Over the years, many readers have asked, “What does it take to become a Financial Samurai? Do you have a set of core principles to follow?”
I resisted putting anything formal together because to do so felt a little bit arrogant and presumptuous. But after 13 years of running Financial Samurai and having over 1,000 people ask me the same thing, it would now be wrong not to.
Now that I'm a father, I regularly think about how to ensure taking care of my son and wife if I were to die prematurely. In addition to creating a will, buying life insurance, and setting up a revocable living trust, it's a good idea to expand Financial Samurai so that somebody can take over or contribute to the platform regularly once I'm gone.
Financial Samurai is not just me. Financial Samurai is a way of life. To be a Financial Samurai is to be someone who follows these five principles.
The Core Principles Of Financial Samurai
1) Never fail due to a lack of effort because effort requires no skill. You can fail because of superior competition, bad luck, or poor execution, but you cannot fail because you didn't try your best. When you look back on your life, your biggest regrets will be the things you didn't do and the things you half-assed. Get on that 6am bus!
2) Always maintain an abundance mindset instead of a scarcity mindset. There are trillions of dollars in the world for the taking. There is no reason why you can't build your own fortune. Focus on wealth creation through investing and entrepreneurship rather than just being frugal. There is only so much you can save and an endless amount you can make. Create your own opportunity!
3) Depend on no one but yourself to succeed. Nobody will save you, so you must save yourself. The world can be a very difficult place. We will inevitably face hardships along our path to financial independence. Most people are too busy fighting their own fires to help fight yours. By accepting that nobody will bail us out, we will end up doing our best work because we have no other choice.
4) Know that you only deserve what you have earned. There is no better feeling than working hard for your success. Pity the people who have everything given to them. Let go of your need to compare. You will never fully know how hard they tried or didn't try to achieve their results. Eradicate entitlement. This is a core principle of the Financial Samurai.
5) Always give without asking for anything in return. Give your time. Give your money and your kindness to those in need. You never know what someone is going through, so keep your judgement locked away. Constantly smile and you will find that strangers will smile right back. Eventually, people can't help but want to help you succeed.
By embracing these core principles, you will adopt the way of the Financial Samurai.
Specific Goals Of The Financial Samurai
1) Save until it hurts every month. If the amount of money you're saving each month doesn't hurt, you are not saving enough. Once your savings amount stops hurting, it's time to save a little more. Ideally, you’ll eventually save 50% or more of your after-tax income. Your mission is to then invest the majority of your savings in risk-appropriate asset classes.
2) Always max out all pre-tax retirement accounts. There is no excuse not to take full advantage of tax-advantageous vehicles. You will adjust to your paycheck. Tax is your greatest ongoing liability. Your goal is to defer and minimize taxes for as long as possible.
3) Build a net worth equal to at least 10X, and ideally 20X or greater than your average gross income. Once you have built a net worth of such magnitude, you will finally feel true financial freedom. Your average gross income over your career should come close to your steady state income where you are living a comfortable life.
4) Generate a passive income stream that covers 100% of your best life expenses. True financial freedom can also be attained when all your expenses are covered, whether your net worth is 20x your annual gross income or not. To create such levels of passive income requires the aggressive accumulation of after-tax investments beyond your 401(k) and IRA.
5) Never quit, get laid off. When it's time to finally leave your job, negotiate a severance instead of quitting. If you quit, you are not eligible for unemployment benefits, WARN Act pay, a severance, or subsidized healthcare. Given pensions are becoming rarer, you must create your own pension. The abundance mindset is key to achieving a successful negotiation.
6) Live a life of purpose as soon as possible. Financial Samurais do not just sit passively and let life beat them up. Instead, they take action to make life better, no matter how uncomfortable the path. No job is worth doing if you don't give it at least a 7 out of 10. Take career risks. Start a business on the side. Constantly be exploring new opportunities. Never settle.
7) Work while others are playing. Instead of watching sports all weekend, use that time to do something productive. Instead of sleeping in until 7am, wake up an hour early to build your business.
Use vacation time to work on your education and big goals. If you can consistently work while others are playing, one day you might never have to work again.
