned about 18% after dividends. Therefore, the 8% Boot above the historical average is nothing special in my example above. Everybody who only invested in the S&P 500 returned 18%. Further, people who use the S&P 500 as a net worth growth benchmark also likely grew their net worths by 18% or more. Therefore, let’s calculate The Boot Plus.

The Boot Plus is equal to your portfolio’s performance minus the S&P 500’s performance if the S&P 500 outperforms the historical average. The point of the Boot Plus is to reward extra outperformance. If you’re just outperforming like everybody else, you do not deserve a trophy! You must outperform the outperformer.

For example, if your $1 million portfolio returned 18% in 2020, your Boot Plus is $0 because 18% is what the S&P 500 returned. You don’t have any extra money to spend beyond your normal spending habits.

However, if your portfolio returned 40% in 2020, your Boot Plus is equal to 40% – 18% (S&P 500 return) = 22%. You’ve made $220,000 more than what the median S&P 500 investor made, who already made $80,000 more than the historical average.

Even if your portfolio is sucking wind the next year, your 22% outperformance of the S&P 500 that year and 30% outperformance of the S&P 500’s historical performance should be enough to let you spend more money than usual.

More Scenarios Of The Boot And The Boot Plus

For clarification, here are more scenarios using a $1 million investment portfolio and the S&P 500, which has historically returned 10%. If your Boot is $0, then your Boot Plus is also $0.

  • The S&P 500 returns 12%, your portfolio returns 15%. Your Boot = $50,000 (15% – 10%). Your Boot Plus = $30,000 (15% – 12%). These are good times, therefore, you should spend more freely.
  • The S&P 500 returns 8%, your portfolio returns 9%. Your Boot = $0 because the S&P 500 and your portfolio underperformed the historical average return of the S&P 500. Although times are still good, rewarding underperformance is not the way of the Financial Samurai.
  • The S&P 500 returns 4%, your portfolio returns 20%. Your Boot = $0 because the S&P 500 underperformed its historical average. There is a growing uncertainty in the economy. Your Boot Plus = $0 even though you crushed it because you’re preparing for future opportunities. Although, with such outperformance, you should feel free to spend at least 10% of your portfolio’s return over the historical average (20% – 10% = 10% or $100,000/10).
  • The S&P 500 returns -15%, your portfolio returns 6%. Your Boot = $0 even though you significantly outperformed. During corrections or bear markets, it’s best not to spend more than your usual if the economy is fraught with uncertainty. In general, you should rather take advantage of downturns and invest more money.

Finally, I do think it’s generally best to spend more money with your cash flow than selling your investments to spend money. The larger you can grow your investment pie, the better.

You’ll Likely Never Spend Your Entire Boot

The Boot isn’t an all-or-nothing concept. The goal is to spend more money during good times and when you outperform. After all, you can’t get rich if you don’t outperform the average. You certainly don’t have to spend your entire Boot. If you have a sizable portfolio, it may be impossible to spend that much more money.

For example, let’s say you had a $5 million portfolio that went up 40%. Using the same percentages for 2020, your Boot Plus is a significant $1.1 million ($2 million – $900K). If you’re used to spending only $300,000 a year for a family of four, suddenly spending almost 4X your budget will be extremely difficult.

However, at the very least, your investment gains should enable you to freely buy almost anything you want. And if what you what is relatively inexpensive compared to your Boot, then consider yourself lucky!

Personally, I always like starting small and working my way up towards more spending. For example, I like taking my Boot Plus and dividing it by 100. I look around and see what I can buy with 1% of my Boot Plus. Then, I take my Boot Plus and divide it by 10 to see what I can buy. I continue on until my desires are satiated.

More times than not, you may receive another Boot Plus before you spend your previous Boot Plus. As a result, you will end up building even more wealth while you enjoy your life further.

If you always tether spending to investment performance, you will forever be a disciplined spender. As a result, you will also likely never get into financial trouble either. Here’s to spending our fortune responsibly!

Related posts on spending:

How Much Savings You Should Accumulate By Age

The 10X Investment Consumption Rule To Fix Bad Spending

Readers, what do you think of The Boot and The Boot Plus method for spending money more freely? Do you have any smart spending rules that tie into investment or wealth gains? How do you overcome the guilt of spending more money?

For more nuanced personal finance content, join 50,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. Everything is written based off firsthand experience. 

