[00:00:00] Intro: Forget the civilized path. It’s time to break the chains of debt and dependency, take control of our financial lives, and live free. This is the Fiscally Savage Podcast.

[00:00:15] Dylan Bain: Hello and welcome to Fiscally Savage. I’m your host, Dylan Bain. And today, I wanna tell you about a time when I first started budgeting. See, I’m in my kitchen of my apartment in Flagstaff, Arizona and I’m sitting at my kitchen table with my laptop open and looking at the spreadsheet that I’ve just put together with all of my income and all of my expenses. And I’m looking at all the lines of income from my primary job as a teacher to bouncing at a local music venue to my work in the tax office and I’m coming to the conclusion that here, having run the numbers three times, that there’s just no mathematical way for me to make this work. And I’m feeling terrified because I know how many hours I’m working and I know that there just isn’t anything left in the tank. And as I’m sitting here at my kitchen table, I’m just overwhelmed with this feeling of shame and remorse because, I mean, I can’t even make my monthly bill payments without going further into debt. What about savings and investments? And I had spent so much of my time up to this point learning about investments and investment strategies and how to save money. And now, I’m looking at a budgetary spreadsheet that’s telling me it’s not mathematically possible. And this is where it occurs to me that I’m not in the phase of life where savings and investing even matter.

[00:01:52] And I tell that story, ladies and gentlemen, because so many of us are in a situation in which we are being pulled into a thousand different directions. And it’s very common for people to come into my coaching practice with Fiscally Savage and ask me the question, “Hey, what type of investment strategy should I have?” “Hey, what is the right proportion of savings should I have?” “Hey, what percentage of my income should be spent on X, Y, and Z?” You see, budgeting is a conversation. When you sit down and actually create a budget that will track your income and your expenses, it is a conversation. Looking at your finances is a discussion in and of itself with yourself. And mostly, it’s a conversation that takes place from the neck down because it brings up all sorts of embodied concerns and fears. And it also comes with a ton of baggage because how many of us have been told “Well, but we need to save?” And, of course, the underlying assumption of the idea that you must be saving is that it’s even possible in your current state. And my story at the top of the show illustrates that in my state at that time, I’m a full-time teacher. I drive a truck whenever I can. I’m bouncing to the local music venue. I’m working at a local tax office. And in my professional life as a teacher, I’ve got all the extras. I’ve got the extra class, so I had no prep period. I’m teaching summer school. The weekends are taken up with ACT/SAT prep in the morning and I’m coaching wrestling. So, there was literally nothing else I could be doing for the school that could have brought in money. And so, I had had these two other jobs and I was typically working at least two of them at a time. And obviously, with trucks and bouncing, it’s a cyclical thing. But the assumption of this idea that I have to be saving and that it’s somehow morally and ethically good for me to save — you know, it’s the whole a penny saved is a penny earned type of idea — assumes that you can even mathematically make it work. And for myself, that wasn’t possible. And so, when I sat down for the very first time to make a budget and actually look at what is my income and what is my expenses, I didn’t have the benefit of a coach. Obviously, I couldn’t afford one at the time. And it comes up — this feeling of shame — because it should be mathematically possible. Everybody talks to me like it is mathematically possible and it turns out it’s not.