8) Empower those who are struggling or feel forgotten. In every city and town across the world, there is someone who needs a helping hand. Roughly 20% of people have disabilities that makes their lives a little to a lot more difficult.
Despite being one of the wealthiest nations on Earth, the poverty rate in the US is still between 11 – 15%. A Financial Samurai does not turn a blind eye, but instead finds ways to help every single week.
9) Fight ego by practicing Stealth Wealth. It's only natural to want to shout from the rooftops how much you make, how much you are worth, and how successful you are. Instead, do so in moderation, preferably only when explaining a situation to help someone else.
Never fully reveal the full extent of your wealth or success, no matter how big or small it is. You will only make others feel bad and attract unwanted negativity by overly boasting about your wealth.
10) Never confuse brains with a bull market. Always differentiate between luck and skill. In a long bull market, it's easy to think you are the greatest investor on Earth. In a bear market, it's easy to think yourself a fool and discredit all your hard work. The luckier you are, the harder you should work and give back. Eventually, your luck will turn, so you will need to be prepared. Here's a bear market checklist to help you prepare for an eventual downturn.
11) Practice predicting the future. Avoid letting your mind ossify through years of mundane thought. Instead, spend at least an hour every month thinking about future trends in demographics, technology, labor, health, work, and life. If you can properly forecast your misery, you will be happier because you'll do things before such misery comes to change. If you can correctly identify a multi-decade trend, then you will invest more confidently and gain a tremendous amount of wealth in the process.
12) Create a perpetual giving machine. Establish something that will keep on giving long after you are gone. Perhaps it is by creating an archive of podcasts for your daughter and her daughters to listen to. Perhaps it is by creating a scholarship fund at your school. Or maybe you are willing to open up in an article about a personal difficulty that can help others overcome their own grief. Giving is the most pure form of joy you will ever experience.
Never Stop Learning
Thank you to the millions of readers since 2009 who've shared their opinions and allowed Financial Samurai to grow and evolve. These core principles are important for getting wealthy. We'll continue to explore different topics of interest. We'll continue to view different opinions with open minds.
Financial Samurai is a way of life, not a level you finally attain. I cannot be more excited to see where the next 10 years takes us!
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This is an amazing article.. Thank you for sharing with us.
I’ve been listening to your podcast for several months now & I really enjoy the content & your style of delivery. Even though I find much of your advice unrealistic for the average American (you are NOT average!) I really like your core principles & find them to be something I can really strive to achieve or practice in my own life. I’m 50 and like many others my age are frantically trying to play “catch up”. For me I think moving abroad may be the more advantageous route as I see the US becoming more expensive & impossibly PC by the year. PLEASE keep up the great work & i hope you continue FS for many years!!!!
My first article on your site and I must say, awesome stuff. Especially your comments life insurance, estate plan, living will and as required an irrevocable trust. Estate tax is no biggie for Americans, but foreigners are taxed on all US SITUS assets > 60k if they have no QDOT Trust. Having a Life Insurance Trust (no tax and/or probate) also makes great sense. Only inflation in the things we need (like legal), but I paid about $4k for this work 15 years ago and maybe $2k for tweaks as I’ve moved country twice since, but people miss the forest for the trees sometimes. i.e. They worry if their fund / ETF beats peers or the S&P but forget about the big picture. I bought a 2mm term life policy in my mid 40’s for $1,600/yr. 7 years to run, but has given me a lot of piece of mind. Estate taxes are high, 40% plus if ensnarled. Plan accordingly. Your family depends on it. Keep up the good work. JCG
Spot on mate! Another awesome article. Alos remember, even though this is about financial freedom, it’s not money that makes you wealthy, but realizing how lucky you are and how much worse it could be. Everyday is a gift or a curse; you decide. ;-)
After I’ve reached a fund having 20x gross income what now? Do I continue to be frugal? I’ve been saving 50-65% of my income for 10 years. My friends joke that I will die with my money.. I think balance is important but saving this much has got me to where I am today and I am happy and I feel somewhat free. Should I dial down my savings now? Any advice on what to do next would be appreciated!!
Incredible list! Thanks!