Revenge Spend Time! Spending Money To Get Back At Life

Updated: 06/24/2022 by Financial Samurai 63 Comments

If there is one time to have money and spend money, it’s during a pandemic. Money should help make difficult times more bearable. If you can’t afford to spend extra money during a pandemic, then you can always revenge spend once the pandemic is over.

Revenge spending is a way to make up for tougher times since the lockdowns began in early 2020. Further, revenge spending may help you feel better about politicians locking you and your business down while they still get paid with benefits.

However, perhaps not everybody should revenge spend. Let’s go through some criteria that should probably be met before splurging. Perhaps meeting at least three of the criteria before revenge spending is the responsible thing to do.

Reasons To Revenge Spend

  • Didn’t leave your house to do anything fun for more than six months
  • Didn’t visit friends or relatives for more than six months
  • Held onto your investments through the worst of the crisis
  • Added more to your investments during the worst of the crisis
  • Juggled work and parental duties full-time for more than 10 months
  • Held onto your job for the duration of the pandemic
  • Kept maxing out your 401(k) and saving 20%+ of your after-tax income
  • Started a new project or side hustle that is making money
  • Finally launched your own website that cannot be shut down by the government during a pandemic
  • Improved relationships with your immediate family members
  • Worked as a frontline worker during the entire pandemic
  • Showed empathy and kindness to others with your time and money
  • Didn’t catch COVID or give anyone COVID
  • You have a multi-bagger investment gain
  • You smartly took advantage of record-low mortgage rates and refinanced.

Reasons Not To Revenge Spend

  • Got COVID-19 and spread the virus to others
  • Refused to wear a mask and respect other people in public places
  • Didn’t take up any hobbies or start any side hustles
  • Stopped working on your website or side hustle during the pandemic
  • Decided to quit your job instead of negotiate a severance when negotiating a severance has never been easier
  • Made no improvements in any areas of your life
  • Gained more than 5% of your body weight

Personally, I’d rather revenge spend after making more money or doing something good. This way, spending money feels more rewarding.

However, for those of you who are pissed off that your personal liberties were taken away for so long, revenge spending is one way to make yourself feel better as well.

Why You Should Revenge Spend More Money

The pandemic reminded us about three things:

1) Tomorrow is not guaranteed. We better make the most out of each day for today could be our last. The YOLO Economy is going to be amazing as people live it up more.

2) To make money, it’s better to be an asset-owner than a laborer. With risk assets surging to all-time highs and service economy jobs still way down, there has never been a more clear reason to be an investor.

3) Consumption smoothing is difficult. For the investment-minded individual (that’s you), during times of uncertainty, you tend to hoard money and not spend. You then tend to keep aggressively saving long after the worst has passed.

During good times, you then tell yourself to save for the impending bad times, which is still fresh in your memory. The cycle repeats until you are left with more money than you need. This is great if you are following the Legacy retirement philosophy. However, there comes a point where you are saving way too much.

Of course, if you are struggling to make ends meet, please do not revenge spend. But for those of you who’ve been able to maintain or grow your net worth during the pandemic, a session of revenge spending is encouraged. Otherwise, there really is no point working so hard and saving so much.

Hoarding Massive Wealth Is Stupid

Imagine being worth $100 million. Would you bother continuing to work at a job you hate? Heck no! Yet, I know guys who do just that because they want to be billionaires. They think they won’t be happy until they achieve such a milestone. Nuts!

Because of their inability to consumption smooth, upon death, they will likely have to pay at least $40 million in estate taxes to the federal government.

Sure, they could set up a GRAT and other things to try and reduce their estate’s tax liability. However, at their net worth trajectory, paying a lot of estate taxes is an inevitability.

It would be much better if they spent the money or gave it away while they lived. The same goes for all of us.

Spend To Conquer A Scarcity Mindset

Revenge spending is an exercise to help break the scarcity mindset. One of the reasons why we save during bad times and good times is because we consistently fear bad times will come again.

I have been diligently saving 50% – 75% of my after-tax income since 2000 because I saw so many people get let go during the 2000 dotcom collapse. Then came the 9/11 terrorist attack. Then the 2008-2009 financial crisis really knocked us out for several years. And now, of course, it’s the global pandemic.

Shoot. I don’t even have a job and I’m still worried about a job loss!

