Bogleheads on Investing- Episode 014 transcript

Chris Mamula

Chris Mamula is the lead co-author of the ChooseFI book and a financial writer for Can I Retire Yet? In this in-depth interview, Chris explains how the FIRE movement developed, and how the principles of traditional retirement planning, combined with creative lifestyle design, allowed him to retire early from a career as a physical therapist at age 41, and pursue his passion for teaching others about financial independence.

After poor experiences with the financial industry early in his professional life, Chris educated himself on investing and tax planning. Now he draws on his experience to write about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Chris’ writing have been featured in MarketWatch, Doughroller, Business Insider and RockStar Finance.

This podcast is hosted by Rick Ferri, and is sponsored by the John C. Bogle Center for Financial Literacy.

Transcript

Episode 014- guest Chris Mamula

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Rick Ferri, October 9, 2019

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Rick Ferri: Welcome to Bogleheads on Investing podcast number 14. Today we have a special guest Chris Mamula, author of the new book, Choose FI: Your Blueprint to Financial Independence.

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Rick Ferri: My name is Rick Ferri and I’m the host of Bogleheads on Investing. This podcast, as with all podcasts, are brought to you by the John C. Bogle Center for Financial Literacy a 501(c)(3) corporation.

Today I’m pleased to have Chris Mamula one of the authors of a new book called Choose FI: Your Blueprint to Financial  Independence. The other co-authors of the book were Brad Barrett and Jonathan Mendonsa. These young men have written a truly fantastic book for not only young people. All of us should learn from them. I am very pleased to have with us today one of the co-authors of Choose FI; Your Blueprint to Financial Independence, Chris Mamula.

Welcome Chris.

Chris Mamula: Thanks for having me, and it’s an honor for me to be here with so many people who I read and follow. Who I’ve seen, have been your prior guests, and not to mention Mr. Bogle himself, so it’s quite an honor.

Rick Ferri: Well you have quite a story yourself and I want to start out by you talking about your background and how you got to writing this book and also your blog, Can I Retire Yet, and all the great work that you’ve put into the FI community. So why don’t you start out telling us a little bit about yourself.

Chris Mamula:  Sure. So I graduated with a master of physical therapy in 2001 and so you know I had 20 years of formal education, from kindergarten through grade 12 and my bachelor’s and my master’s. But in that time I never had any financial education.

So like most people who spend all this time learning to gain the skills to earn money but nobody really ever teaches you what to do with it. So I was pretty fortunate in that my parents instilled in me just a kind of a disdain for debt I guess you would say. And so from day one I was a great saver. My wife had a similar upbringing to me in that she wasn’t raised with a lot of money but she didn’t have that foundation. So she had some debt, and going into our marriage we didn’t want to get married with debt and that’s something we talked about together. What we agreed to do was to just live off of her salary and use everything I made to get us out of debt before we got married and that was working really well. So it’s something we just kind of stuck with, and so we always lived off her salary and saved mine. So we had, and our careers kind of grew in parallel, so we basically had a 50% savings rate our whole lives.

But we really didn’t have a  plan because we didn’t know what we were doing, and so I kind of always bought into this idea that investing is complicated. So we invested with an advisor and we really did no due diligence, and we kind of bought into this idea that retirement is at 65 and maybe early retirement was 55 or 60 if you’re really lucky and you do everything right. And so again we had no plan for that, so we just kind of fumbled through life until around 2012, about ten years after getting started.

We didn’t think we could have kids. My wife found out she was pregnant and so I realized I had to get serious about finance ,and that’s when I kind of stumbled into the early retirement, the FIRE blogs, the financial independence retire early. And they really changed my life. And so that’s kind of what motivated me to start writing about the topic.

Rick Ferri: Chris, I want to get into the FIRE movement. F-I-R-E, what does it stand for? When did it start?  What’s the motivation behind financial independence retire early and what are the different splinter movements from that? Can you describe the whole culture of FIRE for us?

Chris Mamula: Yes sure. So let’s just start with a definition. So FIRE is financially independent retire early. It’s kind of a catchy cute acronym but in a lot of ways I think it turns people off because people get hung up on the whole retire early, and people have perceptions of what retirement means. And so in some ways we’re trying to move away from that. We really focus on financial independence and really don’t focus too much on the retire early.

I think what it’s all about is just really lining up your values with your spending. So typical advice is you save ten or fifteen percent of your income and that puts you on a path where you’re going to retire in your 60s or 70s and basically we just kind of flip that on its head and said if you can save far more than that you can free yourself up and become financially independent much earlier in life. And then if you choose to retire you certainly can. But most people that I’ve come across in this movement choose to go on and do just bigger and better things, and things that more line up with what they want to do versus what they have to do to earn an income.

And as far as the origin, I guess I  probably have to credit Vicki Robin whose book Your Money or Your Life was  published in the early ‘90s and it was very popular at the time, but kind of like most books it kind of fell off. Even she didn’t know that a lot of the early FIRE bloggers kind of picked up on her ideas and turned it into this FIRE movement. And the early influences were kind of all looking the same, like white males, engineering, really focused on maybe like spreadsheets and optimization and frugality.

And so when I got into writing in 2013– and honestly I kind of fit a lot of these stereotypes because I’m a white guy and I was part of a higher earning profession– and we had no kids, and then like I said, I got serious once we had a child. But I was in the healthcare industry and didn’t know anything about spreadsheets; I didn’t know anything about finance; and so I was kind of at the time, I think I was diversity.

But I think a lot of that initial perception is kind of what people still think, and it’s like this monolithic thing when really there are so many different stories now. And I think this FIRE message is really attractive for parents looking to create space in their lives to spend time with kids; maybe older adults who are way behind on retirement savings and this lets them supercharge that; or just people burned out on careers who want to do something different and it gives them some leeway and some courage to do something different with their life. So it’s definitely a much more diverse community than I think people perceive it to be. 

Rick Ferri: And you started the blog about this, Can I Retire Yet.

