The FIRST Step to Financial Freedom with Sam Dogen

Marie:
I got a question for you. Do you ever dream of creating financial security and even financial freedom for yourself and those you love? Then you do not want to miss this conversation. Here we go.

So, Sam, congratulations on your new book. I know I've got the galley copy here, which I always love getting galleys. And money is one of my favorite topics to talk about. And I've enjoyed reading your words so much. I love the notion of Buy This, Not That: How to Spend Your Way to Wealth and Freedom. So for those in the audience that might not be familiar with it, the FIRE movement, can you share a little bit about what FIRE actually stands for and how you became one of the folks at the forefront of it?

Sam:
So FIRE stands for Financial Independence Retire Early. But it's a little bit of a misnomer because I, myself think I'm a fake retiree because hey, these books and these articles don't write themselves, right? But I started writing about FIRE in 2009, because I was stuck at a day job that I didn't like. It was in finance, investment banking, 60 plus hours a week. And we had just gone through the financial crisis. Actually, I started Financial Samurai at the bottom of the financial crisis in July of 2009, because I just wanted to make sense of all the chaos. I had saved diligently. I had invested, I diversified my net worth and I still lost 35% of my net worth in six months. And so it was really a moment of reckoning for me. And instead of smoking or drinking to drown my sorrows, I decided to write. And it's just such a great catharsis. And so in 2012, after three years of writing on Financial Samurai, I decided to take the leap of faith.

Marie:
So take the leap of faith, meaning to leave your full-time job? Yes.

Sam:
Yeah. To leave my full-time job of 13 years. Yeah.

Marie:
Yes. Okay. So there's so much to unpack there. First of all, I started my career on Wall Street and that was my very first job out of college. And I just remember being surrounded by people that made so much money and I don't come from money. And I wanted to go into your background as well, because I know there's going to be so many people listening and watching right now and we're human beings, so we make instant judgements and we might be thinking like, "Oh, well, Sam, he's a super smart guy and he's got the right background." And you know what I mean? "Maybe he came from all this money, so he knew how to do this." So I'm wondering if we could actually step back a little bit for anyone who's listening and watching right now, who thinks about a notion of financial freedom. Who thinks about a notion of, "Oh my gosh, could I ever retire early?" And before we talk about your background, for people that say, they're not smart enough, or didn't come from the right background, what would you say to them?

Sam:
Well, I have one mantra that I go by and that is, never fail due to a lack of effort, because effort requires no skill. And what I mean by that is you can fail because the other person is, I don't know, genetically smarter than you. They have more connections, better luck, whatnot. But you can't fail, you shouldn't fail, because you didn't try hard enough. Because what happens is that you're going to look back on your life with the regret for having not done your best. And so it's almost like a regret minimization framework. And think about all the people, literally hundreds of millions, maybe billions of people who don't have the same opportunity we have here in the United States. You might be living in war-torn Ukraine, for example. If you don't do your best, if you don't try your best in whatever opportunity you have, it's really, I think unfortunate, because so many other people would really kill for that opportunity.

Marie:
Yeah. So tell us a little bit about your background and what your family teachings or your cultural teachings. What was your story about money before you became who you are today?

Sam:
So both my parents worked in the federal government in the US foreign service, and I grew up overseas in Asia mostly, as well as Zambia. And once, I remember in Malaysia, my dad took us out for this lunch. And the Malaysians have the best food ever. If you've ever had Malaysian food, it's definitely top three, I think in the world. And it's really inexpensive. And we're at a market. It was like a mamak stall, where we sit outside and the food is literally 20 cents, 50 cents. And I decided to order a drink and the drink was a dollar. And my father immediately said, "No, no, no, no, no. Don't order the drink, order water with a lemon, because that way it's free and it's better for you." And so that moment really stuck with me about frugality and saving.