[00:04:20] And another thing that comes up in the same vein is this idea of like, well, you should know how to invest. Now, okay. Let’s just unpack that one because I do have a lot of people who will sit on a one-off call with me and ask me for investing advice. Nowhere in my coaching practice nor in the show do I ever give investing advice because it’s not for me to give. That’s not something that I do. It’s not part of the show. It’s not part of the practice. And yet, I can also tell these people and I can also spend time unpacking this of why do you think you need to be picking a stock in the first place? We live in a highly specialized economy. Professionally, I’m a corporate CPA. I do accounting and auditing. That’s what I do. But I don’t know a whole lot outside of that particular wheelhouse. Like if you’re going to ask me like, well, hey, how do you run a bar? I couldn’t tell you. And so, like this is part of what’s called a specialized economy. People have their specializations. There are entire people and some of them have been my clients when I was still doing taxes that that’s what they did. They opened bars. These two guys knew everything about getting the distribution right, getting the mix of drinks right, the programming to bring people in the door. Like this was their genius but they didn’t know the first thing about managing their books or their tax considerations or corporal structures and that was mine. Investing is very similar. So, why do you think that you should know how to pick a stock? And there still is that assumption that it even matters at your current state because it probably doesn’t. Very few people when we actually get down to it are in a stage of life where investing is the most important part of what they’re doing.

[00:06:04] And there’s also, of course, the last one where, well, I can’t make my budget work and therefore, I’m bad. And this, again, is the assumption that the individual contribution is the sole factor in one’s success and we know it’s not. The individual matters. The individual is extremely important but the individual lives in a system and that system dictates a lot of the individual’s life.

[00:06:29] And so, when we look at our budget and we start having these conversations, it is very common that people will avoid that conversation at all costs. And they avoid looking at their financial situation mostly, in my experience as a financial coach, because they don’t know where to start. Do they need to be saving? Investing? What? So, one of the very first questions that you need to be asking yourself is: what stage am I at? And on a personal finance journey, you can basically say there are three stages and these are very broad categories. But those three stages are income, saving, and investing. And in that order. And so, let’s just go and step through each one of these stages. And while you’re listening, I want you to take into consideration where you are as the listener. Spend some time to feel into and go through what you know is your financial situation and ask yourself: am I in the income phase, the saving phase, or the investing phase?

[00:07:33] Okay, so let’s start with the income phase because it’s the first step. Now, let’s just have some brass tacks real talk here for a second because your income is the single most important determinant of your wealth — period. There isn’t another one that has as much influence on how you’re able to build, maintain, and grow your wealth than your income. The key to FIRE — financial independence, retire early — or building W-2 wealth is often a high income or insanely low expenses and a lot of times it’s both. But your income is the single most important part of your entire financial picture. And so, at this stage, your concerns need to be focused on career advancements, getting promotions, and improving your skills through self-investment. These are the paramount things when you’re in the income stage. And you might say to yourself, “Well, hold on a second, Dylan. I’m in school. I’m not in the income stage.” The hell you ain’t. You should not be going to college unless you actually have a plan for what you’re doing. And I’ve said this before. When I was a high school teacher back in Wisconsin where I first started teaching, I had a student who came to me and said, “I don’t wanna go to college” despite the fact that he’s in a college preparatory program. And I asked him, “Hey, man. Like that sounds great, but what’s your plan?” And he had a plan. He was gonna go to diesel school and become a diesel tech. And that boy when he became a man made far more money than I did as a teacher because he had a plan. So, if you’re in college right now, you need to be thinking about what you’re doing to prepare yourself for the income that you want to have to fit your goals. And you might say, “But, well, I wanna go to school for history.” And I look at it and say, “Dude, like we live in an era in which anyone can start a podcast.” And there are history podcasts that do really well. You can go look at Mike Duncan and what he did with the history of Rome and then later revolutions to excellent history podcasts they then turned into two books: The Storm Before the Storm and The Hero of Two Worlds, which are both books that I love and I would totally recommend. But he started off with looking at it and going, “Well, how can I leverage my love into something that’s very viable?” And he’s done it. Like that guy’s living the dream. So, if you’re going into school and you’re saying, “Well, I wanna study art,” hey, absolutely. But you gotta look at it and say my income is going to be the most single most important determinant of my wealth and my wealth is what’s gonna grant me my safety and security in our society. And so, you had better have a plan. And that is true even if you’re going into accounting or you’re going into finance or really anything. Because there are people who go and they get their CPA and they’re not employable. There are people who go and they get an M.D. and they don’t get matched and therefore, never become a doctor. These things happen because they’re not focused on growing that income phase of their life. And when you’re chasing income, well, I mean it can be gamified and exciting. Like it’s a really exciting point in your life. And I think back to 2015 when I quit teaching and went back to graduate school. Like okay. So, you know, some real talk: I don’t think I could drink that much coffee and Red Bull again but I do miss the gamification that I built in that time and all the different ways in which I was competing with people. It was a fun and exciting time in my life and that I do miss, even if I don’t miss the constant horrible caffeine addiction that I had to feed on a day-to-day basis.