Chris Mamula: So actually so I started writing back in probably 2013 and I wrote a little blog called Eat the Financial Elephant and it’s based on that riddle: how do you eat an elephant, and you do it one bite at a time. And it’s because I felt so overwhelmed by finance and it was, really a lot of it was, to hold myself accountable. And I built a little audience but nothing, I wasn’t having any kind of impact. So as I was leaving my career in 2017 this movement, this idea, changed my life and I wanted to reach more people and I wanted to maybe change some of those perceptions of what FIRE looks like to people. But I didn’t have a platform to do it from. And my idea was to start a podcast and talk to different people who influenced me. And then so Brad Barrett and Jonathan Mendonsa, they started the Choose FI podcast a few months ahead of that and so I reached out to them probably in April of 2017 and we agreed to partner on the book.

And then in August of that year there was the Can I Retire Yet blog started by a gentleman named Darrow Kirkpatrick, and he had built a nice following. And I loved that blog, but I kind of sensed he was burning out. He was a one-man show doing it, and so I reached out to him and said, “You know, would you be open to a partner?” and he was receptive, so I kind of before I actually quote-unquote “retired” from my physical therapy job, I had my next two projects lined up. And so I’ve been writing with Darrow at the blog since I guess December or since January of 2018.

Rick Ferri: You feature other bloggers and other podcasters all the way through the book, which is extremely well written by the way. You’re a great writer. This is a very, very well written book. I read it cover-to-cover.  Very easy to understand, very easy to follow. A lot of great information in there, but one of the things you did throughout the book was you were referencing all these other blogs and all these other bloggers and all the different points that they were talking about and you have a whole list of bloggers and podcasts and so forth in the book, which is really a wonderful reference.

But on your site you started writing about this and you started focusing on this culture and I really want to talk about the culture of FI  because it’s very similar to a Bogleheads culture. You know the Bogleheads started maybe 20 years ago, first on the Morningstar forum, and then we went out on our own and had our own bogleheads.org website, but it is a culture and it is a community. The FI community is very similar, and the goals of both communities are very similar. It might be a little bit of a generation gap. So could you talk about the FI community and the culture.

Chris Mamula: Yeah sure and first off, thanks for the kind words about the book I really appreciate that, especially coming from you. But I was just in Detroit promoting the book and I was staying with a guy named Joe Saul-Sehyand he has a pretty popular podcast called Stacking Benjamins and it’s kind of comedy mixed with personal finance. And he and I had a really great conversation and he kind of pointed out to me that, you know, there’s 300 million people in the United States and so even if you have three million people that you’re reaching, which even the Bogleheads or even maybe Dave Ramsey and Suze Orman, when you get to that level– where nobody’s really reaching that percent of that number of people—and if you are, that’s 1% of the population.

So overall, as personal finance, I think we’re failing to get out and reach people and so like there’s a lot of snipping back and forth between these–like maybe the Boglehead community and the FI community and the Dave Ramsey community– and really we need to be building upon one another and pointing out what each other is doing well so we can reach a bigger audience.

And with Choose FI, kind of that’s what they did, is they kind of– I think a lot of personal finance is guru driven– and what they kind of do is they highlight people who just have compelling stories. And in each episode they really focus on what are the actionable steps people can take. And we tried to build on that in the book and say, you know, how can we take the key lessons and then we kind of just put it in a more organized fashion than you really are able to on a podcast. And kind of building up everyone and choosing the best of what everybody’s doing versus kind of snipping and trying to kind of, you know, protect your little piece of the pie. We really want to grow the pie and reach a much bigger audience. And so I think, where like you said, there’s just so much overlap between the FI community and the Bogleheads messaging. And so I think if we could kind of work together and reach a bigger audience it’s way more productive and we’re going to be able to help a lot more people, and that’s kind of where we’re trying to take things right now with the culture in the community. 

Rick Ferri: Well that’s great because for us at the Bogleheads we are always trying to figure out how we can reach more people and our push is to try to reach out to other communities like yours and and work together with you to better educate more people because that’s really the goal of everyone. This is so important for society and so important for our fellow citizens and make them better investors and get them away from the hawks on Wall Street. I mean you talk about that in your book, and I think you did a great job, by the way, talking about your story of ten years with the financial advisor before you finally realize what was going on.

I mean that happens everywhere, and it’s a majority of the population are trapped in that and I think that by working together, these different groups working together will help just make it– make the message– more powerful and louder because we don’t have a lot of money and you don’t have a lot of money and so we’re fighting against a trillion dollar industry that has seemed like unlimited wealth.

Chris Mamula: Yeah and I can’t agree with that more and like I said, like if you kind of  look at the things that we kind of argue about in the personal finance community compared to where people are, like just as we record this last week there was an article in The Wall Street Journal about how so many people were going to now seven-year car loans from five-year car loans, and the average savings rate–I mean, I know this is something we cited in the book–it’s like 5% across the population.

So like I said, I mean yes, I mean there are little things each of us could do better and we can help each other improve our messages, absolutely. But I mean overall I think when we could be really helping people who are just missing and not getting the big picture. You know we’re not competing against each other, we’re competing against like the Kardashians and the NFL and the things that people like build their life around while they have no idea what an expense ratio is or anything like that.

Rick Ferri: We’re going to go through the book now and what you’ve done, how you’ve  organized it. I think the very first thing that struck me as I was reading one of the earlier chapters was the stages of financial independence, and I’d never seen this before, what the stages are. And you list them out from one through seven. And I’d like you to quickly go through the stages because I think they were really well done.

Chris Mamula: And I appreciate that, and again like I, you said I’m a…you complimented my writing and I wish I could take credit for these ideas but again what we did is we built on all these ideas. So this was a blogger who was on the podcast and he talked about this, and I think traditional finance– it focuses so much on retirement, and retirements like the end goal– and what we really wanted to do is reshape the conversation. 

And so we started with just really once you get to zero, if you’re out of debt and really you can define it in a number of ways. But most people they’re kind of trapped because their mortgage payment, their car loan payments, maybe they still have student loans, credit card loans. And so their next paycheck is already spent before it ever comes. So just getting to the zero however you want to define that is powerful because it starts to let you start choosing going forward. And then as you start to build on that, just having a fully funded emergency fund, that’s a hallmark of personal finance, and that’s really like a Dave Ramsey concept I’ve seen a lot like where you have six months of your expenses saved.