And I saw my parents obviously throughout my entire adolescence. And when I was in high school, instead of buying a nice car, they bought an eight-year-old Camry. Instead of buying a nice house, they lived in a really modest townhome and they really focused on the saving part, the frugality part. And I think it's probably because of their generation, my grandparents were teachers. And so we never had that much money. We were comfortable, but frugality was very important for us.

Marie:
And did you have a notion of financial freedom, like when you started your career in finance?

Sam:
No.

Marie:
Was that ever a reality for you, Sam? Were you like, "Oh my gosh."

Sam:
No.

Marie:
No. Okay. Tell me about that.

Sam:
No, I would attribute getting that first job on Wall Street as maybe 70% luck. So I went to the college of William and Mary, which is a state school. I went there partially because I knew if I couldn't get a job out of college, I could work $4 an hour at my old McDonald's job to pay back my parents, the tuition. Which at the time was, it was like four to $6,000. And then of course there was living expenses. And so I was able to get a job on Wall Street after seven rounds and 55 interviews later. And it was so ridiculous, that I just have to laugh every time I think about it, because they just run you through the gauntlet. But after about the 30th interview, I was thinking to myself, "Okay, they don't hire me, I don't know what I'm going to do."

I mean, clearly I'm on the right track, but it was probably because I was just a fish out of water. I came from a non-target school. I didn't have the background they were looking for for the specific desk. So I bounced around all along. And when I finally got the job, I felt like I had won the lottery. And I think everybody should feel that way. If you land a job, feel blessed, because so many people have been competing for that job as well. And the funny thing was, I felt amazing, but the pay was actually not that great. The first-year pay was $40,000 salary in Manhattan, which is not a huge amount. And I had to live in a studio with another guy, because nobody would rent to me on a $40,000 salary in Manhattan.

And what I realized was, I had to get in at 5:30 AM, way before the traders and my bosses, and I often had to leave after 7:00 PM. So that's a crazy long day. And within the first month I knew, you know what, I need to save and invest as aggressively as possible because there's no way I could last multi-decades in this finance career like my parents did.

Marie:
Yeah. So you felt, and you knew early on that the pace and the intensity of that kind of work wasn't the kind of life that you wanted long term. Is that what I'm hearing?

Sam:
No, no, not at all. I mean, that's the irony of a really bad job or a really difficult job. The more painful it is, the more it forces you to think about your money, to think about your finances. For me, I realized that I needed to forecast my misery. I was already kind of miserable in the first year. So I knew that there was no way after the age of 40 that I could continue. I mean, I gained weight. I had plantar fasciitis. I had TMJ, which is like the stiffening in the jaw. I mean, I had all these physical ailments that really blossomed after taking this job. And so it really propelled me to start saving aggressively and investing smartly.

Marie:
Yeah. And super aggressively. I mean, that's one of the things that I love about your book. I think you have a quote and I'm probably paraphrasing, so you'll be able to correct it. But it's around the notion that if the amount you save isn't uncomfortable, you're not saving enough.

Sam:
Yes. If the amount of money you're saving each month isn't painful, you're not saving enough. If anybody has had braces, have you had braces before?

Marie:
Yes. 100%.

Sam:
Okay. Me too. Middle school braces, two, three years. My girlfriend didn't want to kiss me for a while because she thought her lips would get stuck. But you know that pain in your jaw, in your gums and sometimes you feel like your teeth are going to fall out. You need that pain to have your teeth change. And so it's the same thing with your money. You need to be really present with your money and you need to be really purposeful. And if you're just going about life every two weeks, every month, just spending your money, working, that's winging it. And 10 years from now, I'm pretty sure you're going to wonder where all your money went. It's kind of like if you ever go out in New York City in your 20s and you go out a night out of town, drinks, dinner with girlfriends, boyfriends and you come back and you're like, where, where did all my cash go? It was like out the window, just so quickly. So planning ahead is so important.