As a father, my mind is always wondering: What else bad is going to happen next?!

Unexpected bad things can and will happen. As a result, I bet there will be a whole new generation of money hoarders for years to come.

The longer you live, the more good things will happen to you. Unfortunately, the longer you live, the more bad things will happen to you too. We tend to remember the bad events more than the good events.

Don’t let the global pandemic permanently lower your standard of living for the rest of your life. Course correct through revenge spending.

If we can’t spend money during bad times to make our lives better and we can’t spend money once the bad times are over, then when can we ever spend money?

Revenge spending helps break the scarcity mindset cycle.

Determining How Much To Revenge Spend

Let’s say you’re used to being frugal for years. Instead of going on a multi-year-long revenge spending binge where you often find yourself passed out in a luxury suite in Vegas, start small and revenge spend your way up.

Starting small can include revenge spending for just a week or only during holiday sales. Starting small can also include revenge spending on lower-ticket items first. I suggest you do both.

The idea is to slowly cure your frugality disease or money guilt by changing your habits one little step at a time.

I’ve suggested a good spending ratio of 2:1. In other words, spend $2 on something beneficial, like an investment for every $1 you spend on a splurge.

Responsible Methods To Revenge Spend

Another way to revenge spend is to follow my 10X Investment Consumption Rule. The rule states that if you want the latest $1,000 iPhone, then you best make at least a $10,000 return on an investment to pay for that unnecessary item.

However, the 10X Investment Consumption rule is also born out of a scarcity mindset. It often takes a very long time to earn 10X more than the cost of an item you want to buy.

Perhaps the most responsible way to revenge spend is to take 10% of your annual investment returns and blow it on whatever you want. This way, you’ve still got 90% of your investments hopefully working for you. You’re also not paying a lot of taxes and you’re rebalancing your portfolio.

If you tether consumption to investment returns you will never go broke. You will also likely eradicate any money guilt you have for spending money.



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Fun Frugal Toys You Can Make At Home For Kids Of All Ages

Updated: 01/01/2021 by Samurai Sydney 13 Comments

When I was growing up, our house was always pretty neat because I hardly had any toys. For example, I had no lego blocks for my parents to accidentally step on. My parents would only get me a present once a year. And that something was usually an action figure, not something expensive like a Gameboy. Going over to a friend’s house to play Nintendo was a treat.

Being frugal is in my blood. Until this day, I still wear track pants and shirts with obvious holes. Even when my tennis and softball buddies make fun of me for looking so raggedy, I relish their ridicule before I crush them. Being reminded about my upbringing makes me better appreciate what I have today.

With many parents looking to save money during this difficult period, I want to share some fun frugal toys my wife came up with for toddlers and kids with imagination. Take it away Sydney!



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How Rich Must You Be To Dine At French Laundry Like Gavin Newsom?

Updated: 01/04/2022 by Financial Samurai 61 Comments

Since 2007, the Michelin Guide has awarded The French Laundry their highest rating of three stars. Unless you’re really rich or a politician, you will likely have to wait months to get a reservation at this Yountville, California restaurant in Napa Valley.

Deca-millionaire California Governor Gavin Newsom and his wife were spotted having an opulent dinner with California Medical Association officials in mid-November. The 12 of them were all sitting in close quarters indoors without masks, which is against what Newsom has been encouraging Californians to do.

How Rich Must You Be To Dine At French Laundry Like Gavin Newsom?
Source: Fox 11, Gavin Newsom with CMA officials

As a Financial Samurai, you know the rules are different for politicians and the rest of us. There are folks out there who learn how to befriend more politicians so they can do what they want. Therefore, none of us should be surprised or angry at the hypocrisy. After all, it is the people who give politicians power by voting.

Instead of getting upset, think about the bright side.

Perhaps Newsom and his rich and powerful friends know something we don’t? Maybe COVID-19 isn’t as deadly as they are making it out to be. Or maybe they secretly got vaccinated already since that’s what politicians tend to do, take care of themselves first.

If these things weren’t true, Gavin and his wife wouldn’t have risked dining with the glass doors closed with multiple households, especially since they still have young children. Politicians also wouldn’t sing the virtues of a public school education while sending their kids to private school.

But enough about Gavin’s actions. Let’s talk about the cost of The French Laundry and how rich one must be to dine at similar types of restaurants!



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