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Want to retire early and be financially independent, but don't know where to start?
Todd Tressider, The Financial Mentor, shows how you can create a path together!
Having a Mentor for Your Fi Journey
Just over a week ago, lotto fever was everywhere, I was picking up groceries. I believe for the first time the checkout lines were practically open while the customer service line was packed.
People were buying up tickets to have a chance at winning that huge pot.
On the news, reporters were interviewing different people, buying up tickets about their chances and plans for winning.
The psychology of playing the lotto is its own episode, but it really drove home to me how many people want to be financially independent.
This dream of working for some bigger purpose or for our own satisfaction instead of taking or keeping a job to just pay the bills is something many of us share.
While there are definitely circumstances that can stop us, there are many, many couples and families out there who could become financially independent.
Not saying they have perfect circumstances, but they have an opportunity to make it. And that's our focus today.
We have Todd Tresidder, founder of Financial Mentor, to help us out.
Unlike many personal finance experts, Todd was financially independent when he began writing.
He was able to retire at 35 because he followed the same principles and advice he gives on his site.
In this episode, we also get into:
- how to work together as a couple to become financially independent
- why so many budgets fail
- dispels some of the myths and misconceptions that can harm your finances
Hope you enjoy!
Resources to Become Financially Independent
If you two are looking to speed things up with financial independence, here are some resources to check out.
- Best Budget and Money Apps: Personal Capital, Tiller, Mint
- Jumpstart Your Marriage and Your Money
- 52 Weeks To Financial Freedom
- The Shockingly Simple Math Behind Early Retirement
- 12 Tips To Build Wealth For Early Retirement
- Financial Independence and Parenthood
Creating Your Own Path to Financial Independence
Elle Martinez:: Todd is not your usual personal finance writer. Many have documented their journey either starting when they're heavily in debt or when they've decided to begin building their own wealth taught though was financially independent.
When he began writing, he had retired at 35 because he followed the principles and advice that he gives on the financial mentor.
When you chat with him, it's apparent that he's knowledgeable and thoughtful.
He comes with a technical expertise degree in economics, hedge fund investment manager. But when he began his work guiding others to financial independence, he saw firsthand that he had to adjust a few things with his approach if he wanted to help clients.
Todd Tressider: So, you know, I came in to this with the financial expertise. And that's what brought me where I was.
I didn't understand the personal skills I brought to the equation until I started coaching others on the same subject and trying to help people achieve the same results. You know, I started out with the same false beliefs everybody else has, which is, you know, if you just show somebody how to do it, they'll do it.
Yeah, it doesn't work that way. You know? I mean, people aren't computers and you don't just program them, given certain skills and everything. It's, there's a personal aspect to wealth building. That's every bit as important, if not more important than the financial or technical side. And so that was the real learning for me, was developing all the skills on the personal side to coach people to consistent success.
And then that's ultimately what I integrated into that seven steps to seven figures program was. Each layer has, as I figured out through coaching people real time to help them get the results I figured out well, here's the personal part of this layer. Here's the financial part. And I just started breaking it down in these segments so people can learn the pieces they need to learn.
Elle Martinez: We've discussed on this podcast, how vital it is for couples to be on the same page with their finances.
Todd mentioned how one wife spent money as fast as her husband was making it.
She had no desire to change. She was buying stuff, even though they had more than enough, the end result, the two got a divorce.
The good news for you is that it's possible to work things out. In fact with some deliberate, honest, and open communication, the two of you can craft a plan together
Todd Tressider: more often. What I experienced those not fundamentally different goals because everybody wants security. Everybody wants freedom. Um, but what happens is people deep bring different levels of awareness.
And so what I have been able to do sometimes with couples is work with the couple. And act as kind of a third party and bring communication because I do work at PE with a variety of people at different levels of awareness, I can help them find the common ground. I can help integrate the two so that they can see that they actually do want the same things.
They might be using different language. They might be prioritizing slightly different. They might be bringing different skills, just trying to find that common ground and break the impasse.
Elle Martinez: It's not as easy as it sounds besides having long-term goals together, you probably have some more immediate and personal goals as well.
You have to find out what works best for you, and that can be difficult.
Todd Tressider: And what you find is there's conflicts. I mean, this is natural, right? It's not just cause the con the couples in conflict. There's conflicting goals. For scarce resources like money and time. Right? Cause that's all you're ever doing is allocating your money and time.