And I think that’s great advice but if you look at traditional advice they say you save ten percent of your income say. So if you’re doing that after a year you’re going to have basically a month of savings and it’s going to take you about five years just to get that six months of savings built up. And it’s no wonder people fall off because it’s so slow and it’s just you don’t see any momentum.

So what we do is we say you know if you can build a higher savings rate, and we just hypothetically threw out the number fifty percent savings rate. For one thing, that’s going to lower the bar of how much it takes to save to get six months of savings by being a little bit more frugal and watching your spending. And also that frees up the money to save and if you can save fifty percent now you can have a six month emergency fund in only six months instead of five or six years and so it’s a total game changer and it lets people to start have freedom and peace of mind. 

And we just kind of build up till you get through the phases, till you get to ultimately full financial independence. And then even financial independence with cushion is our last level, where you’re having greater than 30 times your annual expenses and you can pretty safely retire at that point and even be comfortable to maybe grow your spending, depending on how the market does. So really trying to reframe that conversation from an all-or-nothing to a conversation where your power is growing and building throughout the phases.

Rick Ferri: In the next chapter you get right into the whole thing isn’t really about money, it’s about having the right way. The money is just a facilitator of that. So the money is just a tool that what you’re really going for before you even go for the money is a philosophy. And you talked a lot about philosophy.

Chris Mamula: Yes so kind of the framework I wrote the whole book with is that, you know, you have to learn the rules, and you mentioned briefly like my bad experience with the financial industry. But I think a lot of people, they go in and they know “the rules”. They know that, you know, you get a college degree so you can get a good job and then once that starts like the first things you do is you buy a house, and you determine how much house you can, how big of a house, or how much you spend based on your income. And you can spend X percent and you buy two cars. And everybody knows you buy them with loans. And this kind of goes on and on. You save ten percent so you can retire at 65. 

And none of these things are rules. So kind of where we start is you have to unlearn the rules and just kind of get over all these things that people just blindly accept. And really it’s, a lot of this is just about asking better questions so you can get better answers, and then once you unlearn the rules then we kind of get into the rules of what is the math behind saving. What is, what are the rules you have to know to invest wisely. What are the rules to grow your income, and all these little levers you can pull. But I really think unless you unlearn the rules first and break down those things that people “quote-unquote” know you’re going to really have a hard time.

Rick Ferri: As we move along in the book you have a section called “Becoming a lifelong learner,” and I looked at that and I said “that is perfect,” because I happen to be writing a book right now and I will give you the name and selfishly promote it–but it’s not going to be out for a little while– it’s called A Few Good Funds: The Genius of Simple Investing. And the last chapter is all about lifelong learning, so as I’m reading your book, it says become a lifelong learner because it is so important that once you have the concept, once you have the philosophy, once you get it, once you set yourself up it can easily be forgotten and go by the wayside. And the second thing is one thing that really not only helps you but helps a lot of other people is not only your lifelong learning, and you get to this in the book very quickly, is once you learn it, teach other people. And teaching other people helps you stay the course.

I thought that was fascinating and I was actually including the exact same things I was reading your book. I just saw so many things that you just did such a great job bringing out.

Chris Mamula: Yeah, thank you. And yeah it’s kind of funny like when I talk about my background that you know five years ago, six years ago, I had no clue.  I didn’t know what an index fund was. I wasn’t utilizing my 401k because my advisor said that he could have, he had better investments for me, and I totally bought hook, line, and sinker.  I mean I was completely clueless. And now I’m writing this book which is hopefully going to have a pretty large impact and be read by a lot of people. And it’s just that matter of, you know, I realized okay I’m making a lot of mistakes. And it’s easy to wallow in that and feel bad for yourself or get angry.

But what I did is said, “Okay I need to correct course, and I need to keep learning and then learning at a deeper level.”  And then as I was doing this and seeing the impact it had on my life, yeah, I almost felt an obligation to share it with other people so they could do the same thing. And in some ways, you know, I think you get impostor syndrome. Who am I to be qualified to write a book about personal finance and investing? And on the same token I think I’m the perfect person because I know exactly how all those people that really need to get this message are thinking because I was stuck in that pattern for, like I said, ten years before I finally started questioning things and figuring it out. So yeah I mean I think that’s super important.

Rick Ferri: But what we find as writers is many of this stuff about personal finance and investing and taxation, all of this is routine. I mean these are the rules and all you’re doing is figuring out how to put it all together, how to link it all together and then writing about it. I mean we’re not creating any kind of a new way to invest in real estate and we’re not creating any new way to invest in index funds. I mean it’s all out there. We’re not trying to recreate the tax code in any way. It’s all out there, it’s just a matter of putting it all together and showing how it all works together, and explaining it to people in a way where it makes it easy to understand and so we know we, me, I don’t take any credit for anything I’ve done as far as index funds and talking about ETFs and asset allocation and all that because it’s all out there. It’s just a way in which you explain it and being able to explain it to people so that they understand it. So in a way, you know, teaching people how to do it, and I think that’s really where you know  you have a real knack and a real skill to be able to do that, because your book is so good at teaching people.

Chris Mamula: And again I appreciate that and a lot of that is just again because it’s not really me,  I mean yes, I’m the one writing it and putting it together and organizing it, but we’ve taken a lot of people who were super generous with sharing their stories on the podcast with those guys. And then they were generous with allowing me to take and kind of put it together and then we kind of repackaged it in a way that just makes it consumer friendly. And particularly to people who aren’t, you know, maybe inclined to be in the Bogleheads community, or to be inclined to be saving a large percentage, and being the FI community. And just take it to ordinary people who most need this message and really make it accessible. And that was what we wanted to do with this book and not be judgmental and not be dogmatic, but just saying, look here’s the different options that you have, here are people with really inspiring stories, that probably somebody in there is going to look a lot like you and you can kind of take their story and take the things that you like from it. And then take from other stories and put together your own path to achieve financial independence.