Marie:
So let's talk more about the FIRE movement. So, okay, you are at this job, you absolutely were forecasting your misery, you knew that you weren't going to last. Were there other writers and writings popping up online around that time about this notion of financial independence and a notion of retiring early? One of my dear friends is Tim Ferriss. And I remember when The 4-Hour Workweek came out. And it just started a conversation around just alternate ways of looking at life and work. And how we've kind of all bought into a notion that you work your entire life until let's say age 60 or 70. And he was like, "Well, wait a minute. Maybe not. Maybe let's look at this in a new way." So I'm curious for you as a writer, were you seeing other conversations pop up online and you're like, "Wow, this is a topic I'm really excited about. I want to dig in and start sharing my own journey."

Sam:
Yeah. So one of the catalysts for starting Financial Samurai in 2009, besides the financial crisis, was I didn't recognize anybody writing about personal finance with a finance background. It seemed like an obvious hole to fill. So I said, "Well, you know what? I work in finance. I went to business school, might as well share my thoughts and perspectives." And also I was really just dying from work and I was uninspired every day. Instead I was inspired to wake up at 5:00 AM and write on Financial Samurai and come back home after 8:00 PM and then write on Financial Samurai. So I was really motivated by that and not so much working in traditional finance. Back then, there was one blogger. His name was Jacob from Early Retirement Extreme. And he was also in the Bay Area. And his story was interesting because it was extreme.

He didn't have family and he lived on a boat and he lived off $8,000 a year. And so that was interesting, but that wasn't me, right. I didn't want to live on a boat on $8,000 a year. I was thinking at the time, I was 33 in 2011, maybe I'd like to propose or have a family one day. And I would like to live in a house with the plumbing and running water. And maybe I would like to return to Honolulu, Hawaii where my parents are, which is also an expensive city. And so I think, yeah, I just started sharing my story. And the funny thing is also with the book Buy This, Not That, I don't think there are a lot of people with finance backgrounds writing about personal finance books still. And so I thought, "Oh, okay, well, here's the opportunity."

Marie:
Yeah, absolutely. One of the things I really appreciate about you and respect about you is how transparent you are about your journey. So, you hear someone and your kind of, one of the claims to fame, right? Was like you were 34 and you walked away from it. You were 34 and you retired. And obviously, you walked through in the book, how you really planned this methodically. What was your passive income at that time? If you can remind me?

Sam:
It was about $80,000.

Marie:
Yeah. So you had this plan. Yeah. Keep going, please.

Sam:
So I just knew, I mean, 80,000 is a totally livable income stream in San Francisco. I mean, I had a big mortgage and I thought about kids, but I knew that worst case, I wouldn't starve on $80,000 a year. It's totally a fine income, even in San Francisco. But I had a plan because my girlfriend/wife is three years younger than me. And so I told her at age 34, I'm going to go on this crazy journey, escape right? Just give me some time to heal from all this grind of working finance. And in three years when you're 34, if everything's still cool with us, you too can escape as well. And so that's what happened. She escaped as well at 34. And just to further on this story, I went out first. So it was a hedge. I left first, she continued to work and she made money. She had health, I got on her health insurance plan, but we believe in equality. So at age 34, she left her job as well.

Marie:
That's so cool. And where I was going with this is, I love the fact that you write and speak about the negative side of retiring early and you've written and spoken about that a lot. And I'm wondering if you can share it with people. Because you know, you have conversations at a coffee house or over dinner. Like, "Oh my gosh, wouldn't it be great if I never had to work again or X, Y, or Z." But when you take that idea out of fantasy and you actually live it, it is a completely different experience. So Sam, what are some of the downsides of retiring early that people don't even think about.

Sam:
There's actually tremendous, tremendous amount of downsides, few people talk about. One is you go through an identity crisis, right? So you go to school, you work at your day job for 10, 20, 30, 40 years and suddenly you don't work and you're kind of a nobody. And people don't ask you for the things that they've been asking you for so long. People might not respect you because what are you going to say? You're just retired. You have no job, you have no status. So you will go through an identity crisis for an unknown period of time.