Right. Those are your scarce resources. And so there's naturally conflicts like you might, you might have, let's use a Starbucks coffee as an example. Okay. Uh, you have a goal of. Um, getting out of the house. Cause I don't know, I guess he worked from home. Right? Okay. So you have this goal of getting out of the house occasionally, cause you know, you feel cooped up and you just want to get down to the Starbucks and you can be amazingly proud of productive over a $5 cup of coffee for two hours.
Right? Cause it just gets you in a new environment. So you have a goal of getting a house, but you also have a financial freedom goal and let's face it. You know, it was 50 cents worth of coffee for a $5 cup of coffee. So it's not the highest and best value of the money, but the productivity that results from it, right.
Be the highest and best value. Right? And so you can go on and on with like layering in the goals. You might have a health goal. So consuming coffee is taking you towards your health goals and on and on and on, and you play these out. And at some point you come to terms with it. So like I had a client where an expensive gym membership absolutely fit our goals and absolutely was highest and best value for money.
Um, she did a lot of networking there. It allowed her to maintain your health goals in net, net. It put money in her pocket through the networking activities she did at the gym and it worked for it. Right. And so why move it? Another client gym membership was a complete waste of time, you know? So it's different for every person.
There's not a right wrong answer, but there's a right wrong answer for you as a couple. And that's the key is you. It's not that there's one right way to do this, but there's going to be one right way for that couple. And that's the job of the coach is to help them find that path that's going to work for them.
You know, so I, as the coach, I hold that, that higher perspective, if you will, the kind of the 30,000 foot, and then they're the ones down there in the forest, hacking away at the trees, taking the action and making things happen. But the principles are always the same. The principles are invaluable. Um, you know, they're built in the math of the way money compounds they're built into how investing works.
You know, there's certain principles that are inviolable. But the actual implementation varies dramatically from one couple to another.
Elle Martinez: You might be thinking that part of this path towards financial independence requires keeping a budget, specifically a very strict budget, no extra spending and no fun.
Then you might appreciate Todd's approach, which looks less at the numbers and more about awareness and understanding the value of what you're spending I
Todd Tressider: would start is with the personal objectives. Because if you really are clear on what you want, budgeting happens automatically. Um, like I don't even teach budgeting as an example, I teach a thing, I call the no budget budget, which is where I have a client track all their expenses.
So this is an awareness problem. Um, cause people are smart. If, if they understand how the puzzle pieces fit together, they will act accordingly. And so you just have to help them understand. And so. Like the no budget budget is basically you track every dime that goes to your pocket. Every paint goes through your pocket, both on the income and the expense side, and then you take it back together.
As a couple, you sit down, you know, hopefully over a nice bottle of wine and you make this fun. And every week you go through all the expenses and you asked two questions. One is, is this taking me toward my goals or away from my goals? Then the wording on this is exact, okay. It's is this taking me toward my goals or away from my goals?
And the second one is, is this getting us the highest and best value for our money? Now notice nowhere in there. Did I say, can we live without it? No, can we, can we substitute something else? Can we, can we be cheaper? Okay. Those are all going away from goals. They're all disciplined goals and nobody wants to be disciplined.
That's why budgets fails because you know, budgets are like a diet. They're enforcing you to do something you don't want to do. The key is getting your awareness to a point that you want it when you wanted, it requires no discipline because you're just going toward what you want. And so if you look at those two questions carefully, They're both going toward questions.
Let me repeat them again. So people can fall out. I'd give them a context. Is this taking me toward my goals or away from my goals? Is this getting me the highest and best value for my money? Notice that those are both going towards statements. They're positive statements. There's nothing disciplined about that.
They're just helping you increase your awareness. So if you go through every expenditure, Everything you're spending you start asking that what that does is that create some really interesting conversations between the couple around what is highest and best value to them. What are their goals?
Elle Martinez: And this awareness goes beyond budgets.
When we had Roger Whitney on the show, he mentioned how we all bring to the tables, strengths, and weaknesses being cognizant of them can allow us to shore them up in some way. Todd's observed how our strengths can actually be a weakness if we leave them unchecked. Yeah.
Todd Tressider: It's all personal, you know, and every person's going to be different, you know?
So I, in the seven steps to seven figures courses, I tell people they start where they want to because everybody has a different whole, like what you're good at. Necessarily defines what you're not good at. Like for example, use myself as an example. I'm a really good strategist. That's what makes me a good coach.
Right? I'm a very good strategist. Very good listener, very good communicator. Um, that gives me great power as a coach. Um, what I am not as great at is implementing I'm probably on a one to 10 scale. I would consider myself really high on the strategy and communication on the implementation. I'd give myself maybe a six, you know, maybe a 700 generous day.
