Jeremy Schneider (00:06:02):
And so then I kind of had this windfall of this money, and I wanted to be a good steward of that money and not basically blow it. And so I read every book I could get my hands on personal finance and started listening to podcasts, and YouTube, and learning everything I could. And I kind of realized that every classic book on investing said the exact same thing. And it’s a message that isn’t really getting to a lot of young people, we don’t teach it in schools.

Jeremy Schneider (00:06:23):
Money is kind of a taboo topic, we don’t talk about it a lot. And it’s something that I wake up every single day and I’m passionate about even though I don’t have a full-time job, that’s why I still get pumped about [it]. So basically, I started something called Personal Finance Club, which is a goal of basically helping young people learn about personal finance and investing. Most of the magic happens on Instagram, I kind of just make little bite-size infographics that help people learn about the stuff that we otherwise really aren’t teaching in schools.

Robert Leonard (00:06:49):
And the mission of Personal Finance Club aligns exactly with what we’re trying to do here, we’re trying to help people in that 22 to 40-ish range for ages to do exactly what you just said. It’s [to] be better with their money. What was the type of company that you started?

Jeremy Schneider (00:07:02):
It was called Rentlinx, it still exists, it’s still being run successfully by the company that bought it. And it was basically online rental housing advertising. So if you want to look for an apartment, you can go to Zillow or Craigslist, or apartments.com, or rentals.com or Apartment guide. And there are like 50 of these sites that are constantly changing and going in and out of business and becoming more and less popular.

Jeremy Schneider (00:07:22):
And so as a renter, you can go to any of those sites and search. But as a property manager, you have the challenge of how do I find an apartment? Or how do I post an apartment to all those different sites and consistently advertise it, keep my rents accurate, stuff like that.

Jeremy Schneider (00:07:34):
And so, I made a site where you could post once to Rentlinx and automatically advertise on 50 different apartment search sites and add a photo, description, rent, all stuff and it’s automatically updated.

Robert Leonard (00:07:45):
Very cool. Very cool. Why did you want to focus on your finances when you got that windfall of money? A lot of people listening to the show don’t necessarily have that windfall of money, of course, but they have their own money that they want to make sure that they’re good stewards with. What made you think of like, “I need to be smart with this before I make a lot of mistakes.” Because we’ve had guests on the show, I’m not sure if you’re familiar with him, but his name is James Altucher. And he sold his internet company not too long ago, I think he made about 10 million bucks. And he blew it all because he didn’t go about it the way you did. He didn’t say hey, I need to learn this stuff and not mess it up until he blew it.

Robert Leonard (00:08:17):
So, what made you be like, “Hey, I don’t want to do that.” And really learn this?

Jeremy Schneider (00:08:21):
That’s a good question. And I guess, first of all, I didn’t want to blow up my money. And I think a lot of it started with how I had been living my life up until that point. And so I think one of the big myths of wealth is that wealth looks like rappers, and football players, and people who are going to clubs and making it rain. And my wealth happened to come in kind of a similar way, where actually it did have a windfall all once, but that’s really not typical. And as an example, I was living that way before I made the big windfall too, which is when I was running my company, I never paid myself more than $36,000 a year. That was my max take-home salary ever. I was the lowest-paid employee at my company because I wanted to reinvest that money in the company.

Jeremy Schneider (00:09:00):
And still, I was on pace to be a millionaire, ignoring the value of the company just from my $36,000 take-home salary. And so the way I did that was by living below my means, I spent less than 36,000 a year. Some people live on 30,000 a year, some people live on 25,000 a year. So I basically decided to live on 31,000 a year more or less, and then contribute 5,000 or so years to a Roth IRA. So then at the age of 33, basically living just above the poverty line in Southern California, I live in San Diego, my net worth was about $150,000.

Jeremy Schneider (00:09:29):
And so, I was already living by the same strategies and plan that I currently live by which is to live, to spend less than I make, and invest the difference. And so when I had my windfall, that was just kind of like now on steroids, which was I had this big amount of money. And as someone who is disciplined and careful with my money before I wanted to make sure that I didn’t go crazy or something and blow it all because I have lost sense of the value of the dollar, or whatever. So I guess I want to make sure that people when I hear that I just like had this windfall, it took a lot of hard work, it took over 10 years. And even during that time, I was still living by these exact same rules to build wealth.

Robert Leonard (00:10:10):
What I think is great about that is, like you said, you were only paying yourself $36,000. And the windfall aside that relates to a lot of people listening to the show, a lot of people make between 36 and $50,000 a year. I mean, you live in Southern California, where it’s very expensive. I travel to San Diego frequently, and I know how expensive it is out there. So I mean, if you can do it, that just shows people that it can be done regardless of the kind of where you live and how much you make.

Jeremy Schneider (00:10:35):
I think a lot of people, they are kind of incredulous when they hear that. And the thing is like, it’s just a simple set of decisions. So when I sold my company, I was driving a 99 Ford Explorer, I had bought it five years earlier for $3,000 in cash. I actually did the math on this recently, just for those five years I’d drove this 99 Ford Explorer, my car payment was zero because I bought it in cash, my maintenance cost was about 50 bucks a month or so every year, something worth 500 bucks would go wrong. And if it gets fixed, it wasn’t that big of a deal.

Jeremy Schneider (00:11:04):
But over the course of those… And then I sold the car for 1500 bucks. So over the course of those five years, I actually owned it for six years. Because I owned it for another year after I was a millionaire, because it were still fine. My total monthly car cost was like 60 bucks a month or something like that when you count how much I paid for it, how much I sold it for, and then the maintenance cost is like 60 bucks a month.

Jeremy Schneider (00:11:24):
The average car payment in the US is over 500 bucks, and people who make $36,000 a year, very often have $500 a month car payments. And so when you just take that 440 bucks a month, I wasn’t spending on a brand new car and look at what it did in the market during those six years, it made $90,000. So in those six years from like, whatever it was, like 26 to 32, or whatever it was I made $90,000 from one decision of just deciding to drive a perfectly fine used car.

Jeremy Schneider (00:11:54):
And so when people are like, “Oh, I have kids,” or, “I don’t want to break down the freeway.” They make all these excuses, they are dating or whatever it is. They make all these excuses but the thing is like the car is fine. Once a year, I took it to the shop and they fix something. And that one little decision made me $90,000. For those five years, if you extrapolate that to every car you drive over the course of a career, it’s over a million dollars, if you extrapolate that to whether you decide to rent a fancy place or a little bit less fancy place, you decide to go on a fancy vacation or get an Airbnb. All these little decisions add up, and the net result is being a millionaire when you retire or being broke when you retire.

Robert Leonard (00:12:31):
Yeah, and towards the end of the show, we’re going to dive into this whole car and house conversation a little bit more. But it’s really fascinating. When I hear your story, I can’t help but think about you being the perfect example of the Millionaire Next Door that book by Thomas Stanley. It’s literally exactly everything they talk about in that book. And if people haven’t read that, I highly recommend you go and read that because I read that very early on for myself and I really liked that book. So definitely would highly recommend it.

Robert Leonard (00:12:57):
And so, in the Personal Finance Club, you talk about how there are three lifelong habits that are the bedrock on which you can build wealth and stay wealthy. What are those three lifelong habits? And why are they so important?

Jeremy Schneider (00:13:10):
Thanks, first of all for saying I’m like the Millionaire Next Door. It’s very flattering, and I think it also is a great book because I think it just kind of does burst those myths that it’s all rappers and football players, because that’s not what normal wealth looks like. And often those football players go broke because they don’t have high net worth. They have high spending and high spending doesn’t mean wealth, high spending just means burning your money.

Jeremy Schneider (00:13:30):
Yeah, the three habits. The first one is [to] know the Why. And when I say know the Why. W-H-Y. It’s like why do you care about money? Why are you doing this? And in my opinion, the Why is you want to be as happy as possible throughout the course of your life, and be able to help as much as possible. I think that’s kind of like why we’re here. And I think some people fall out of balance in one way or the other.

Jeremy Schneider (00:13:51):
One, they can spend too much when they’re young, they’re the “YOLOwers.” They’re like, “Oh, I don’t care when I’m old, I’m going spend it all now.” But the problem is, they’re actually less happy when they’re young because their conscience… If you’re broke every day you’re young, you’re stressed about money, you’re stressed about being broke, you’re stressed out about what you’re going to do in the future about money and so you’re not happier, but then that people can follow the balance the other way which is they lose all sight of living in the moment and having happiness and want to die with the most zeros in their bank account. And that doesn’t bring happiness either.