Rick Ferri:Yeah you wrote in here that you do not have to adopt anyone else’s definition of success or failure, but to gain traction on the path to FI you do have to determine what you value and then start spending your time and money accordingly.  So if you figure out what’s important to you and then you start on that path.

Chris Mamula: Yeah and there’s a term that and I’m not sure quite where that came from, so I’m hoping we didn’t steal this from somebody but we call it a “valueist.” Instead of saying you have to be frugal or you have to be a minimalist, you don’t have to be anything but you do have to figure out what you value and then does your spending reflect that. And for a lot of people, I think if you were being very honest and looked at it, a lot of people would say no. And if you think that, you know, you have to suffer and sacrifice, frankly none of us, including me, are going to be able to save 50 percent by scrimping and saving.  You do it by cutting out the things that you don’t value anyway, and you spend the money where you do value.  But a lot of those things that again people just do reflexively, like buying the biggest house they could afford, or the most car they can afford, I mean if that’s truly what you value then by all means do it. But I question how many people are happier because they have a bigger house or a fancier car and if it’s not then cut it and be honest and don’t be afraid to make changes. 

Rick Ferri: You talked about the three big things you just hit on them. You talked about the way to get a high savings rate is to focus on the big things that you can control, that are  the big budget eaters if you will and that is housing, transportation, and food. And those three things together, if you can control your housing cost, can control your transportation cost, if you can control your food cost, then you can bring more money to the bottom line.

Chris Mamula:Yeah and I kind of talked on my wife and I just stumbled into getting a lot of those things right. There was no FIRE movement back then and so we just kind of stumbled into it. So we were getting a lot of the big things right. And so for us it was really pretty easy because if you don’t inflate your lifestyle and you can live pretty comfortably, and then as we had our basics with the housing and the cars, kind of it was locked in and we were able to inflate our lifestyle as our careers grew. So we were traveling more and doing fancier things and eating at better restaurants and things like that.  But because we had the key things just locked in, and they were, we were living so far below our means it was easy.

Unfortunately for some people you’re going to find this later in life and it may feel a little bit of sacrifice. You’re going to feel a little bit of the pinch if you have to go back to get those things right, but really if you don’t get those things right one way or the other, either by starting well or by going back and making changes, it’s really hard to develop that savings rate. Because those things, if you look at the average person’s spending, they make up such a large percentage that you know if you don’t get those big things right it’s going to be very hard.

Rick Ferri: And one of the other things, of course it’s big for everybody, is paying taxes. And I’ve found in talking with people on the investing side and how to set up their accounts so that the right assets are in the right accounts. So just how to structure the whole thing and even when they were doing distributions, doing Roth conversions. I mean that the whole tax code and working the tax code to the maximum that you can for your advantage, from savings to distributions, to knowing where all the breakpoints are for things like Medicare charges for retirees and so forth. To understand the tax code as an investor and to work that tax code gets you so much more money than trying to go out and pick any actively managed mutual fund that might outperform. That it’s not even a comparison. 

You spend your time on taxes and you have a whole chapter, a whole section in here about working the tax code to your advantage and I think it was a really good chapter.

Chris Mamula: Yeah, and and I think that’s where the  book gets really fun so I mean some people are going to be pretty easy to housing, cars, and food and some people it’s really going to be a struggle, but you have to get those things to get the savings rate, but once you can do that and you can, it’s really simple things like just using your work sponsored 401k account.  For a lot of people that’s the easiest and biggest thing you can do. Doing things like learning to be an index fund investor and cutting your expenses. Like it can be seen as a sacrifice I guess for people if you say you have to live in a smaller house or drive a less fancy car, but mean I personally I’ve never met anybody that said man my life would be better if I just paid a little more taxes or, you know, if I could just pay my financial advisor a little bit more.  So I mean those things, I mean they add so much value to your life and you’re actually spending and we’re talking big dollars, less, like I know for me, we talked about some of the mistakes I was making as I became a do-it-yourself investor and bought into the index fund philosophy,  I started saving about ten thousand dollars in taxes and ten thousand dollars in fees every single year, year over year and those things are adding zero value to my life. So I mean talk about something that’s easy to do because it makes your life better and you become wealthier, it’s a no-brainer.

Rick Ferri: One of the big expenses for young people people of course is going o college and you spend an awful lot of time on talking about things like college or hacking college, and how to pay for college. And I think the whole hacking college idea, it was really unique. I had not heard it before. Again, you know I always learn something by reading other people’s material and the whole hacking college idea was really new to me. Could you describe that?

Chris Mamula: Yeah. So I talk a lot about my mistakes. but if there’s one thing that I did write so my wife and I, between us we have six college degrees, and we did that with– she had about, we had– we started with about $20,000 of debt from her undergraduate, and otherwise we did it all without any debt and it’s been such a game-changer compared to most people we see coming out. Like the average physical therapist who I was mentoring when I was working as a physical therapist, they were coming out six figures in debt. So it’s a complete game-changer, and I really think a lot of it is just, I’m again talking about just questioning the roles. I think most people think that to go to college and to do it without debt you have one of two paths: you get lucky and you get a scholarship, or you have wealthy parents who are able to fund you the whole way through.

And what we found is just I think a lot of times you know if you have a hammer everything starts to look like a nail, and I think college, just debt to finance college is so easy, so if you limit that or eliminate it completely, there’s so many more options out there, from working through college to, you know, to looking for different scholarships, smaller scholarships that people don’t bother applying for because they don’t think they can get, to, you know, doing like when you’re in high school, getting some credits that apply to your degree. And most of the people we profiled use all of these and some other strategies and if you are able to do that and you get a little bit here and a little bit there you can drastically reduce the debt or eliminate the debt and come out debt-free and that’s a complete game changer. And it’s funny that I’ve had a lot of positive feedback about that chapter.