But the good thing is, everything is long-term rational. So you will naturally try to find those things that move you, that gives you purpose. So after about a year of retirement, it was actually true retirement at 34. I traveled a lot, I just wrote, I just kicked back. I started feeling empty inside. And when someone asked me, "Oh, what do I do?" I didn't want to say, "I just retired." I mean, it just sounded ridiculous. So instead I said, "I'm a writer. I write online and it brings me a lot of joy and purpose."

So be prepared for a tremendous amount of uncertainty and this weird feeling that you get when you no longer do something you're so used to. Other downsides, well, even though you might think you have enough money to live the life that you want, there are always uncertainties. As we know with the pandemic, like what's going on, are you kidding me? As you can know, with bull markets and bear markets, it's very dangerous to extrapolate your situation many, many, many years in the future. Because income can go away. Your business can take a hit. Anything can happen. You can get sick. So there is always this somewhat underlying uncertainty when you no longer have steady health insurance and a steady paycheck. But as you know, as an entrepreneur and as a writer yourself, it's really thrilling to try to create something from nothing. And I think a lot of times the fear in our heads is way worse than the reality. Unless it's death or unless it's something terrible, terrible, what we can do is we can learn from our mistakes and get better.

Marie:
Yeah. I love you also, when I was reading the article about the downsides. So many times, I think it's human nature to underestimate how important those little meetings are or those office parties or those get-togethers, or the fact that you have…

Sam:
Oh, I miss the holiday parties.

Marie:
Right? Or clients or vendors or different people where you're going to a conference or an event. And even now during the pandemic, which, by the way, I'm so excited. I've been going to more events in the past few months than I have in the past few years. And it's filled me up so much. Goodness, I'm so grateful. All the events, super safe, everyone did everything they needed to do. But I think so many times we can underestimate how powerful the social aspect of work is and shared collaboration, right? And even, I know for us and our business, life, and you write about this, it's a series of problems. We're always solving some kind of problem. And for me, some of the most meaningful and enriching and fulfilling experiences in my life come from solving problems with my team. So I just, I love that you highlight like, hey, this is not about retiring early and then everyone's running around, tossing daisies and sliding off of rainbows. It's like, no, there's like a whole psychological, emotional, creative, spiritual underbelly that is often not spoken of.

Sam:
Yes, absolutely. I mean the creative part is undeniable. Having purpose is also undeniable. I mean, for example, after doing some writing from about 6:00 AM to 8:00 AM, I have breakfast and I send my son to school. And it gives me a lot of purpose to drop him off and to see him just running into the playground, "Aaah." It's summer camp right now. And then I come back, I spent like a week literally painting a wall because I don't know, it just gave me purpose. I had to prime the wall. I had to wait for it to dry. The next day I looked forward to painting the first coat. And then the next day I looked forward to painting the next coat. And it was just these little wins that just give me a lot of purpose and you're absolutely right. We need to be doing something meaningful and we need to have connections.

Marie:
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I think, so for anyone listening, if you're like, "Hey guys, what are we talking about here?" I want to say this, this book, Buy This, Not That is so extraordinarily tactical and specific. And let me know if I've got this right, Sam. Part of the reason that you wrote this book is to help anyone start to take control of their financial present and their financial future. For folks who maybe think financial freedom is not a possibility for them, I would say that you would argue otherwise, is that right?

Sam:
I argue otherwise. A lot of people are intimidated by investing because they don't know what to do. A lot of people are intimidated by trying to achieve financial independence or starting a family or getting that raise or promotion or trying to negotiate their severance because they simply don't know what to do. And as we get older, a lot of times we learn by fire. We step on landmines, we hope they don't blow up too many limbs and we survive and we learn. And so the whole idea of Buy This, Not That, is to provide people with actionable ideas and a framework based on your age, based on your desires, to get to where you want to go. And not only is it about helping you achieve financial independence, it's about helping you make optimal decisions on some of life's biggest dilemmas, because at the end of the day, what's the point of having money? It's to live a better life. And so that's what I hope to accomplish with the book.