Jeremy Schneider (00:14:22):
And so it is kind of this balance which is you want to have your money, control of your money so you can live a happy life, you can be happy now because you have a plan, you can be happy later because your plan executed well and you’re wealthier. Yeah, number one is know the Why. Why are you doing this to be happy now and later?

Jeremy Schneider (00:14:39):
Number two is live below your means we kind of already talked about that, which is just spend less than you make. If you don’t do that you’ll always be broke, one minus one equals zero every single time. And number three is earn more money. So when you live below your means you can kind of increase that delta between how much you spend and how much you make. Two ways you can spend less or you can make more and that delta, that difference which you can then invest is basically how you build wealth. And those are the two ways to do it. You can spend less or you can make more. And the combination is to increase the amount you invest.

Robert Leonard (00:15:10):
You touched on a point there that I want to dive into a little bit deeper, because I actually get this exact question from people in the audience quite a bit, given that they’re a younger demographic, like I said, we’re about 20 to 35, probably on average, I get asked a lot, how do I balance enjoying life versus investing for the future? How do I decide do I forego x so that I can save for the future? Or do I just enjoy life a little bit now? And you touched on it there? But dive into that a little bit more for us. How can someone who’s a little bit younger have, I don’t know, 30, 40 years to retirement, how can they think about this dynamic?

Jeremy Schneider (00:15:44):
I think a lot of that uncertainty comes from the future being this black hole, which is I don’t know what’s going to happen in the future, I don’t know what my money is going to do in the future. And I think a great way to combat that is kind of two things; know where you are right now, it’s kind of knowing the score. And when I say know where you are, the first tip I always give people is to know your net worth, know how much money you actually are worth right now.

Jeremy Schneider (00:16:04):
And your net worth, if you don’t know is how much you own all of your assets, your bank accounts, your retirement accounts, your car, your house, minus everything you owe, your debts, your mortgage, your student loans, your credit card debt, your auto loan, and the difference, what you have minus what you owe, is your net worth. And so a lot of young people, especially if they’re buried in student loans you might have a negative net worth. And if you don’t know where you are, it’s impossible to even begin to understand where you need to be and what direction you need to go to get there.

Jeremy Schneider (00:16:33):
And so yeah, the first step is to know where you are. And then the second step is to basically do some projections and say, “Okay…” I’ll talk about this later is like, in my plan, is to have a plan. Say, “Okay, if I put away five bucks a month for the next 40 years, and I get a 7% return on that money, and my net worth is currently negative $50,000, where will I be in 40 years?” And spoiler alert, that’s not enough, you’re still going to be broken for two years.

Jeremy Schneider (00:16:56):
But I think a lot of young people don’t even do those two things. They don’t even know their net worth, and they don’t even look at what a plan would look like if they’re just investing regularly. And then when you don’t have those things, and you’re trying to balance, what are you trying to balance if you don’t even know? You don’t even know where you are, you don’t even know where you’re going. It’s such a really hard thing.

Jeremy Schneider (00:17:11):
But I think if you then if you do those two things, is you said, “Okay, if I put 400 bucks a month away, and if I pay off my debt in three years, I put 400 bucks a month away, at the age of 60, my net worth is going to be $2 million adjusted for inflation.” That’s pretty good. And then you can start to say, “Okay, what do I want more? Do I want to go to trips more now and push that retirement date till 61? Or would I rather buckled down harder four years and retire at 55 and get five years of my life back.”

Jeremy Schneider (00:17:37):
I know, like those ages sound like perfectly old when you’re 25, or whatever. But five years is a long time, you’re talking of five years of like additional not having to work that’s a pretty good thing to shoot for.

Robert Leonard (00:17:47):
And when you’re talking about calculating your net worth, I’ve heard a lot of people trying to get fancy with it, you include this, you don’t include that, you do include this. Do you just kind of keep it simple, everything you own asset-wise, minus everything you owe, and then just use that as your net worth, and not really make any adjustments for… Some people take out home equity in your primary residence and don’t count that, some people do. How do you think about that?

Jeremy Schneider (00:18:11):
I’m a simple guy. I think the reason that people are broke isn’t because they miss some nuance in their net worth calculation, or because they didn’t quite fully get the difference between a traditional and a Roth IRA. The reason people are broke is because they’re just spending more money than they make, and they’re not investing. And so for now, I want to keep it super simple. And I actually don’t even recommend using an app or downloading a thing, I think you should just open up a good old fashioned spreadsheet, if you want to get fancy, I mean, you can do it on paper, actually, when I was with somebody he just wrote it on paper, I was like, “That’s awesome.”

Jeremy Schneider (00:18:40):
But I use Google Sheets just so I can save it and look at it later. And then just make a list. Everything against your name. And I think just putting it all on paper is like this mind-clearing activity where you’re like, “Wow, it always seems floating around, I don’t really know what’s out there. I know I have an old bank account somewhere, I have a 401k to my company or student loans or all that stuff. You just put it down there, then you like it’s out of your head on paper. And then you can relax and see where you’re at.

Jeremy Schneider (00:19:05):
So yeah, keep it super simple. And then I think choosing to include your home equity or not, I just put it in there because I want to know what I’m really worth. And if I liquidate everything and sell my home and move into a tent with a big duffel bag full of cash, like how much is going to be in there? I think that’s kind of the best way to know where exactly you’re at.

Robert Leonard (00:19:25):
Yeah, I think about it the same way. I include everything you own, minus everything you owe, and that’s your net worth. I mean, I understand some of the arguments against it. But like you said it’s real, and it’s simple. And I think keeping simple is so important. And I think going back to that dynamic of living for a now versus continuing on with saving, I think there’s a component of it of education that I think helps you make that decision. I feel like the more educated you become, the easier that decision is made. Not because you’re always going to choose savings. I would consider myself pretty well educated on personal finance, but I don’t always necessarily choose savings over living now. But at least I know and I say, “Hey, I understand how this is going to impact my future, I can at least make an educated decision.”

Robert Leonard (00:20:05):
Whereas if you don’t understand what’s going on, you maybe feel stressed or uneasy and then you just don’t really know. And then you’re just not happy either way, no matter what you choose.

Jeremy Schneider (00:20:16):
And I think, basically, every time I’m talking to someone who’s scared about money, just because it’s simple once you get to its core, but it’s just a very complicated landscape. And there’s like, Bitcoin and there are multi-level marketing schemes, and there’s day trading, and there are stock take websites, and someone’s like, “I shouldn’t be investing.” And there’s like a cloud of stuff they’ve never understood, just like enters their mind and it sounds terrifying. But like I said, that kind of the sky opened for me, when I like read all these books on investing it’s like, wait a minute, this is pretty simple. Just like spend less than you make, take the difference and invest it every month, and it doesn’t have to be perfect investing. We can talk later about the kind of investing that I like, which is very simple and tried and true, and everything. Takes just a few minutes.

Jeremy Schneider (00:21:00):
But even if you don’t have the simple investing, or you’re more into real estate, or you’re more into buying individual stocks or whatever, you’re never going to meet somebody who’s like, “I’ve been buying and holding individual stocks for 40 years, and I put more money in every month, and I’m broke,” that doesn’t happen. They pick some winners, they pick some losers, and they’re super-wealthy.

Jeremy Schneider (00:21:16):
And so, I guess, don’t let perfect be the enemy of good. Some people are so afraid of not knowing every single little thing about the world of investing that they don’t even start. That’s bad. Just start with something that you do understand, start with something simple, and keep going consistently and learn more as time goes on. And that’s going to be a good lifelong strategy.

Robert Leonard (00:21:36):
Yeah, I have to admit that I am one of those people that sometimes perfect gets in the way of good for me, not that I don’t contribute or invest. I do, thankfully I don’t stop that, because of that dynamic. But I do often almost add unnecessary stress to my life or overcomplicate things just because I want to be, “perfect,” when in reality, like you said, good enough, is probably going to do well over 35,40 years.

Robert Leonard (00:22:03):
And I want to talk about that complexity piece, I know you have six steps that really lay out a simple plan, how people can become a millionaire. And I think it’s interesting to talk about that because if you listen to the news, read social media, other than your account, and mine, presumably, and even read some books. Sometimes personal finance is made to seem super complex and difficult. But like I said, you have that simple plan. So I want to walk through that. Explain how following these six steps can help someone become wealthy.