Sam, long time reader of FS. Love your writing and advice but I have to say, this is one of your best! Great job and THANK you.
I appreciate the love Vince! Thanks for reading and sharing my work.
Do you think there is a certain age/life-event/criteria where one should focus on contributing more to after-tax accounts and scale back on pre-tax contributions?
Very interesting thoughts. Couldn’t agree more that saving is one of the most crucial steps to achieve your financial goal. Saving money alone may not get you there but it would be the first step before you start to grow your money. While contemplating some of these ideas whether or not these are effective but personally I feel that developing a mindset with a better money decisions making is certainly more important.
Thank you Sam – your newsletter is one of very few that I actually read.
The Financial Samurai is indeed a way of life, a code of conduct – that lives on in our martial hearts regardless of the internet, but am glad to know you’re thinking about legacy and lineage.
There is a very diverse audience of souls out here greatly benefited by your musings, insights, analyses, provocations, and collaborative kindnesses! Some of us are part of the 48% of Americans considered ‘low income’ but above the poverty line, some with varying degrees of abundance/scarcity thinking – all of us with limited lifespans!
In my financial journey of taking asymmetrical leaps in post-traumatic growth and towards creation of humble stealth wealth – regular giving of time/funds does indeed multiply my pure joy, a priceless treasure of meaningfulness – which often makes me feel wealthier than I am on paper. There are ancient life secrets here in the FS blog for the benefit of all beings.
You hit the nail on the head, Sam, as usual. Looking back, I probably followed only about 6-7 of these 12 core principles and yet ended up being FI. Proof that you don’t have bat 1.0 in following these principles, even 0.5 would be adequate. You have crystallized the essence of what it takes to be FI!
Thank you Sam for posting this, excellent read. I can’t speak for everyone, but sometimes I forget the core principles and reside in the realm of our daily grind without looking up and questioning, “What am I doing all this for?”
#4, 7, and 10 ring very true to me and I feel as if in my own life, they are intertwined. While reading your blog for a few years now, I know that passive income and the path to financial independence is a cornerstone of your beliefs. It did not happen overnight for you and I don’t think it comes that easy for anyone, takes some grit and ingenuity. I love #10 because I have fell victim to “unrealized hubris”, looking at my equity investment accounts or IRA’s and looking at my unrealized gains and thinking how smart I am. I haven’t even realized a gain yet! Reading this is a reminder as you said that you cannot stop learning and searching for new opportunities, every well dries at some point.
Thank you for your contribution and the inspiration you have given me to start my own blog about FI. More of a way to document my journey, give advice where I have some knowledge, and take some advice where I need it.
Hi. Great great blog amongst the many on this topic. I am on my way myself to freedom, but i will ask one thing: When you say save at least 20x your income. Where in that math does your downpaid house go? I am today at about only 6x annualy net income, but if you use the numbers that we spend instead of what we earn, we are at more like 10x annually spending, but if you calculate in the downpaid house, we’re at around 18-20times what we spend. But is the house in the calculation?? For. Me its about half the net worth. The spending also has a lot of downsizing potential.
Absolutely nailed it. I am saving this in my evernote and re-read all the time.
I have scarcity mindset a bit, i always look for risks and afraid to take action because of that. how much should I risk it? and how to balance abundance vs scarcity mindset?
Why should you be frugal and save a lot if you have abundance mindset? u can always think i have the ability to make it big and i can work hard? that is the point i am always confused?
Really liked this post all relevant and good habits. To the point but enough detail to take it home with you. Good post Sam!
Sam:
Been a fan of your website, emails and podcasts for years now. This is easily one of your top 3 posts! I’m going to print it out and laminate it!! (LOL!) My favorite one is the “stealth wealth”…stay off the radar with your financial success, but do use it to make the world a better place! Keep up the great work Sam! You have improved my family’s lives more than you will ever know!
Thanks for sharing your core principles. I really do believe that nobody deserves anything until they earned it. There’s just too much entitlement going on or people want to go straight to the corner office or be financially independent without putting in the work.
I also like the objective of working while others are playing. It is amazing how much a little bit of effort during the off time can buy you so much freedom in the future.