Absolutely loved our editor. And she, we, actually cut a couple chapters and made some big changes, but she actually recommended we cut that chapter. She said you know a lot of people are writing about that, and we, that was the one place where I pushed back and we left the chapter because I think it’s so important. And one of my co-authors on the book, Jonathan, he actually came out of school $168,000 in debt and it was a big piece of his story and when you can kind of contrast and you see like it took him basically a decade of working and saving to get out of that, just to get back to zero versus some of these people in the book, myself included, who were able to get out debt-free. It’s again, it’s just it’s a total game changer. So yeah hopefully we can add to the conversation and instead of making it a black and white college is good or college is bad, I think for a lot of people it’s very valuable, but you have to approach it in the right way.

Rick Ferri: You talked in here a little bit about making college pay. In other words, well you know you want to maximize the benefit from your degree and minimize the cost, and by maximizing benefit I’m glad to see that you wrote a lot about going out and getting a degree that you can actually use to earn money. I mean to spend $200,000 on a degree that you’re going to make sixty thousand or $50,000 a year on, just doesn’t make any sense. I mean you talk about college as an investment where you expect to get a rate of return on that investment and I had not seen a lot of that, and I’m glad that you brought that up. 

Chris Mamula: Yeah and it kind of ties together. I mean I think any of these things in a silo, they maybe don’t make as much sense, but when you look at the whole grand picture, again we embrace being a lifelong learner and you look at, like, the things that I’ve done with learning to manage my investments and how much that’s paid off, and learning to write just by sitting down at a keyboard every morning and picking up some books at the library. You can learn everything but I didn’t need to go get a journalism degree, and I didn’t need to go get a finance degree to be able to do these things. So there’s a lot of things you can learn for free. I mean we live in an amazing world where many of these things, you don’t have to have a degree, and you can be pretty successful.

I mean some things like if you want to be a doctor or you want to be a lawyer, obviously you have to have the paper that says you’re qualified to do that, but then even at that you really have to approach that decision more wisely and, like you said, as an investment versus as, you know, this is good at any cost. Because there’s plenty of examples where that’s just not the case.

Rick Ferri: You also provided advice for what to do at work, and I don’t mean saving in a 401k, I mean how to manage your career. And there was even a little chapter in there about how to manage your boss. And I started reading that, saying, “Manage your boss, what’s that about,” maybe you could enlighten us?

Chris Mamula: I think a lot of people just think,you know, you can go and work hard and you’re going to be rewarded, and maybe you will, maybe you’re going to be lucky.  But a lot of times that’s not the case. If you can learn to add value to whatever situation you’re in, and learn what your employers value and then deliver and even over deliver on those things. And then sometimes this can kind of almost seem self-promotional or taking too much credit, but you know you’re your own brand. If you’re doing above and beyond work, then you need to point that out to your employer, and you need to maybe set up regular reviews, and just things so that they’re aware of what you’re doing and how you’re adding value, and that way it doesn’t guarantee you’re going to be compensated for those efforts but at least you’re aware and then if you’re not at that employer, then you have something objective to go to a new employer and say, ”Look this is what I’ve been able to do.”

And again that is not my idea. That was from the blogger it’s called ESI Money is his blog. He was the president of a hundred million dollar company and this was his framework that he laid out, and we thought it was brilliant and again it I agree it’s something I had not seen anywhere and a lot of the things my wife and I did in our own career in our own house, but I’ve not seen it really put into writing in one place, so by being able to take all these people’s best ideas and to organize them into one book, yeah I agree that added a tremendous amount of value.

Rick Ferri: Brian Tracy talked about invest three percent of your income in yourself to guarantee your future. As I read that I said, “That makes a lot of sense,” can you dig into what Brian said a little more?

Chris Mamula: I think one of the things that the FIRE community is criticized for is being hyper frugal almost to a fault, where we don’t want to spend money on anything. And honestly, there probably is some truth by some people in this community, and so what we were going to do is kind of push back a little bit and say it’s not just about cutting your spending, but how you can spend and how you can invest in yourself and so just some little things.

And we use an example in the book. I know of a guy named Scott Trench who’s now, I believe, the president at Bigger Pockets, which is a real estate investing platform. But when he was really young he had the good fortune of being invited to a mastermind group of real estate investors and he started, he just kind of in his head said,” I’m going to buy each of these guys lunch and try to just pick their brain if they would let him.” And they did and it kind of led to some pretty great opportunities for him, from being more comfortable to start investing in real estate competently to eventually kind of leading to the connection that got him his current job.

So just little things of thinking differently and investing back into yourself versus trying to save every penny. It can really add up and change your life over the long haul.

Rick Ferri: The book gets into actual investing and putting the money to work. And of course you’re an advocate for low cost index fund investing and not trying to go out and pick funds or stocks that are going to outperform the market. One of the things about this chapter, though as I was reading it–investing index funds and understanding the four percent rule, which we’ll get to in a minute–was as I was reading this, there was so much in there that I had just was like reading my own life in many ways. All the things that I went through with figuring out what the philosophy of investing should be. And you know how indexing works and why it’s better. And then going to develop a strategy and then finally finding the discipline. I mean you have it all in here. It’s all here, and you did a great job.

The 4% rule though is one thing that I wanted to get to right now. Which is that this idea that you could at least initially, the Trinity study from a few years ago, which said, “Gee if you withdraw 4% of your money out of your account then you can do that for the rest of your life and not run out of money.” So get to some level where you can withdraw 4%.  But that has changed recently. I mean the numbers have changed but you still talk about it in the book.

Chris Mamula:  In the FIRE community I think we’re maybe criticized for like oversimplifying things and so a lot of times we’ll define financial independence as when you have 25 times your annual expenses, meaning that you could spend 4 percent. I agree that that’s not a valid rule. That if you’re going to retire in the traditional sense and start drawing down and particularly for early retirees who have a 50 or 60 year potential time frame versus a 30 year time frame that the Trinity study was based on. But I do think it’s a great rule to get people started. I think it’s a great way to shift your mindset from people think, you know to retire, you have to have X percentage of what you earned in your peak earning, or your later earning years, and this kind of flips that whole thing on its head, and it makes us start focusing on what are you spending, and what is the multiple of your spending. And I think that’s a much healthier and better place to start from.