Jeremy Schneider (00:22:30):
I think that same thing, people just have this very confusing set of stuff floating around their mind, and they’re trying to do everything all at once. And because of that, they’re trying to juggle 16 balls, and then they all get dropped instead of just getting one. So it’s basically about focus, and going systematically through the plan. So the first step is just saving a month’s worth of expenses. And so when you look at the studies in the US, it’s like they ask people, if an unexpected expense of $500 came up, could you come up with that cash within a week without borrowing money or selling something? And like 60% of Americans say no, it’s like some horrific crippling statistic that like most Americans are just straight-up broke.

Jeremy Schneider (00:23:10):
And for sure, there are socio-economic issues and bigger political things. But a big part of it is just knowledge and personal behavior, which is people are used to money comes in, money goes out, they see money in their account, they got to spend it. So that first step is just [to] save a month’s worth of expenses, like get out of the washing machine of living paycheck to paycheck. Take that… No, whatever it is if you’re living on 3,000 or 4,000 bucks a month, take it, put it in a savings account, forget about it, leave it there. So that’s step one.

Jeremy Schneider (00:23:38):
Step two, if you have a 401k that offers a match, you contribute up to your match. And these things are to be done in order and not to skip ahead. So what’s that? So if you’re listening and all you say, “Should I be saving money before a 401k match?” I say, “If you’d have a month’s worth of expenses, then yes, because you’re broke, and your 401k match is great, but it’s not as good as payday loans and credit card interest and overdraft fees are bad.” Being broke is a very expensive state to be in. And so before you even open up that 401k get that month’s worth of expenses, then step two, if you have a 401k offers a match that’s what your company is giving you a dollar for every dollar you put in for example, then that’s free money right there. So you want to take advantage of that.

Jeremy Schneider (00:24:18):
Step three is aggressively pay off all debt except the mortgage, and so this one is one where people often think is crazy. They have student loans or they have a car loan at 0% interest or they have credit card debt or whatever and they want to do five things at once. They want to be buying a house and paying down, investing, and saving for a trip, and blah blah. Just do nothing but pay off the debt.

Jeremy Schneider (00:24:38):
And when I suggest this to people and say, “Hey, how would it feel if in two years from now, you had no student loans, no credit card debt, no car loan? And all that income that was coming in and just being burned on those debts was yours to use how you feel, how you see fit.” It usually it’s like this weight lifted off their shoulders. And you only get there if you’re purposeful about it. I know people in their 50s and 60s who still have massive debts, and then just every month, they’re just stressed out by paying off the bank. So they’ve been doing it for decades, but if when they’re 25, they spent two or three years on it. And at the age of 28, they had no student loans. And then for the rest of the 28 to 60, they were using that money to build wealth, then there would be in this massively different situation.

Jeremy Schneider (00:25:21):
And that’s why focus is so important because if you do that, and you’re doing six other things, none of them are going to get done. But all you do on step three is pay off all the debt, then you can get rid of it.

Jeremy Schneider (00:25:30):
Step four, save an emergency fund three to six months, so that one month of cash you had, make it at least three to six months, again, because being broke is expensive. And you want to get in a position where if you lose your job, or there’s a Coronavirus, or whatever, and you’re not going to be burning through your one month and then four weeks later, you’re in trouble. Three to six months you can decide how big that is, depending on if you have a family and how employable you are and how risky your job is, and things like that.

Jeremy Schneider (00:25:57):
Step number five is [to] invest in tax-advantaged accounts. That’s your Roth IRA, your 401k, maybe an SEP IRA, maybe a 403B. I’m speaking largely to American audiences here. Because these are all American tax laws where the US government has decided to give us a tax break if we invest for our own future. So we’re not broke when we’re old and having to live on Social Security. And so basically figure out what those are too, for most people, the first step is a Roth IRA. And then if your company has a 401k, the 401k.

Jeremy Schneider (00:26:26):
And then after you’ve exhausted all those tax-advantaged retirement accounts, step six is just to invest more, whether that’s in a regular brokerage account, buying an investment, real estate, stuff like that. And so once you’re on step seven, then you’re just plowing money away, and now you’re starting to look at, “Okay, how early can I retire?” Maybe it doesn’t have to be 65, maybe it could be 55, or 50, or 45. How many years of your life can we buy back?

Robert Leonard (00:26:49):
I love all of those steps. But I want to go back to the debt piece for a second because I’ve been recently reading a bit about Dave Ramsey and studying him a bit. And I don’t necessarily see eye to eye with all of his strategies, and your debt strategy seems somewhat similar to him. So I want to talk to you about that a little bit when you talk about paying off this debt quickly. What if someone has a loan, say an auto loan that’s 1%, one and a half percent, 2%? Does it really make sense for them to pay off that debt rather than invest?

Jeremy Schneider (00:27:18):
In my opinion, Yes. Because they don’t have a math problem, they have a behavior problem. And not a problem, I mean, they like come down on someone who bought a car and they’re like, “I bought a car on a loan once and I paid off and it cost me a bunch of money, but I was fine.” Here’s the thing, I’ve never met a rich person who’s gone there by leveraging a depreciating asset. If you buy a car, that’s more money than you have, and you borrow money to buy it, and then the car plummets in value. That’s not a recipe for getting rich, it’s like a really good recipe for being broke actually because you’re spending more money than you have, you’re paying for that benefit, the thing that you buy goes down in value, it’s just this like this magnifying common tutorial effect on staying broke.

Jeremy Schneider (00:28:00):
And when you don’t pay off your car loan at zero, one, 2%, whatever, you’re just living in this fiction, where you have money when you don’t have money. And it causes you to continue to make bad decisions, like borrow money to buy cars. Whereas if you pay off that car loan, and you have no debt, next time you buy a car, and you’re looking at a new $35,000 Jeep, or a perfectly good three-year-old $16,000 Toyota nice car.

Jeremy Schneider (00:28:26):
I don’t want to spend…. And maybe you have 35,000 in the bank at that point, and you’ve decided to buy things in cash you’d be like, “Maybe I want to spend every penny to my name on a car.” And so you buy a car that costs half as much, which is still a perfectly fine car. An $18,000 car is like a gorgeous car. I’m looking out the window right now and I see 15 cars parked on my street, I don’t know which ones are 18,000 which is the 35,000 they all look fine. They all drive away every day and… But when you get out of that mindset of living beyond your means and spending money you don’t have, then you start to think about, “Okay, I’m not going to build wealth.”

Jeremy Schneider (00:28:58):
One of my big things is don’t think about your monthly costs, think about total costs. I think broke people are saying, “Okay, what’s my monthly? What’s my monthly? Can I afford? Can I afford? Can I afford? Rich people are thinking about, what’s this $30,000 going to do for me if I put it into a car that plummets in value? Or what’s it going to do for me if I put it into an index time that’s going to double in value? And when you start thinking about that total cost, think about the long term down the road, you start to build more wealth.

Jeremy Schneider (00:29:23):
So yeah, I hate 0% car loans, I think 0% car loans is this big just marketing gimmick that’s like torturing middle-class people into being more broke because it’s not 0%, it’s just you’re buying something you don’t need. I’ll give you a 0% loan on some magic beans if you want, they cost $50,000, you can pay me back over 20 years. I don’t care, you just give me my… You’re buying things that you don’t need. And so on that same token, I don’t like 0% car, it’s just baked in the cost of the car anyway. Obviously, they’re still making their money. They’re beating the car company, you need to figure out some trick to put the car in that business. You’re just buying something you didn’t need instead of investing the money and building wealth yourself.

Robert Leonard (00:29:59):
Yeah. I completely 110% agree with the 0% offers that you see, they just add that back into whatever the price is on top of it. So 100% agree with that, for me, personally, to be a little bit specific, I work at a local credit union when I got the loan that I have for my car, and rates were at like 1.24% at the time, and we already got half a percent off because we were employees. So I got 0.74% on a pretty cheap car, it was like $18,000 car. So it wasn’t a ton of money, but I can’t get myself to pay that off because it’s so low. And I think there might be some people that are in the audience that are listening to that are kind of in a similar position, maybe not as low of a rate, but maybe sub 2% if they can-

Jeremy Schneider (00:30:37):
Can I ask what your balance is on that car loan right now?

Robert Leonard (00:30:40):
10,000 maybe.

Jeremy Schneider (00:30:42):
Let me ask you this, ask you a question. What if I, am a computer engineer, what if I hacked into your bank account right now, and I paid off that loan for you. So I assume that it sounds from talking you got either stock or assets or whatever. So I paid off for you. So, your assets went down by 10,000, your debt is 100% cleared, would you go to the bank tomorrow and borrow $10,000 at 0.74 interest and go invest in the stock market?

Robert Leonard (00:31:08):
Yes.

Jeremy Schneider (00:31:09):
You’re joking, you’re grinning when you said it.