“Build a net worth equal to 20X or greater than your average gross income.”
Do you factor the value of a pension into this. For example, what would 60% of gross income pension do to the 20X figure? Make it less I assume?
Sam, I really like these and they have been coming through your writing for years. I particularly like the “work while others are playing” and “stealth wealth” principles. I have laid out similar principles for people to “be net worthy” on my site, but they’re much more straightforward/factual. I like the swagger in yours!
All 5 core principles are perfect. They are the principles that helped me survive a ten year prison sentence for a drug-related conviction in 2002, and then build a $300K portfolio in six years when I was released in 2012. Some good fortune and awesome friends did help me when I was released from prison, but these were the underlying principles that put me in a position to consistently get lucky and attract positive, successful, helpful people as my new friends.
#3 was my personal favorite: Don’t depend on anyone else. I remember experiencing this revelation during my first week in jail when I was 21 years old. While sitting in my jail cell, I suddenly realized, the only person that could keep my sanity, health, and motivation together was me. It didn’t matter who my family was, what race I was, or what neighborhood I grew up in: I was going to have to save myself, and that was the revelation that inspired me to work my butt and try my hardest for my second chance. Great core principles. Don’t depend on anyone else. You are the only one who can achieve your dreams. Do, or do not, the choices and end results are always up to us.
These are great tenets to live by. I’m thankful you put these down on paper (or screen) and have socialized them to your readers. I can only imagine the amount of time and consideration you put into writing these.
Many of these are aspirational but great for guiding us in a positive direction. I think the biggest change I’ve made to align with these principles has been the change in mindset that I’m not entitled to anything unless I’ve worked hard to earn it.
It can be very easy to see others’ material success and think life isn’t fair, but as you say, you don’t know their entire history. You don’t know how they came about their wealth. You don’t know how hard they tried or didn’t try to achieve their results. I completely agree with your notion to eradicate entitlement.
Only once you look past others and only worry about what you can control will you find your happiness. It’s your life to live. So why not find your own happiness instead of being jealous of others’?
I love this post! Thank you for publishing it. I love everything on your list. I’ve incorporated so many of them into lifestyle. “Always maintain an abundance mindset instead of a scarcity mindset.” – This was a game changer for me. I grew up with a scarcity mindset and kept this in my career for a long time. Eventually I started to see the stubbornness of the scarcity mindset and things really started changing for the better. These are my favorite of the goals:
Never quit, get laid off – Before I read your book, I thought this was a crazy idea and there was absolutely no way I could ever manage to do it. After reading it, I became a believer and with a lot of prep and patience I managed to do it myself! Totally changed my life.
Work while others are playing – I used to clock in to work, clock out and go home to watch 5-6 hours of TV each day. What a ton of time I wasted doing that! I had fun watching TV but I could have done so much more. Eventually I broke my TV addiction and started side hustling. It really brought me to life. I grew to appreciate my time so much more, and was able to build a plan to FIRE.
Fight ego by practicing Stealth Wealth – I’ve never been one to draw attention to myself. And I haven’t let money change that. Although I have more money than when I was in my 20s, my wardrobe and overall lifestyle hasn’t changed much. I don’t have any desire for designer clothing or luxury goods. I prefer to spend money on experiences, education for my son, and building my investment accounts.
Would you exclude equity in your personal residence from the 20x net worth of your gross income calculation?
You can’t actually realize it unless and until you are willing to sell.
Thanks for a great share. This article produces a lot of great thoughtful feedback from others as a result.
As for “regularly think about how to ensure taking care of my son and wife if I were to die prematurely”, aggressively and actively focusing on the top line can help alleviate some of those thoughts.
Then again with lots of millennial friends becoming new parents now that’s pretty much every parent’s biggest underlying fear I find. That’s always been true since the dawn of time.
Have a great weekend!
Hi Sam,
Referring to your quote
“3) Build a net worth equal to 20X or greater than your average gross income. Once you have built a net worth of such magnitude, you will finally feel true financial freedom.”