Marie:
And I love that. I want to go a little bit deeper on that. You say in the book, there are no wrong money choices or perfect money choices, only optimal and suboptimal. Can you say more about why this is such an important concept to embrace, especially for anyone listening, who feels that money and finances is just so overwhelming and so complex and that they would never have a chance to really get it right?

Sam:
Right. So I think one of the important things is for all of us to think in probabilities, not so much absolutes. So if you start thinking in absolutes, you end up missing out on a lot of opportunities. Absolute is you think there's 100% probability she will say yes, if I ask her out, otherwise I'm not going to ask because it's too scary. But imagine you were too scared to ask that person out in high school and 10 years down the road, you walk into him or her at a coffee shop and you catch up and you're wondering, how has life been? What have you been doing? And then you finally reveal to her or to him, "I really liked you in high school, but I never had the guts to ask you out." And then he or she says, "Oh my God. I liked you as well. How come you didn't ask me out?" I mean, think about that lost opportunity over the past 10 years, just because you felt you needed 100% certainty.

So the idea is to think in probabilities, not absolutes. And I use a 70/30 decision making framework. And the idea is that if you believe there's a 70% probability or greater that you're going to make the right choice, then go for it, while having the humility and understanding, knowing that you're going to get it wrong, but you're going to learn from your mistakes and get better. And so this is the 70/30 approach I use for investing, for deciding between public and private school, deciding where to live, where to take that job, and so forth.

Marie:
Financial freedom is a phrase that means so many different things to different people. And I love what you share in the book. You said it's both an offensive and a defensive position. Share more.

Sam:
So defensive position is you're frugal. You're saving. You're watching your dollars because they're very important to you. But offensive position is generating income, because income generation is unlimited. Especially as you know, as an entrepreneur, you could work yourself to death because there's unlimited amount of opportunity. And if you look at the wealthiest people in the world, the predominant majority of them are entrepreneurs. So the idea is to get your defense right. You know by default what your budget is, what you're spending, where you can cut, where you can optimize, but you can only save so much. It's very hard to save your way to financial freedom. Instead, after that's done, then really focus on the offense of building your wealth through income generation and investing.

Marie:
So I want to go now to just some of the tactical advice in your book. If someone listening or watching right now, let's say is struggling with debt, right? That was a place I was in early on in my life and I'm so happy to report I'm debt-free and I will never go back. Even if, and I know you mentioned this in the book, sometimes you could work with people and like, "Oh, well the interest rates are this low, the mortgage rate is here." And I'm like, "Nope."

Sam:
Keep it simple.

Marie:
I get the numbers. I know how to do math. And my psychological and emotional freedom is more important to me than those few percentage points. So is there anything you want to say to people who are like, but you know, "I've got debt and should I be saving for that rainy day fund?" Or just any top-line notes? Because I know you go in very deep in the book and it's a nuanced answer, but anything you want to say to people who feel stuck and afraid about which move they should make first. Debt, savings, rainy day, all that good stuff.

Sam:
Yeah. So debt can be used for the good or for the bad. And when we talk about bad debt, we talk about consumer debt. And consumer debt is usually put on credit cards to buy things that we really don't need. That's not going to help us achieve financial freedom or build wealth. And the thing is the average credit card interest rate is about 18% right now. And 18% is 8% higher than the average return on the S&P 500. And it's also much higher than the average return of Warren Buffet's portfolio over the past several decades. So if you are holding revolving credit card debt, basically you are enriching the lenders, greater than how wealthy Warren Buffet has become, based on his returns. And so it's really a mindset shift. Do you want to make yourself wealthy or do you want to make a lender wealthy?

So to approach debt, is to really look inside and think to yourself, "Do I really need those things now? Do I deserve those things now?" Because 100 years ago, we were paying for most of the things in cash, therefore we weren't getting into a lot of debt. And I know we all want to go straight to the corner office without putting in our due diligence. And that is what lenders have done. They've been able to tap into our desires, our FOMO, and to say, "Look, let's offer credit cards. Let's offer payday loans. Let's do, buy this, not that. Not buy this, not that, but buy now pay later." And so this really sucks people in to try to buy things that they can't truly afford. But let's say you're in that debt situation right now. You got to get right with yourself, understand your finances and you need to be offense and defense as well.