And then we have people in the FI community, one that we feature in the book and he’s probably the most prominent is Karsten Jeske and he writes the blog, Early Retirement Now, and he’s done a whole series on safe withdrawal rates, and it’s just great work, but I think it really does make you change that whole framework to get started. And it also, we talked about investing fees and if you assume you can withdraw 4% a year it makes that 1 or 2% that you’re paying annually in investing fees, it kind of puts some, I guess, context to that, when you say you know if you can withdraw 4% a year but you’re paying 2% between your fees to your advisor and then fees to the funds that really only leaves you 2% for yourself. And that makes that 4%, it puts everything into perspective.

Rick Ferri You talk a lot in the book about investing in index funds and keeping costs low, keeping taxes low and so forth and I want to read something you put in here because it’s so true. Talking about how Wall Street tries to make everything complex. And I have been saying for a long time that if you’re an investment advisor or you’re a broker and you make things complex for your clients you have job security, you think you’re building job security because they don’t understand really what you’re doing, so they kind of throw up the hands at one point and say, “Hey, look you’re the expert, I’m trusting you.” And that’s exactly what you want to hear as a financial advisor. But not exactly what you should be saying as an investor. And you put in here there’s a tremendous incentive for the financial industry to promote feelings of inadequacy, fear and confusion in investors and that is so true. 

Chris Mamula: And that was just from firsthand experience. I lived it for again a decade, and I felt so overwhelmed and then eventually after I took control of my own finances, I talked to my parents and they kind of were in that same boat, so I kind of had to help them figure things out and get through. But I mean you see that over and over.with everyone who I talked to. That you know you feel like you have to go to the advisor because they are the quote-unquote “expert” and they just foster that feeling of dependency and it’s great for them. But it’s not, it’s not great for you as an individual investor. So kind of goes back to you just have to learn the rules.

Rick Ferri: A lot of young people now are turning towards quote-unquote “robo advisors” to invest their money and I’m talking about Betterment and Wealthfront and now just  Vanguard. We heard through an article in Investor News it’s going to be launching a true online only robo service and their fee is going to undercut everybody, of course, because that’s what Vanguard does. How do you feel about these robo services? Are they a good thing for people or do they make things too simple, where you end up relying on them?

Chris Mamula: Yeah so I mean I’m not a huge fan  just because I don’t have our problem with using an advisor of any sort if they add value. But for me personally I don’t see the value add of a robo-advisor. I think what they maybe do is is they give a false sense of security because they’re using these algorithms that if you follow this then you’re going to do better and frankly nobody knows what’s going to do better in the long term. And what we do know though is that they’re adding a cost and they’ll point you that their cost is maybe a quarter or a half a percent compared to traditional advisors who maybe charge 1%.  And so any fee savings are good but you can just do it yourself and you know if you go in with that humble attitude that I don’t know what’s going to be the optimal portfolio, I know why I’m choosing the portfolio I am and I’m going to stick with it for the long haul. I don’t know that they’re going to add any value with the portfolios they’re going to put you in, but I do know for certain that it will cost you that extra quarter or half percent.

And again that kind of sounds like a small number but if you look at it again with that concept of maybe the four percent rule or like we said maybe that’s not valid maybe it’s a three percent rule and so if you’re paying a quarter, a half percent, that’s a substantial amount of the income you could potentially live off of. And again, if it’s adding value, then great. But I don’t see necessarily a great value add that they’re providing.

Rick Ferri: There are some advisors who point to a study or an opinion piece by Vanguard which says that advisors can add up to three percent alpha in a portfolio, they call it advisor alpha. And they sought a backdoor into this idea that because advisors can change your behavior, because they can lower your fees somehow, I guess by using index funds, and because they’re better at doing investing than you are, that they can add up to three percent alpha to your portfolio. How do you feel about that?

Chris Mamula: So when I started writing we talked a little bit about my background and so I was very dogmatic that everybody should be a do-it-yourself investor and then as I started dealing with real-world scenarios, my parents being a great example, readers that call into the, write into the blog and asked me these questions. And I realized there’s just, there’s a lot of complexity in people’s situations. And so I do think, you know, if you have a complex situation maybe you had bad advice before and you need to get out of products that aren’t in your best interest, if maybe you have a unique circumstance maybe you have a special needs child or something like that. There are scenarios where I’m certain that an advisor could add value. And then for other people they just they’re not going to do the simple things that it takes, simple rebalancing and things like that.

So maybe they add some value there, but 3% seems like a lot and especially across a general population. I have a hard time buying into that.

Rick Ferri: It’s possible that advisers might add 3% to a small minuscule number of people. But in general at least in my practice and I’m just doing an hourly advisor model now, the people I’m seeing are much much more ahead than that. You know a good advisor might add a quarter of a percent maybe but not three.

Chris Mamula: Yes just on an annualized basis. I mean that that’s a lot of change.

Rick Ferri: And so one of the battles that I’m fighting is this 1% AUM fee where if advisors are charging a 1% fee on them to a million dollar client and 0.9% on a 2 million and 0.8% on a 3 million and ends up being $10,000, $18,000, $24,000 to pretty much just manage a simple index fund portfolio and then maybe doing some financial planning as well. I mean, how do you fall on that debate?

Chris Mamula: So kind of getting away from the book but kind of on our blog again we have a of people that write in and that’s generally the advice that we give is that you find somebody that’s fee-only and that’s going to provide advice on an hourly basis, on an as-needed basis. I think that gives you the best chance to have the least conflicts of interest. And then we recommend that you find somebody that is a fiduciary, although I do understand that you know that doesn’t guarantee anything, but I think that gives you a better chance also.

And so that’s the general advice that we give. But I think, in general, finding good financial advice is very challenging, and I think anybody that thinks that they can [hand it over] to anybody under any model and not be a part of this, I think they’re just, they’re in for a rude awakening. I think there’s just so many conflicts that it’s just really challenging. So you have to be invested in the process.

Rick Ferri: I think that’s great advice. I want to get into active management ,and here’s where I just thought you did a fantastic job in the book. Has just opened my eyes up to, “Wow what did, what a whole new way of looking at active management.” Because when you start talking about active management in the book, you’re not talking about investing in index funds versus investing in actively managed funds. You describe active management as something quite different than that.