And it's only because I'm very disciplined and persistent that I managed to pull it off. But the very things that make me really good at the one thing, make me not so good at others. So I've seen some people that are brilliant implementers, but they don't have the strategy and the persistence like I do.
They just go, go, go. And then the next bright, shiny object comes and they go, go, go, go, go. And then they jump over here and they jump over there. They're brilliant implementers. But boy, they need somebody like me to keep things on track, you know? And so we all bring different gifts to the equation and by definition, those gifts also become our weaknesses.
Um, there's no such thing as good or bad in any of it. It's just understanding how that all interplays
Elle Martinez: and that's where an objective third party can help you to out. Another benefit with seeking the financial expert is that they can provide clarification. There is a ton of information out there about finances.
And so many people claim to have the secrets of the wealthy it's easy and understandable to feel overwhelmed and confused on what steps you should take with your money. Becoming more knowledgeable, protects you from harmful yet common misconceptions,
Todd Tressider: because I, I try to make these distinctions between what I call first level understanding and second level understanding.
I think where we end up is it's not so much myths. But what we'll call simplistic half trues that become that first level of understanding or that conventional wisdom. So, I mean, my book, how much money do I need to retire? That book is all built around the myth of the number, the magic number, right? Like remember the ING commercials where everybody had the red number stamped on their head and they're walking around, they're retired, you know, I mean, that's a myth, right?
There's no such thing as a magic number because that number is just a mathematical projection of assumptions. And when you really understand what those assumptions are, there's essentially no chance that those assumptions are going to be valid. Um, and so how you go about retirement planning is completely different from how conventional wisdom teaches it and how it's practiced in most, most financial advisor offices.
So, I mean, that whole book was written based on that myth.
Elle Martinez: I've read how much do you need to retire? And I really enjoyed it. I think it highlighted Todd's strength, his curiosity. He goes over the fundamentals, so you know what to shoot for, but he also looks at that how and the why as well, I'll give you an example of his thoroughness.
Let's talk about another misunderstanding. People have average investment returns. I've seen people write about it and it's, it ranges anywhere from seven to 12 a year. On one hand. I see why presenting it this way. Could encourage more people to invest after all. If they believe they're getting a certain return, it feels safer, but those numbers don't reflect how the market actually works.
As you've probably seen either with the news or checking your own portfolios, it can fluctuate. For people who rely on average returns as their anchor, they can easily get discouraged or scared enough to take their money out when the market dips. And that can be a huge blow to their financial plans.
Todd, someone who prefers to look at the details to capture a clearer picture of what really happens. I
Todd Tressider: mean, there's no such thing as an average return, it's a statistical fiction. Um, the vast bulk of the returns never occur anywhere near the average and there's data on it. Something like. Again, I don't want to misquote the data cause it's not on the top of my head, but it's something like if you take all the year's returns and you plot them and you say, how many are between plus 16 and minus 16% in a year?
It's only about half of them. The other half are outside of that range, which means they're larger than a plus 16 year or worse than a minus 16% year. And so what it tells you is the average is the exception that volatility is the rule. And so when you start advocating this idea of an average return, it puts a myth in people's head going back to this idea of MIS that they're going to get this inexorable compounding at some average number.
And that they can rely on that. No, it's going to jump up and down all over the place. If you actually look at market returns in history, you'll see that there's these, you know, kind of 10 to 15 year periods and they vary, it could be seven years. It could be 20 years, but kind of these 10 to 15 year periods where the market more or less goes sideways.
It'll be up a lot down a lot, you know? So if you look at, from 2000 to current, we're recording this at the end of 2015. If you look from 2000 current, we're sitting on a 15 year period, this more or less a flat spot, it went up a bunch down, a bunch, a couple of different times and net net. The compound return is pretty minimal.
It's pretty much a flat spot for 15 years, that comes on the back. Of a 20 year fantastic return that just looks like climbing a ladder on the chart that went from like 1980 to 2000 before the top occurred. And that's the way the markets work. They go through fits and spurts of increasing valuations, right?
There's a general rise in market valuations where it looks like the market's just climbing a ladder and people get these amazing returns followed by these long periods of almost no return when you, when you net it all out. But there's a lot of volatility along the way. And that's, that's the nature of the beast.
That's the way it works.
Elle Martinez: While investing is a smart move. If you want to be financially independent, it's even smarter when you understand why you're investing in a certain way, but as deep and as detailed as finances can be, Todd brought it back to the fundamentals.
Todd Tressider: The financial stuff that actually works is pretty straightforward.
Um, the reason, you know, what you have to look at is the personal obstacles that keep you from walking the talk from implementing it
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