Based on your perspective
For the average gross income, does this mean the average gross income over the years? An example, when one individual work for two years in his/her career, he/she earn $50,000 and $60,000 in the first and second year respectively, the gross annual income will be $55,000.
For the networth, does this also include the fund which can only be withdrawn after the retirement age, in addition to the fund which the individual can utilise at any time?
WTK
Shoot for 20X your average gross income you’ve been happy living off of. It’s not 20X your highest gross income earning year. We basically get into a steady state of spending, saving, and investing based off an average income over the years. Hopefully many of us will earn much greater income over that steady state, but that extra cash flow just gets saved and invested.
I love the core principles. Definitely will help practically anyone live a successful live.
Thanks for sharing this Sam.
This is a post that should remain at the top of your website in perpetuity.
I especially love the “you only deserve what you earn” core principle. We try to do everything we can for our children and sometimes we feel that by taking care of their financial needs for life (ie. Trust fund baby) we are doing them a huge favor, but I believe it is a huge disservice.
How many times have we read or seen on TV about these spoiled brats who feel entitled to everything and have run ins with the law, etc. These kids becoming adults have no sense of the value of things or how a hard-earned dollar is made. That’s why they are reckless with their spending because they do not appreciate what it took to get that money.
This is the primary source of why generational wealth is lost by the 2nd and 3rd generations. I am trying to avoid this by instilling financial principles at an early age to my daughter (she’s 12).
Never fail because of lack of effort is also an impactful point. If you did commit and put in the effort and still fail there is still great lessons to be learned from it and you can proceed with subsequent endeavors with knowledge gained. If you fail because you just dialed it in, you are settling and setting yourself up for future failure.
Twenty times my average gross income might be a little too rich for my blood because it would put me in the multi-decamillionaire status. That’s way more than I possible need (honestly I think a 4-5 million dollar networth for me would suffice to provide a wonderful lifestyle as I am in a LCOL area).
I probably have passive income already sufficient for basic life needs, but like you I would like to up that amount (and currently investing in stuff to accomplish this eventually) where it would be sufficient for a wonderful lifestyle on its own.
I agree about not just gifting exorbitant sums of money to your children. The best gift you can give as a parent is living in a way that demonstrates the principles you want your children to live by.
Don’t only give material gifts. Instead, give them a good head on their shoulders so they can use it to provide for themselves and live the best life they can. They must earn this success truly to appreciate it.
I think you guys, let alone the Samurai are dead on. I love reading these posts as they are like the sound of my high school track coach urging me on. For me, being frugal is a struggle. One might call me a recovering spender. I always had the saving tendencies, but I love to buy my toys.
Xrayvsn, though you tap into something that concerns me. My parents grew up in poverty in NYC as did one of my wife’s parents. Her other parent grew up in poverty in Ireland before coming to America in the 60s; his home had dirt floors and a thatch roof. My wife and I grew up with parents who did what they could but we still both grew up poor. We both grew up paycheck to paycheck most of the time. My wife and I have done much better than our parents, as they did compared to theirs. The American Dream does work, at least for our families, it has. We are more educated and more wealthy than our parents were at our age. The question is what to do next? How do we make sure our children learn the frugality of our parents. How do I prevent my son from forgetting the lessons of our parents as I did for a good 5 years? I hope by doing as much as possible around the house as I do, which he helps me with, will do the trick. As he gets older, he will get more and more chores. My greatest worry for him is that he will not know the value of hard work as my grandparents had and have tried to pass along.
Gen X fire, it is definitely a fine line between wanting to provide everything you can for your child yet teach them the value of money.
For me I drop my daughter off to school in the way to work and I use this “captive time” to discuss some financial topics that I didn’t learn until I was an adult.
One of the first lessons I told her was just because someone looks wealthy does not mean that they are. Told her it could all be borrowed money from loans and credit card and that they have put up a facade. She quickly understood that concept.
I then started teaching her my philosophy of how I want my money to work for me through passive income revenues.
I think in the past parents never discussed money with kids. I think to set them up you have to explain principles of finance early on and guide them with your example.
Whether or not it makes a big impact in the future or not is up to her if she actually follows my advice. But as a parent all I can do is teach her. Up to her to incorporate it