Chris Mamula: Yeah. So I mean I think a lot of times when you go to a financial advisor they think in terms of stocks and bonds because that’s how they’re paid, and I think it’s extremely difficult to beat the market by investing in the market. So I think if you’re going to be a stock and bond investor you should probably be an index fund investor for the vast, vast majority of people.

But I don’t think it’s impossible to beat the market by investing outside of the market. So maybe investing in your own personal business, or investing in real estate where you have much more control over getting into a small market where you have a competitive advantage and you can put it in some sweat equity, and you can utilize leverage in a relatively safe way.  And I think for a lot of people, if you can’t develop a high savings rate like we talked about earlier in our interview, but you still want to become financially independent more quickly, again it goes back to learning the rules and understanding the basic math. 

Investing in index index funds may not get you there on the timetable that you want to so you need to find a different path. And so that’s where I think investing in your own business and/or investing in real estate either on their own, or in combination with index funds, is going to to give you a realistic chance to get to where you want to go.

Rick Ferri: And just to clarify, your version of active management is invest in yourself, invest in businesses that you start, invest in real estate directly. These are the active management things that you could be doing which would really build wealth, as opposed to going out there trying to find active managers in the mutual fund space who you think might outperform the market. And I just thought that was a great insight and I completely agree with you on that.

Chris Mamula: Yeah, and I think that kind of goes back to the way we framed it. I think we probably will get some pushback because it kind of goes back to that definition of retirement and so we kind of, we just don’t really care about that definition of retirement. But we kind of  look at these as investments and some people will say, “Well you’re not really retired because now you’re an entrepreneur. You’re not really retired because you’re a real estate investor and you’re out managing properties.” And certainly there’s truth to that. But the bottom line is are you building the lifestyle that you want to live in alignment with your values and so if you can work a couple of hours a week on as a real estate investor or on your own business that you know you set up as a business and not a job, where you can step away from it without the business shutting down, I would view that as an investment. And people are certainly fit, can feel free to agree to disagree on the terminology around that. But I think that that’s the way that you can have outsized returns on your money versus trying to, you know, roll the dice by taking more risk than you can tolerate or getting into some, you know, hedge fund. Or somebody that wants to take huge fees and promise outsized returns. I just don’t think that that’s reliable for really anybody, and particularly for the vast majority of investors. I would certainly stand behind saying that.

Rick Ferri: And I want to get back to something you just mentioned because it was, it’s a great line in the book, “Scrap the idea of retirement completely and focus on building lives we don’t want to retire from.” I think it was just a great line. That’s exactly it isn’t it? That’s really what this FI-FIRE movement really is about. It’s about this whole archaic idea of slaving away until you have enough money to retire if your employer lets you later on down the road. Get away from that idea and focus on building a life, not just a job or not just a career, but a life that you don’t want to retire from.

Chris Mamula: Yeah, and I normally write at the website Can I Retire Yet and I found that blog because I was literally asking that question. It was to me it was all about retirement and it was all about escaping this career I was not satisfied with. So my partner at the site, Darrow Kirkpatrick, I mean he’s just a really smart and detailed planner, and as I really kind of got into what does a traditional retirement entail, I mean what I realized is yes, it’s going to free me from these things I don’t like, having my time dominated by a job as the the primary one. But now it’s going to introduce a whole another set of stresses where you know what is my day to day purpose. Where as a physical therapist I was going in every day and helping people, and so how am I going to replicate that in my everyday life?  And we talked about we were savers because we enjoyed that feeling of abundance, and if you’re drawing down your investments it’s going to be a whole different feeling of scarcity, and every day you’re stressed about money, where money was never a concern. So I think a lot of people just oversimplify it and think retirement is going to, like fix their problems and really you’re trading one devil for another.

And so how I approach it now is, you know, how can I get the things that I really wanted from retirement and so for me that was time with my young daughter, time to get out and seek adventure with my wife while we’re both young and healthy, having some freedom to just step back and just have some space in my life. How can I create that without all the downsides of that scarcity that come with a traditional retirement? And that’s really what it’s all about.

Rick Ferri: When I was getting into the last chapter, now up to page 300 or so I  ended up drawing this little diagram, there’s something you might see on a road sign that shows you could either go straight or you can take this sharp left-hand turn and there’s two arrows. One arrow goes straight and the other one makes this sharp 90-degree left-hand turn. And I drew that in the book, and I put the standard path was the straight line right, that was the work till 65, get the gold watch, that’s what we all, at least these my generation, you know, it was kind of taught. And on the left hook, the pivot if you will, that went 90 degrees the other way, I put Choose FI, because to me that’s what it’s really all about. It’s changing the whole dynamics of the equation.

Chris Mamula: It’s really funny that you say that, because we kind of went back and forth on how we were going to title the book, and it was between like, Your Blueprint to Financial Independence versus A Roadmap to Financial Independence. And then my original vision of the cover was exactly that, like a road sign that has like an arrow that splits in different directions.

So that’s just, it’s really, that’s astute, and kind of an amusing observation that you wrote that, because that’s exactly one of the two ways we’re going to go with this.

Rick Ferri: Well it was easy to draw that figure because that’s exactly what you’re talking about in the book. I can see it and quite frankly when I look back at my own life this is what I did. I didn’t quite know what I was doing, but that’s what I did. I took the left-hand turn you know, I started my own business when I was 40 years old because I didn’t want to continue to work in the brokerage world where they controlled everything and it controlled my destiny. I wanted to do it on my own. I knew it was a big risk. You know my son came up to me, in the second year of the business, he was a junior in high school, and he comes up to me, he’s crying, and I remember him crying and I’m like, “What’s the matter, what’s the matter?” It’s, he goes, “I can’t believe you left this great paying job to start this business in your living room.”  Literally I was sitting in my living room, at a desk in our living room where I set up shop. I said, “You have to trust me. This is going to work. You have to believe me, I know what I’m doing. This is going to work. Everything’s going to be just fine.”