Robert Leonard (00:31:13):
Because I would, I would. Personally, I know, that’s probably not the Dave Ramsey answer but I would.

Jeremy Schneider (00:31:19):
I mean, and honestly, I’m not Dave Ramsey. I actually think he’s a little bit overboard. But I think he’s doing it for a reason, which is trying to make a point. But would you borrow $2 million at 0.74% interest and go put it in the market?

Robert Leonard (00:31:30):
Yes, at that low of a rate, I would take as much money as I possibly could get my hands on and I would invest it. Because over the long term, if I can invest that money and make more than 0.74% in some-

Jeremy Schneider (00:31:41):
But what if the market drops by 20%, and now your net worth is negative $200,000. Because you’re basically bankrupt at that point.

Robert Leonard (00:31:48):
It depends if there are margin calls. If there are margin calls, then I would be very different. But if it was just a straight loan, and I had that money, and I could just invest it, I would because I think the spread is there. And that’s kind of exactly the point that I have, is I think I can get probably maybe 10% on average in the market right over the next 40 years. So for me to pay off less than 1% it just kind of mathematically doesn’t make sense.

Robert Leonard (00:32:08):
I see the psychological point that you say and I agree 100%, I never want to car loan again, but for me, it’s just that mathematical. I’m an analytical guy, a numbers guys, so when I see that spread, it’s hard for me.

Jeremy Schneider (00:32:18):
I mean, I still don’t think that borrowing money to buy cars is a way to actually make money because the car is going down by more than 10%. But also, there are a lot of people who got very wealthy by buying investment real estate, and they don’t buy in cash they buy with mortgages, because they use that leverage to amplify their gains. And so, I think your answer is okay by the way, I don’t think you’re going to get significantly more wealthy based on that 10,000 just paying off a little more slowly, I think it’s going to be basically a rounding error relative to your net worth down the road.

Jeremy Schneider (00:32:49):
And so my answer to… And that would be, I think there’s just like a psychological thing that just feels better to not be making a car payment when you pay that off today, and then you’re not making that payment anymore, you can take all those payments you were making and invest those payments. So the difference isn’t whether you invest it now or you invest it a few years down when the loan is paid off, it’s not really mathematically that much in your favor, even assuming that you do get your 10% in the case of the bad thing happening, and the market crashes, and the bank wants their money back, you could be pinched because I definitely have met people also who have borrowed a bunch of money, they borrowed a bunch of money in 2_06, 2_07, they put 10% down on a bunch of million-dollar real estate, million-dollar real estate went down by 25%. And then they were bankrupt.

Jeremy Schneider (00:33:27):
And I earlier was talking to one guy who did that, and his wife left him because he was bankrupt. And so that $10,000 is just a shade of grey towards that. But like I said, if you do things carefully and wisely and you’re not going overboard with how much money you’re borrowing, and you’re over-leveraged on all that stuff, I think that it’s not a crazy thing to do. I wouldn’t say that’s fully bad, but I’m not like dogmatic about [it] like Dave Ramsey is.

Jeremy Schneider (00:33:49):
But I do think that more people than not are just looking for an excuse to buy a fancy car and say, “Oh well, since at such a low-interest rate, I’m better off.” But not if you’re spending more money in the car, your car is 18,000, if they bought a $30,000 car at the same interest rate, you’re still $12,000 broker because you just wasted it on the car doesn’t matter what the rate is.

Robert Leonard (00:34:09):
That’s the point I completely agree with that, it was an affordable car. And so like you said, 10,000, 18,000, even in the grand scheme the thing really isn’t going to be a huge deal. But when you start getting 30, 35 $40,000 cars, that’s when I think it gets to be impactful. And like you said, it’s the asset so much not as necessarily even like the debt or the rate. Because maybe if it’s on real estate, that’s not as bad. It’s generally an appreciating asset with cash flow, things like that. But a car, it’s depreciating. It’s not doing anything for you. So I think it’s the asset that is a big component of that too.

Robert Leonard (00:34:38):
So we recently had Rick Ferri from the BogleHead community here on the show back on episode 24. And similar to what he talked about, you have seven rules for smart investing. And the first rule is to develop a workable plan. How does someone go about developing a plan and why is it so important to have a plan when investing?

Jeremy Schneider (00:34:59):
So I’m a big BogleHead, if you’re listening and you don’t know what that means Jack Bogle is the founder of Vanguard who actually recently passed away I think at the beginning of this year 2020 is a bad year, and he basically popularized and brought to market the first index fund, and an index fund is basically a very simple low-cost way to buy an entire market of stocks.

Jeremy Schneider (00:35:19):
And he was very opinionated about basically individual investors are getting killed by the financial services industry. And you look at financial advisors, and money market managers, and mutual fund managers, and hedge fund managers, and all these people who work in money and just are taking money off the top for their own fees. And then whatever’s left investing back in the market, he says that is basically what’s crippling the individual investor. And if you can remove those fees by just directly buying the stock market, then you’ll be better off.

Jeremy Schneider (00:35:49):
So that’s basically what the BogleHeads do, and the EMI rules of investing are like largely borrowed and simplified from the BogleHeads rules of investing. I don’t mean to say that those are unique, but yeah, rule number one is develop a workable plan. And that’s, again, kind of A scary thing. It’s like what is a plan? And like, do I need to go to a lawyer? And I have to get it notarized. A plan could be like a Word document with six bullet points or something like that, that are numbered, you’re like, number one, pay off my debt. Number two, invest in a Roth IRA. Number three, buy used cars, or whatever it is for your situation, whether it’s saving for a house, or if you have kids and you want to invest for their college.

Jeremy Schneider (00:36:23):
But just write it down and write down like the numbers and the order in which you do things and what you’re planning to invest in. And it can really be as simple as six bullets on like a Word document. And I think once you put that plan in place, it just removes this scary, not sure what I’m supposed to do [the] thing. And you can always just go back and say, “Hey, we’re about to spend $2,000 on a trip, can we afford it?” And you’re like, “Well, the plan says put 500 bucks a month, every month into a Roth IRA, we shouldn’t go on that trip until we follow the plan.”

Jeremy Schneider (00:36:51):
And I think once you have that plan… And you can take that plan, if you invest five bucks a month, you get a 7% return over 40 years, you can go put it into an online growth calculator or a retirement calculator and just see where you are. And you’re like, “Okay, if I do this plan, I will be rich.” It’s that simple.

Jeremy Schneider (00:37:05):
And then the next 40 years or 30 years or whatever your plan dictates, just do what it says. And so yeah, it doesn’t need to be super complicated. I kind of detailed my plan in those six rules, like we talked about a minute ago, I mean, yours can be a little bit different based on your situation, but just be purposeful about what you want your money to be doing.

Robert Leonard (00:37:24):
If you’re interested in learning more about the BogleHeads in that strategy, I would recommend going back to listen to Episode 24. with Rick Ferri, it’s one of our most downloaded episodes ever. A lot of people have really liked that episode. So I definitely recommend you go back and check that out. But yeah, I agree. I mean, if you follow the plan, then you have 30 or 40 years to take that $2,000 vacation really whenever you want. And you have plenty of time to do that later.

Robert Leonard (00:37:45):
So rules two and three are never bear too much or too little risk, and never tried to time the market, and don’t chase past performance. I lump these two rules together because I think people will often try and take on extra risk to make up for past poor performance. How can someone know if they’re taking on too much or too little risk? Why shouldn’t investors try to time the market?

Jeremy Schneider (00:38:10):
Too low risk, first of all, is when you’re not investing. So for example, if you are saving for retirement, and you take all your money, and you put it into cash under your mattress, [the] nature of inflation and the nature of missing out on the opportunity of growing that money is devastating. And so if you say 500 bucks a month for 40 years, you might have like 100 and, I think it might be $200,000 or so. But then retirement 2000 bucks, like ain’t enough to live on for the next 20 or 30 or 40 years, right? But you invest that money you might have 2 million bucks.

Jeremy Schneider (00:38:40):
Too little risk is basically being afraid to get in the market and that’s things like even though we’re in the midst of this Coronavirus thing and there’s an economic disaster. People are like, “Oh, I’m going to get my money out and save it.” You’re bearing too little risk because right now we need to bear the risk, we need to know how to mine the market, I need to believe that the market is full of profit-producing companies and innovating and everything else. And that’s going to come back to you eventually, even if it’s not over the next six months, or 18 months, or whatever.