So I have this framework called the Financial Samurai Debt and Investment Ratio. And so the idea is every month you have cash flow coming in. Hopefully the cash flow is higher. If you, if your savings rate is higher. What you do is you take the interest rate on your debt. Let's say it's 6%. You multiply it by 10 to get 60%. So you take 60% of your monthly savings or cash flow and pay off that debt. And then you use the remaining 40% to invest or to save for a down payment or whatnot. So in this situation, you're always winning. You're always doing something positive and it's a logical framework. As that interest rate goes up, you pay down more debt. And once that interest rate gets to 10% and I use 10% because it's the average return on the S&P 500, since 1926, you should allocate 100% of that free cash flow to paying down that consumer debt. And so it's a long-time debate; pay down debt or invest? But that is the logical framework, no matter what environment you're in to follow.

Marie:
I like it. Very good. So if someone is like, this sounds amazing. Sam's super smart. Yes, financial freedom. Yes, financial stability. But what is the very first thing, besides getting your book, that a person should do? What would you say to them?

Sam:
So I would say you've got to list out your goals. I like reverse engineering things.

Marie:
Me too.

Sam:
So what is your goal? In your 20s it might be, I want to live in New York City and work at this firm. In your 30s, it might be, I want to get married and have one child, or you might want to have your primary residence. List out your target goals first, and then you can reverse engineer it back. Because you'll find that as soon as you write down your goals, you will take action to get there. You will figure it out.

Now you can wing it and not read anything, no books, listen to no podcast, watch nothing. Or you can write out your goals, identify the books that'll help you get to those goals. Because at the end of the day, there's a saying, "If I knew then what I know now, things would be so much better or different." The easiest way to never say that again, is to listen to someone who's been there or who's been there before and who can share his or her experiences, right? And so it's really getting into that community of writers, podcasters, people on TV. And so even if they're not talking about something that's exactly pertaining to you. Just their discussion, just their writing will help you think, even through osmosis, like what's going on, so you can plan ahead for your finances. Be in that community.

Marie:
Awesome, Sam. Anything else that you want to leave people with today before we wrap up?

Sam:
Wow. I would say be a creator. If you think about just everyday life, we're consuming so much information and I thank everyone for watching and thank you for having me on. But if you can switch a little bit from being a consumer to a creator, I think what'll happen is, you're going to test yourself. You're going to create things that you'll never realize that you had in you. Just think about all the times when you're in elementary school and they put you in all these classes where you have to draw and make claymation and all that. And then we lose it because we got to make money at a day job. Don't lose your creativity, I think. Because as soon as you lose your creativity, your soul dies a little bit inside. And when you look back on your life, I just don't want anybody to have any regrets. Go for the things that you want, obviously plan accordingly. And when it's a 70% probability or greater, I would say, take that leap of faith.

Marie:
Sam, thank you so much. Thanks for the work that you do and how committed you are to helping people become empowered around their money. It's a topic that I think we can never learn about enough. I am constantly learning and challenging myself to be better at it. And thank you for sharing so transparently and honestly about your continued journey on the Financial Samurai. Thank you.

Sam:
Thank you so much for having me.

Marie:
I hope that you enjoyed this conversation between Sam and myself, and I hope that you learned that it's never too late and there's always something that you can do to take control of your financial destiny and get on a higher and better path.

Until next time, stay on your game and keep going for your big dreams, because the world really does need that very special gift that only you have. Thank you so much for watching and listening and I will catch you next time.

Now, before you go, if you want to keep talking about money, go watch this next video. It's all about the six money mindset shifts that pay off huge. These are the habits that I personally used to not only feel abundant, but to act accordingly, watch it now.

You can totally break out of your scarcity mentality and create a shift in the energy around you, without moving to Greenland.