And it was you know. But it is a scary thing, it is a scary thing to get off that treadmill, if you will, the hamster treadmill in, and actually get off of it and take that left-hand turn and choose to do something different and choose financial independence in a different way.  Is it going to work? Yeah, it will work, you know why? Because you’re going to make it work. That’s why it’s going to work.

Chris Mamula: I had that exact experience. Actually, so my dad started, he was an entrepreneur. He was a newspaper photographer and by all means he was pretty successful, but he just hated it and so he quit and started his own business and I witnessed the struggles of an entrepreneur. And one of the things, again, we talked about investing in your own business and kind of how these concepts all tie together, I think a lot of people don’t do what you did or what my dad did because they’re afraid, and it’s a healthy fear. If again, if you need that next paycheck, or you’re going to lose your car or lose your house but by embracing these concepts that we talked about earlier in the book, with you know cutting your core expenses, and by building up some cushion so you’re not paycheck to paycheck, even if you’re not financially independent where you can retire, but if you have a year or five years or now ten years of runway where’s the risk in that?

I mean you have a lot of time to figure things out and to get on the right path, and so I think it’s going to embolden a lot of people to live into that life that they want to live versus being just stuck in fear and that was really the much more of the take-home message than anything about retirement.

Rick Ferri: And there’s an entire community out there to support you. I mean it’s called the FI community and which is what this book is all about. It’s talking about this community of people who are there to help you and they are. And I went to Fin-Con conferences, which are financial blogging podcast conferences. I went to the first one when it first came out and I’ve been to several and it’s just a great community of a lot of young people. And some older folks like me you, know over 60 that try to, they don’t make an appearance but it’s a great community, support community, for people who are looking to do something different, looking to take control of their lives and you know change their lives for that, for their better, for the better for the children and the better for the grandchildren as well. So this community, the Choose FI community, the FIRE community, it’s all good. What you’ve done with this book is really great, and if you could just take a few minutes to talk about some of the kind of the special people who have helped you write the book and have helped you come to the messages that you’ve come to the book. I know you talked about Brad and Jonathan and could you just go over, you know, your list.

Chris Mamula: Yeah. So I mean I think when I originally started writing the book a lot of those early thought leaders in the FIRE community– so going back to like Vicki Robin– but then the, I think the person that really picked it up and started, this whole thing, was a guy named Jacob London Fisker, and he wrote, it was called Early Retirement Extreme, and it lives up to its name. It’s pretty extreme and it talks about like an extreme frugality and getting to retirement as quickly as you can.

But I think people started building off of his ideas, and Pete, who’s known as Mister Money Mustache and his blog is, it’s been phenomenally successful and he’s kind of taken Jacob’s ideas and taken it more to the mainstream. Aand there was kind of that whole core group, kind of that engineer type, so Mad Fientist, Go Curry Cracker, Root Of Good I think were the original bloggers there. They kind of grew this community

And then as far as investing and linking to the Bogleheads, there’s a blogger called JL Collins and his blog is just called jlcollinsnh.com. And he’s written a book called The Simple Path to Wealth, and he was really who introduced me to the idea of index investing, and he considers John Bogle one of his heroes and I started reading his stuff and I started reading Mr. Bogle’s work and getting into the Bogleheads community. And so that was super valuable to me.

And then there’s just a couple bloggers that were kind of out there in front of me. Todd Tresidder who writes at the blog Financial Mentor, and my partner now at the blog Can I Retire Yet is Daryl  Kirkpatrick. And I think a lot of people don’t even maybe consider those two as part of the FIRE community because they’re a little bit older and a little bit further out ahead, but Todd really was the first person I heard talking about, you know, it’s not about retirement and, you know, if you– he called it the pro leisure circuit– where maybe you’re going to go out and whatever it is for you, hiking, skiing, traveling and, you know, it’s going to be great for six months and then you’re going to  get bored and what are you going to do next?

And for Daryl, my partner, now he just kind of was more even keeled and not extreme and not all about optimization and frugality, but instead like about what really matters to you and how do you design that. So all of those people and many, many more who have now come behind them and contributed their own stories, have all really contributed to the book. And when I started writing I thought that was the story; I thought that was the book. Though all of those people were tremendously influential on my journey and putting that message together in the book.

Rick Ferri: Your two authors Brad and Jonathan have a podcast called Choose FI which has been extremely successful. And a lot of the information in the book comes from those podcasts.

Chris Malmula: They’ve done a great job at bringing in a lot of voices and I really originally thought that the book really was kind of collecting these original thought leaders and their ideas, but what Brad and Jonathan have done a great job of doing is bringing in a lot of different voices and a lot of different perspectives and learning from many different people. And then the other thing, even bigger than building the podcast, they’ve really built a community. So like when I was starting we talked about like I was saving 50% and I knew I wanted something different, but I didn’t know how to find other people on a similar journey and what they’ve done is they’ve created, first a Facebook community and now it’s turned into these Choose FI local communities. So like I’m in the Salt Lake City area and every month we get together and it’s just a community of like-minded people who you can support one another and learn from one another. And that’s just so valuable when you’re trying to do something that’s so different from what you’re seeing every day and I think that’s just tremendously life-changing to have that support group and people can find them wherever they’re at in the country and kind of build it into whatever you want it to be. And having a place where people can go and meet up on a local level and support one another it’s phenomenal.

Rick Ferri: The book is called Choose FI: Your Blueprint to Financial Independence. Chris, Brad, and Jonathan did a fantastic job at this book. Highly recommend it for everyone. I learned a tremendous amount and I’ve been around for a while and I’ve read a lot of books, and you know sometimes when you pick up a book you think you’re gonna read the same old things over and over again. I tell ya I learned an awful lot from your book, Chris, and I really appreciate your being in on the show.

Chris Mamula: I really appreciate you having me and those are that means a lot coming from you so I’m quite honored to hear that.

Rick Ferri: This concludes the fourteenth episode of Bogleheads on Investing. I’m your host Rick Ferri. Join us each month to hear a new special guest. In the meantime visit bogleheads.org and the Bogleheads wiki. Participate in the forum and help others find the forum. Thanks for listening.

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Investment adviser, analyst, author and industry consultant

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