Jeremy Schneider (00:39:08):
Bearing too much risk is going swinging the pendulum the other way which thing I only have 500 bucks I need to turn it to 50,000 bucks by the end of this year. How do I 100x my money in a year and so you start day trading Bitcoin or you get into some sort of scam because you’re frantic or whatever? And that’s too much risk, because if you put all your money, if you put 500 bucks on to some new cryptocurrency, that cryptocurrency could go down by 90%, or go down to zero and never come back because we don’t know the future of cryptocurrency because that’s too much risk.

Jeremy Schneider (00:39:40):
In timing the market I kind of talked about a little bit too when you want to do that too, which is like you shouldn’t be jumping in and out of the market based on what you think the markets going to do because you don’t know, we don’t know the future. But what we do know is that over long periods of time the market goes up. And so the answer to these things is just to diversify by broad market index funds. This is my strategy, the BogleHead strategy which is to buy broad market index funds and invest early and often.

Jeremy Schneider (00:40:03):
So, you invested this January high, you invest this march low, but whether is this January we call high but it’s only 20% higher than it is now. We call it now low, but over 20 years, it’s going to be five or 10x what it is and the 20% difference today is going to be kind of irrelevant.

Robert Leonard (00:40:21):
Rule number four says, to keep costs low and use index funds when possible. How do fees impact investment returns over the long term?

Jeremy Schneider (00:40:30):
So yeah, fees are kind of like the silent killer of investing, and before Jack Bogle, this whole thing has [been] heard about. Bogle has a typical mutual [fund]. So [a] mutual fund is when you put money into a fund with a bunch of other people. You buy a share of that fund and there’s a smart mutual fund manager who picks and chooses stocks for you.

Jeremy Schneider (00:40:48):
But then because that guy, it’s his job, and he needs to pay rent and get a salary and everything he charges a fee of the assets under management. And before Jack Bogle, those fees were often 1% 2% 3%, which doesn’t sound terrible. So if you have 100 bucks in there, he takes $1 like what’s the big deal. But if you just look at a 1% fee over the course of a 40-year investment, it can erode half of the eventual investment. So if you’re putting like 500 bucks a month away for 40 years, and it grows a $2 million. If you’re paying a 1% fee on that $1 million, it’s like crippling, the cumulative effect of that fee is just devastating.

Jeremy Schneider (00:41:24):
And that was kind of like Jack Bogle’s whole mission, which is there’s this huge financial services community, which is offering to be a helper to and help you with your money, but take a large fee for it. And if you can basically not pay those large fees and invest in Index Fund, which is just to invest basically directly in the market with a very limited fee, then you have that two million instead of one million, both those numbers sound very big by the way, if you’re you’re 25 years old, and you only have 1000 bucks you’re like, “I’ll take a million, or two million, too many either way.

Jeremy Schneider (00:41:51):
But when you’re 65, and you’re looking at, “Okay, I’m not going to have an income for the next 30 years, and I want to own a home, you might spend a million bucks on a home if you live in San Diego, and you might still want the other million bucks to like buy food with. So you don’t want your money to become half to those fees.

Robert Leonard (00:42:07):
A lot of people listening to this show, like picking individual stocks. That’s kind of what we’re known for here at The Investors Podcast, but a lot also like index fund investing. And I personally was strictly an individual stock investor. But over the last couple [of] years, I’ve come to allocate a portion of my portfolio to index investing and also do some stock investing. So I’m curious how you see this? Is there room for individual stock picking and index funds in someone’s portfolio? Or do you recommend they just stick to strictly index funds?

Jeremy Schneider (00:42:34):
So I’m an index fund guy, I believe that buying and holding index funds is the most effective way to build wealth over time, I think they’re broadly diversified. I think picking an individual stock is likely to add volatility to your portfolio without adding expected returns. Because I basically believe that the market is efficient. And so if I go and choose a stock, there’s just no way for any individual person to know whether or not that stock is more or less likely to outpace the rest of the market over time. And so I’m a strong believer in that. I think that’s correct. I think that’s right. I think it’s mathematically basically provable.

Jeremy Schneider (00:43:05):
That said, the important thing, the big thing, the 99% of the game is to invest. And so like I said, if all you’re doing is picking individual stocks, and you’re just buying and holding stocks you like and just randomly buying more and more stocks, and every month you’re buying more stocks, you’re going to be fine. I think more likely than not, the next one will outpace you, but you’re still going to be fine. And I also know that like it is human nature to think and maybe believe that you can beat the market. It seems like a winnable game, it seems very winnable. Like you see all the clowns out there, doing ridiculous stuff, like day trading beyond meet up to a zillion dollars a share, and you know it’s going to go down. So why not short sell it or whatever.

Jeremy Schneider (00:43:42):
Tesla’s the future of the world or whatever, there are all these examples of things that just seem so obvious, especially in retrospect, once you see it happening you’re like, “Oh yeah, I knew that was going to happen, I should bet on it next time.” And so that said, I know that it’s an itch of our people on a scratch, including myself, like I’ve been there, and I do own at least one individual stock right now. And so I basically have what I call the 90:10 rule, with 90% of your portfolio buy and hold index funds, you guarantee yourself your fair share of market growth with minimal fees, that means no matter what any individual stock does, you’re going to guarantee yourself your fair share of all market growth with 90% of your portfolio.

Jeremy Schneider (00:44:16):
So no matter how good or bad of a stock picker you are, your retirement is really fine. And then the other 10% go nuts, whatever, I say with that 10% give yourself permission to pick stocks, to buy cryptocurrency, to day trade the short things, wherever you want. I mean, I wouldn’t go on margin, I do anything that’s going to like cripple your 90%. But the point of that is to basically like be a release valve on that itch that you want. Like, if you want to go day trade, yeah, go do with your 10%.

Jeremy Schneider (00:44:43):
And then you also basically get to figure out, “Am I the next Warren Buffett?” If you’re as smart as you think you are, your 10% is going to far outpace your 90% pretty quickly, that should be easy. Then you’ve solved that. And then your 90% of your contributions might not only be 2% of your portfolio because you’re such an amazing day trader.

Jeremy Schneider (00:45:00):
And if that’s true, then great, congratulations, leave your 90%, just leave it. 90% of your contributions, just leave it there. But if you’re not that smart, then you at least you’re still safe. And I don’t need maybe to be dismissive of that because my one, individual stock I own actually is the company that I used to work for that bought my company. And it’s at the far-out sea of the stock market and has done great things from my personal portfolio. But I did keep it to a relatively small proportion of my portfolio and some indexes have done well, my one stock has done well.

Jeremy Schneider (00:45:28):
And so I’m glad to have had like my lotto ticket, essentially, I think it’s good to have that lotto ticket. But you don’t want to like cripple your finances if it doesn’t go up.

Robert Leonard (00:45:38):
Yeah, I think the two big pieces that you mentioned are not crippling yourself with the rest of your portfolio if the individual stock picking goes wrong. And that’s important to do, and you can do that by portfolio allocation and keeping that percentage small in comparison to your index funds. But I think is also interesting. And something I’ve learned is scratching that itch, like you said was, I always thought that I had to have 100% of my portfolio in individual stocks in order for me to get that itch scratched if you will. But I’ve learned over the years now I have 60% of my portfolio, say in individual stocks 40% in index funds. And I’m still feeling the same way as I did when I was at 100%, I still get that itch, scratch and I’m still being able to do something that I’m passionate about.

Robert Leonard (00:46:17):
And I bet I could probably bring that percentage down, even more, flip it maybe 4060 and probably still have that itch scratched. And who knows in the future, maybe I will. But I think that’s important for people to hear. Because just because you’re allocating a smaller dollar amount in terms of your total portfolio it doesn’t mean you won’t still scratch that same itch if you’re passionate about it.

Jeremy Schneider (00:46:34):
I would argue there’s also like a feeling of security and happiness that goes along with that saying, if you have a bad day in the market, you have a bad day with the individual stocks, you can at least be like, “Well, ain’t that bad, at least in my index funds are still like cranking away from me.” And so I think that you can have the best of both worlds there if you like. And I have a 90:10 rule, and you’ve obviously got it. Loves, loves picking and choosing stocks, like I said if that’s all you do, and you’re investing early enough, and that’s still a great thing. But I think as part of your plan, you can be like, “Hey, my plan is to put 50% of my money in index funds every single month and 50% and then individual stocks and then check it every year or two and see how my two accounts are doing.

Jeremy Schneider (00:47:12):
Maybe you could have like a Schwab account and a Fidelity account. And Schwab is a day trading and Fidelity is for index funds or whatever, and then just see which fund’s going out more. I think a lot of people don’t really do that careful accounting, and they tend to remember their winners and forget their losers. And they believe like, “Oh yeah, this one stock that did great,” and they forget or don’t talk about all the bad ones. And they haven’t done like a real careful accounting of, “Am I actually outpacing the market?” For sure you’re making money, but making money isn’t the buying you need to beat the market in order to have how to be like a good choice.

Robert Leonard (00:47:42):
Yeah, you’re not investing in a vacuum. If you earn 5%, 10%, but the market earns 20%, you could have done a lot better, that opportunity cost is large. And it’s funny you mentioned the two different accounts because that’s exactly what I do. Because I have my personal 401k through my employer at Vanguard, and then I have my other investing that I do with Fidelity. And so what I’ve done is I had some jobs. Luckily, when I was in college that had 401K’s with great matches, I wasn’t making a ton of money then. So the numbers are pretty small. But when I left those companies and I rolled those 401ks over into an IRA, I said, “Hey, this is the money I could use to invest in individual stocks and that’s it, everything else is going in my 401k. And it’s just going to continually buy ETFs or essentially mutual funds because that’s what’s available.”

Robert Leonard (00:48:25):
So eventually, if my stock investing doesn’t do good, the picking that percentage of my portfolio is going to come down and the rest will continue to rise because I make sure to bidding, do it every week. So that’s kind of how I’ve done it. I think there’s a lot of people listening to the audience that could do something similar if that’s what interests them. Because I know a lot of people like picking individual stocks.

Jeremy Schneider (00:48:43):
I love that, and I think that it just goes to having a plan. I think when people don’t have a plan, when they’re like start second-guessing themselves, or a stock did really well and so then it could drain one account and they go all in and then that stock crashes. And like that kind of thrashing I think is what’s more likely to hurt you in the long run. But if you said, “Hey, this is my day trading account, and this is my stock picking account, this is my long-term investing account. I love it.

Robert Leonard (00:49:04):
So going back to the list of rules, rules, five, six, and seven are to minimize taxes, keep it simple, and stay the course. Walk us through how you should use these last three rules to round off someone’s financial plan that we’ve been talking about so far.

Jeremy Schneider (00:49:20):
So minimizing taxes is basically just taking advantage of those retirement accounts when they’re available Roth IRA, 401k, 403B. Also, index funds are notoriously tax efficient. If you’re buying and holding stocks, there’s not a lot of capital gains, getting kicked off as you buy and sell them. And so it’s another way to minimize taxes, which also, again, if you’re doing that very careful accounting of which one is actually doing better, index funds have that advantage for them too. But also to keep that in mind, if one is a buy and hold strategy and one account is a trading strategy, and maybe do that trading inside of the tax advantage account like you’re trading inside of your Roth IRA then none of those capital gains affect you because it’s either tax-free or tax-deferred depending on which type of IRA it is. So yeah, minimize taxes.

Jeremy Schneider (00:50:04):
Keep it simple, keep it simple and stay the course as it’s like my whole thing like literally if you buy VT, the ETF VT, which is a world ETF, you do nothing else your whole life, you just buy VT every single month, you’ll be extraordinarily wealthy. And when people ask you at dinner parties when you’re 50, and you got a million bucks in the bank, “Oh, what was your secret?” You’re like, “I just bought one thing, I’m an idiot.” They’re going to be like, “How would you know what thing it was?” You’re like, “Because it’s the entire world stock market.”

Jeremy Schneider (00:50:30):
My actual personal favorite way to invest is what’s called a target date Index Fund, which includes a US index fund, an international index fund, and a bond portion that increases as you age. So your audience is a younger audience. But when you’re… Sometimes I hear from a 65 or a 70-year-old who is 90% stocks, and then Coronavirus hits, and then they’re like, “I’m not sure I’m going to be able to eat tomorrow,” I was like, “Well, you shouldn’t be 90% stock at 70.” So a targeted index fund does that for you automatically, just all your money, in exactly one fund you buy and hold for 40 years, and that’s all you have to do. It’s so simple. And basically any more complexity you add to that is not likely to increase your wealth, it’s more likely to hurt you than it is to help you or at the very least it increases volatility without increasing an expected return. And so if you want to go day trader, you want to go pick stocks, at least with a portion of it, take the guarantee thing.

Jeremy Schneider (00:51:19):
Then rule seven is stay the course, which I think, this is like one of the hardest ones because the last few months, I’ve been getting a lot of questions. Unemployment [is] so crazy high right now there’s no way the market reflects that or I know the virus is going to come back, there’s going to be a second wave or suddenly, the bad thing happens and people want to change everything when the plan all along was to account for market volatility. And we know stocks go up and down. We know the market goes up and down. If you just keep investing every month and forget about all that, then you’ll be fine. So remember, when things get weird, you just stay the course keep doing the same thing. And then five years now when we look back at 2020, and the market’s way up, and you’ll be like, “Oh, I see it wasn’t that bad. We’re fine.”

Robert Leonard (00:51:55):
Yeah, we also just recently had JL Collins on the show who wrote The Simple Path to Wealth. And he said the exact same thing you just said, he buys the-

Jeremy Schneider (00:52:02):
He buys VTSAX. US [crosstalk 00:52:05].

Robert Leonard (00:52:05):
Yeah, VTSAX. I was thinking what the index fund version was VTO maybe?

Jeremy Schneider (00:52:10):
Oh, VTI is the ETF.

Robert Leonard (00:52:11):
VTI, yeah. So he just recommends buying just VTSAX, and that’s it and just leaving it and investing it forever. And keeping things simple, just like you said. And I’m growing up and I’m still young, I’m only 25. But I’ve been investing probably for 10 years or so. And I was not simple at all before. But now I’m really trying to simplify things more, I’m still going to pick individual stocks, but I just, I love that simplicity component of it. I’ve been studying the 80-20 rule a lot. And I’m really trying to just simplify my portfolio, reduce some of the stress and just go do other things.

Jeremy Schneider (00:52:42):
I was you 14 years ago, I’m not that old. 39, so I’m not an old man just yet. But when I was in college, I was picking individual stocks. I bought oil futures. I bought Sears Canada, there’s a day where Sears Canada was, it was out like 20 bucks a share, and then it was like eight bucks a share. Then it was at two bucks a share. I was like, “All right, Sears Canada is going to be fine.” I did a little bit of reading about it, it’s like it’s beloved in Canada, it’s not going anywhere. So I closed money in Sears Canada, it went to zero they went bankrupt, I lost all my money.

Jeremy Schneider (00:53:10):
So I’ve done my fair share of stupid things, and I experienced such a painful piece of knowledge that makes you all this money, which is the more simple you can make it the more wealthy you’re probably going to be, and all those things like… I guess, that I still own an individual stock. I literally own one, the company I used to work for. I still get the bug. I say like “Mm, the market went up a lot yesterday because of this vaccine that had good results. I don’t really believe that’s like a lasting effect. I think that’s just like a short sell.” And I didn’t because I’m just too, “Why is this point?” For lack of a better word, I guess. But yeah, the older I get, I was like, “Man, the reason people are broke ain’t because they didn’t day trade good enough, is because they’re just not keeping it simple and investing early enough.”

Robert Leonard (00:53:54):
And not staying the course. And it’s funny because JL mentioned the same thing. He said, “Look, I have the [H 00:53:59],” he said, “This is a secret of mine that I don’t tell a lot of people but I used to pick individual stocks when I was on my way to financial freedom.” He said, “Everybody wants to, but now that I’m older, now that I’m wiser, learn from me. And I wish I had just done individual stocks.” And I think that’s one of the great things that we’re doing here with the podcast, you’re still within our millennial generation. So we can all learn from people like yourself and JL who have a little bit more experience than us and can say, “Hey, do this and just keep things simple. And you’ll do just fine. And you don’t have to worry about all this other stress and things like that.”

Jeremy Schneider (00:54:32):
Thank you for calling me a millennial by the way, I think like depending on how you look it up I’m barely made the cut, I was born in-

Robert Leonard (00:54:37):
Just in the cup. But yeah, yeah.

Jeremy Schneider (00:54:40):
Born in the 80s, just barely.

Robert Leonard (00:54:41):
Yep. So when you’re picking the index funds, how should someone decide between investing in a few select index funds like the total stock market index on you mentioned or even an S&P 500 index fund versus investing in a target retirement date fund like you talked about before?

Jeremy Schneider (00:54:58):
In my opinion, they should always invest in a target date index fund, because inside of a target index fund is a US stock index fund and is an international index fund. And so when you buy that target-date index fund… I guess I should maybe get a little bit more background. So targeted index funds, they’re always named after a year. And so you basically take your birth year, I was born in 1980, you add 65, that gives me 2045. And then you basically go by the targeted index fund from that year, I think it’s always important to check the expense ratio on that target-date index fund, because there are target-date funds that are named after a year that aren’t index funds, and they can have very high expense ratios like 1% or higher. The ones that I buy are offered by Vanguard, Fidelity, and Schwab are 0.1% or lower. So, you just buy that targeted index.

Jeremy Schneider (00:55:44):
And I think that when you ask like, should you buy… I always talk about the S&P 500, because it’s like the most detailed and historical way to look at the performance of the US stock market. And so people who kind of briefly look at what I write are like, “Oh, I should be investing in the S&P 500, right? I say, “No, you should but only as part of a targeted index fund, because I don’t know in the future if the US is going to outperform International, I don’t know when the volatility is going to hit.”

Jeremy Schneider (00:56:10):
So these targeted index funds have all these rules, all baked into one at a super low cost. It’s basically just like most wise investing, and any alterations you do to that strategy, I think, are just going to add volatility without adding expected returns.

Robert Leonard (00:56:24):
Now, I want to go back to the brief conversation we had at the beginning of the show about cars, and then ultimately talk about living situations. So I saw a post on social media not too long ago, that talked about how people say they can’t afford to buy a car in cash, say 25, $30,000 car, but they’re willing to finance it for five, six, seven years at $400 a month, and that way they can afford it. Why is that a bad way to think about purchasing vehicles?

Jeremy Schneider (00:56:51):
I think that’s bananas. I think that it’s that mindset about monthly mindset where they just can’t afford the payment. So they think they can afford the car, and spending $30,000 a car all at once seems crazy to them. But you’re still spending $30,000, you’re actually spending more than $30,000 when you include the interest. And so yeah, when you do the math, it’s just so devastating. When you look at the difference it’s going to make over the course of time, I think I gave that example of my own car where… I guess, all I should say is, I think people are still living in this fiction where they’re like… I got this email the other day from a girl who was broke. She had a terrible credit score. She was going to go buy an $18,000 car at 20% interest because her score was so bad. And she’s like, “I have no other option.” She was like, “There are no cheap cars.” I mean, I was like, “What are you talking about?”

Jeremy Schneider (00:57:34):
I promise you, name your city, I can go to Craigslist, I can go find a running car, that’s perfectly fine, that goes for three or four or 5000 bucks. I mean, I bought a camper van a few years ago for 4,000 bucks. That was like a baller camper van and I drove it across the southwest US and drove into Mexico and was like camping it over with just 4000 bucks, and it was fine. Yeah. And I think again, people are scared, they don’t know which car is going to be good and stuff. But don’t go ruin your financial future because you don’t want to spend two or three days looking through Craigslist and test driving a few cars because there are perfectly good cars out there for 3000 bucks.

Jeremy Schneider (00:58:07):
The car that I drove that I bought for 3000 bucks. I sold for 1500 bucks and it was still a great car. I was driving that every day for a year as a millionaire’s, and some high school kid it’s his first car and he drove it away and it was great. And so I think you just need to like get over the fact that you have to spend $20,000 in a car if you’re broke.

Jeremy Schneider (00:58:24):
And if you can afford and buy a car in cash for sure. Like there are beautiful cars for $40,000. I drive a Mazda now, a Mazda CX5. I think that was $32,000 new. I wrote a check for it. But yeah, if you can’t afford it don’t make an excuse for yourself and say, “I should go be buying this 10s of 1000s of dollar car if you can’t afford it because you’re just mortgaging your future use, signing yourself up for more indentured servitude to the banks for another five years after that.

Jeremy Schneider (00:58:48):
Just for a few years just drive a beater. Who cares? Drive a beater and save up your 400 bucks a month and then go buy a $10,000 car in cash, and $10,000 cars are great. Those are ballers. They’ll seriously show problems finding one [that] moves.

Robert Leonard (00:59:01):
Similar to buying a new car, buying too much house is often considered a massive hindrance on wealth building, which is one of the many reasons why I recommend house hacking to a lot of people who are looking to buy their first house. How do you recommend someone goes about their living situation? Should they buy, rent, house hack, something else?

Jeremy Schneider (00:59:20):
This is one of my favorite things to talk about because it gets people super pissed off. I’m not entirely sure why, I think it’s like a combination of homeowners who made a terrible decision and they’re trying to justify, and realtors whose livelihood depends on selling homes to people who shouldn’t be buying them.

Jeremy Schneider (00:59:36):
There’s this like myth out there in the world that the home you live in is the greatest investment you’ll ever make. And it’s just not true. For the only people who that’s true for it’s the only investment they ever make. That’s the only way your home will be the best investment you’ll make because it’s the only investment you’ll make.

Jeremy Schneider (00:59:50):
If you look historically, home prices you’d look at like the US home price index goes up about 4% per year, whereas an index fund goes up about 10% per year and the difference between that is massive, it sounds like only 6% but its millions of dollars at the end of your career. But that 4% ain’t free because that 4%, you have to pay insurance, you have to pay property tax, you have to maintain that property if you want to sell it for that 4% increase, you have to pay mortgage interest if you borrowed money to buy a house. And so, I actually did a study and looked at if you bought a house in 1990 30 years ago, and then you sold it today, the price of that home would be up about 30%.

Jeremy Schneider (01:00:26):
But then when you account for all the expenses you’ve paid along that time just to like live in that house, you actually lose money, you lose money on your house, and people love to talk about how much money they made on a house because they sold it for more than they bought without talking about all the money they put into it during that time. As a company, you don’t get to say like, “Oh, we profit a million dollars, but we spent $2 million.” No, the profit only counts if you count your expenses. And so basically, the rent versus buy thing… When I talk about understand the true cost of homeownership, people accuse me of saying homeownership is bad. And I’m not saying that. But what I am saying is to understand the true costs, and to minimize the cost of living, whether you rent or buy.

Jeremy Schneider (01:01:06):
And so if you’re paying 1000 bucks a month for rent, and then you move into a place that’s a $3,000 mortgage, I guarantee you’re going to be more broke for having made that move, the $2,000 extra in your house is just going to cost you so much money and all those fees I mentioned. And you mentioned house hacking, which is when you buy a duplex, and you rent one half and you live in one half, or you buy a house and you rent out two rooms, and you live in it.

Jeremy Schneider (01:01:26):
I love that, because that’s minimizing your cost of living, it’s kind of turning your personal residence, your primary residence into an investment. And when I talk about the true cost of homeownership, I’m talking about your primary residence because it’s not generating income. If you go buy an investment property, or someone’s paying rent, and there’s positive cash flow, and you’re getting additional equity by paying down the mortgage every month, then that’s great. That’s a very different thing. But your primary residence is an expense, which is costing money.

Jeremy Schneider (01:01:54):
And so my big thing is [to] understand the true cost of homeownership don’t just fall for this myth that it’s always a good thing, and everyone should be homeowner, that’s not necessarily true. And whether you rent or buy, minimize your costs. So if you’re renting a $2,000 a month apartment or a $1500 month apartment, they’re going to look about the same, we’re going to go to your two friends, one guy’s paying 2000, one guy’s paying 1500 don’t think anything different of that person or whatever. But if the guy’s investing the difference at 500 bucks a month, that’s a million bucks in retirement.

Jeremy Schneider (01:02:21):
And so [the] same goes for buying a primary residence. If you’re looking at a house that costs $300,000, or there’s one for 250, and you invest that $50,000 extra and it doubles a few times, there are other half-million dollars every time. So even like pretty modest differences like that can make a big difference over time.

Robert Leonard (01:02:38):
I had someone recently come to me and talk about their primary residence, and they bought it for about 150, they were about to sell it for about 200. And so they’re like ecstatic because they’re going to make $50,000 in profit. And I said to them, that’s great. And then I said, let’s dive into the numbers a little bit more. And I said, “How much have you paid in mortgage payments over the last two years?” They owned it for two years. And they’d paid about 35,000 in mortgage payments.

Robert Leonard (01:03:02):
I said, “Okay, so now your profit just went down by 35,000. So now it’s 15.” And the reason that that happens for someone listening, if you haven’t had a mortgage, or you really haven’t looked into it is because if you make $1,000, mortgage payment, only maybe 200, if that is going to principal and the rest is going to interest. So that’s the way the amortization schedule works on a mortgage.

Robert Leonard (01:03:20):
So they really only made 15,000. And then I said, “Okay, how much did you put down on that property? What were your closing costs? What was your down payment?” They’d put 15,000 down. And I said, “Okay, so now your breakeven,” and that’s not including any utilities, that’s not including any upkeep on the property, adding anything else you did. So I said really-

Jeremy Schneider (01:03:38):
Property tax every year.

Robert Leonard (01:03:38):
Property tax. Exactly. So didn’t make any money on this really. And I felt bad bursting their bubble. But that’s the exact conversation that people need to be having. That’s the way they need to think about it. And I tell that story because I want everybody listening to the show today to be educated when they’re making these decisions, if you still make that decision, because it’s right for you, so be it. But at least understand that that’s what you’re doing.

Jeremy Schneider (01:03:58):
A house is basically a forced savings account because people are going to make their mortgage payment because they don’t want to be foreclosed on and be homeless. And then when they see the fruits of that savings account two years or 20 years later they’re like, “Oh, look at all this money that I’m finally getting back,” which is fine. But after expenses, you’re actually losing money. Exactly like you just described.

Jeremy Schneider (01:04:17):
And worse than that, it’s great to get money back. But worse than that, you’re missing out on the opportunity cost of investment money instead. So if you extrapolate that another 20 years and that person made $100,000 back, they’re like, “Oh my god, I have $100,000, I’m so happy.” But they’d have a million dollars if they’re investing that instead.

Jeremy Schneider (01:04:35):
And so it is a crippling thing, and a lot of people say, “Well, rent renting is not good either.” And I was like, “I didn’t say renting was good, renting cars might too, they both cost money, but I think the biggest thing I always see is people rent modestly and then by extravagantly. They rent for a thousand bucks a month and they buy for 3000 bucks a month. Just so typical, because people are in castles or kingdoms. They’re the king of their castle, whatever and it’s an investment and they want to make it their own and all that stuff. And that like tripling of the cost of your living expenses is going to cost a huge amount of money and the opportunity cost of not investing the difference. And so if you do buy, consider what you would have been renting for instead.

Robert Leonard (01:05:15):
Yeah, I think there’s a psychological component to that. Because if you rent and you have your friends over, family over, you can just say, “Oh, it’s a rental, it’s just an apartment.” Whereas if you own it and people are coming over it’s like, “Oh, this is my house, I own it.” So there’s that psychological or keep up with the Joneses.

Jeremy Schneider (01:05:33):
I drove a 99 Ford for six years, and I dated girls and I never had a girl not like that car. And if I did, I had to pin-like, “You’re going to choose whether you like me based on that I happen to drive a 99 Ford.” And in fact, they’d probably like you more if you drive a shady car because it makes them feel better about themselves, like whatever, just got to get over that ego thing and say, “Hey, how about instead of looking rich, how about being rich?” That’s what I’d prefer. How that money be in the bank account gone. And then when you’re 50, and you’ve retired, and they’re still slaving away to make the payment because their house poor? And it doesn’t look like such a fancy house anymore.

Robert Leonard (01:06:04):
Yeah, it’s such an ego and just perception type thing. And I think that’s the hardest part about personal finance altogether. And so I want to ask, what is the biggest thing you know now that you wish you knew when you were just getting started?

Jeremy Schneider (01:06:18):
I’ve thought about this a lot. And I know the exact answer, it is, I wish I knew that Bitcoin would be six cents a coin in 2009, and then in 2018 it would be 18,000 a coin, because if I knew that I would be a Bitcoin billionaire. I’m kidding, of course. I mean, I wish I did that, because I would be rich, but the thing is time only marches in one direction, forward. And so going forward today, does that make Bitcoin a good investment? In my opinion, No. I don’t think Bitcoin is going to do that again, I don’t know. Obviously, I didn’t know last time either, but definitely don’t know this time.

Jeremy Schneider (01:06:48):
And so what I really wish I knew is just the value of simplicity and the value of early and often. And I did pretty well, I don’t have some amazing rags to riches story. I did pay myself very little when I started my company, and I had very little money. But I bought one car with a loan and paid it off. I had credit card debt for a few years and paid off. So I wasn’t making horrific decisions, but I think that all the crazy stuff that floats on people’s minds, if you could just boil it down to simplicity, early and often, and stay [the] course, that’s what really matters. And don’t let all the complexity scare you too much.

Robert Leonard (01:07:20):
So I think learning from podcasts, and all of the information that we talked about today and even from books is a great and vital part of success. But it’s really only half of the equation, I see the other half of the equation as equally important, if not more important, and that’s taking action on what you learned. So after someone listens to this episode, what is the first thing they should go out and do to get started or improve their current wealth-building journey?

Jeremy Schneider (01:07:46):
I don’t know if I can give one answer for everyone. Because I think there are people listening who have seven different investment accounts, and they’re very sophisticated traders. And there are probably some people listening who don’t have any investment accounts and don’t even have a Roth IRA. And so I can’t really give those two people the same advice. But I would say to focus on the step that you’re on.

Jeremy Schneider (01:08:08):
And so if you have debt right now, if you have credit card debt, car loans, student loans, just focus on that. And if you don’t have debt, open an investment account, and as we said it if you have an investment account, put more of that. Whatever step you’re on, focus, just focus on that one thing you’re doing and ignore everything else. Because if you focus on it in a year, two years, or three years, sounds like a long time, but relative to life, it’s a very short time. That step is going to be done, you can put the debt behind, you can get those accounts maxed out, whatever it is, and then you can move on and go to the next part of your financial career.

Jeremy Schneider (01:08:36):
And I think that that lack of focus is what causes people to thrash for decades, instead of like getting it cleaned up now. And so whatever step it is, if you’ve never opened an account, then open an account, if you have debt, pay the debt, if you’re investing, automate those investments, whatever it is, focus. And I guess if I’d add one other piece of advice is to calculate your net worth, get the spreadsheet out, know your net worth because I think most people don’t do that, I’d say maybe like 10%, or less of people actually know their net worth. So this applies to most people. Learn your net worth, because if you don’t know your net worth, and if you don’t track it over time, it’s like playing a football game without knowing the score. And that’s not a good way to do it.

Robert Leonard (01:09:11):
Is there a specific benchmark that someone should have for their net worth given their age? Or is it just so you know where you are, so that you can plan for the future?

Jeremy Schneider (01:09:19):
You can take your net worth and then the amount you have invested and then extrapolate that along with your monthly contributions, what you’re likely to have in the future, you can see, are you on pace to be a millionaire by x year or whatever. But I think it’s more about just knowing where you are. It’s about knowing the score, it’s hard to play a football game or a basketball game if you can’t look at the scoreboard because it affects your decision-making. So if your net worth is negative $40,000 and you’re putting five bucks a month away and going on lavish vacations, you need to change your decision-making because you’re going to be in big trouble down the road.

Jeremy Schneider (01:09:50):
Whereas if your net worth is a million dollars at 30 and you’re living on $10,000 a year in a cardboard box, like maybe you can chill out a little bit and go out to dinner.

Robert Leonard (01:10:00):
I think setting a strong foundation through personal finance is the key to becoming a successful investor, which is what we talk about most frequently here on the show. So while I really enjoyed this conversation, I think it’s important for everyone listening to the show to hear and learn more about these topics. I know a lot of people listening to the show come to The Investor’s Podcast because they’re interested in investing in stocks, and specifically individual stocks. And you guys know that I love that. I’m passionate about it. We love talking about it here on the show. But I think you need to take a lot of what Jeremy said and what I talked about today to heart and make sure you get a good foundation of personal finance first before you start worrying about those types of investments so that you can really be a successful investor and invest from a position of strength rather than having a weak foundation.

Robert Leonard (01:10:46):
So Jeremy, like I said, I love this conversation. For those that want to connect with you further, where’s the best place for them to find you?

Jeremy Schneider (01:10:53):
Thanks. Yeah, I totally agree. And don’t let perfect be the enemy of good but also get started and just learn, and keep learning, and learn over time. And I think that you’ll realize it’s not that scary, and it’s not the hard thing to do. So yeah, most of the magic for me happens on Instagram @personalfinanceclub. I also have a Facebook and a YouTube by the same name, and the website, personalfinanceclub.com, I’m a pretty easy guy to find. My name is Jeremy Schneider. So come check out and get your daily… On our Instagram feed to get a daily dose of wise investment advice.

Robert Leonard (01:11:25):
I’ll be sure to put a link to all of those different resources in the show notes. You guys can go connect with Jeremy there. Jeremy, thanks so much for coming on the show.

Jeremy Schneider (01:11:34):
Thanks, Robert. That was great. And it’s been a pleasure.

Robert Leonard (01:11:37):
Alright, guys! That’s all I had for this week’s episode of Millennial Investing. I’ll see you again next week.

Outro (01:11:43):
Thank you for listening to TIP. To access our show notes, courses, or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.