[00:11:09] And some real talk about your income when it comes to your expenses and how the two interact is that the basic necessities of life are more or less fixed at a certain point. That is to say that as you work your way up the income ladder, like your expenses typically don’t follow suit unless you really push for that. And I was just looking around on all the apartment boards here in Denver and I was calculating the difference between a one-bedroom and two-bedroom apartment. And it came out that the price differential was about 25 percent. And you might think, “Wow! That’s huge.” But the other way to look at that is also the average raise you get for job hopping after you’ve spent two years at one place and you’ve gained skills and experience moving to a new job and a similar role at a different company, the average raise you get for doing that is also 25%. And so, if you’re looking at it and saying, “Well, I don’t wanna live in a one-bedroom forever. I wanna get a two-bedroom apartment or buy a house,” well, your income is what’s going to determine that. And so, it’s in your best interest to focus on growing that income and advancing your career and promoting yourself and learning how to invest in you. That’s what’s paramount here. And the other part to understand is that the bottom 40% of income earners in the United States — and this might come as a shock to you — but if you are making $56,000 or less, you’re in the bottom 40% of income earners. Those people in those quartiles spend their entire paycheck on basic needs. These people cannot save and being thrifty is not gonna help them. Going to somebody who’s in that bottom quartile and telling them, “Well, you just need to make a budget and cut out the avocado toast,” is just absolutely asinine because it’s not gonna do it for them. But if you go to those people and say, “Hey, I see that you’re struggling and it’s really hard right now and we need to figure out a way that you can help grow your income by helping improve yourself and here’s the path,” that will be far more effective than any level of savings or thrift could possibly ever be.

[00:13:19] And here’s the last piece of real talk on the income side of things and this is gonna be a hard pill for a lot of people to swallow. The corporate ladder is the best way to do this. It’s also the most hated. And, my brothers and sisters, we’re reading from the same gospel because I have been a very good corporate ladder monkey for most of my life. In 2015 when I left, that’s exactly what I signed up for. I’ve been very successful with it and the fact that I don’t have control over my time grates on me and I am growing by leaps and bounds in income because I’m becoming more and more valuable in the economy. The corporate ladder might be dehumanizing, and that’s why it’s really important for you to work for yourself and you can go find my episode on working for yourself and how to leverage your corporate job for you.

[00:14:17] Let’s go look into the second part of this, which is savings. So, once you’ve increased your income, you have the ability to save, but you don’t until you increase your income. Savings is putting money away for later and this could include cash. This could include retirement accounts, like your 401(k), 403(b), IRAs, or any of your taxable investment accounts. The amount that you can save is equal to your income minus your expenses. And so, this is where your budget even becomes part of this conversation as well because that’s how you figure out how much you can save and it becomes a line item on your budget. It’s an expense you pay to yourself. Good budgeting practices net income minus expenses to equal or approximate zero. And so, your savings is an expense you’re paying to yourself for a future expense that you’re gonna have to pay cash for later. But you don’t get to the savings part until your income exceeds your expenses. Now, remember your income is the single most important determinate of your wealth and the way you build wealth is high income and/or low expenses. And that’s where this comes into because the higher your income and the lower your expenses, the more you can save. And people will say to me, “Well, hold on. We gotta have a good investment strategy.” Okay. Like let’s have some, again, let’s have some real talk. I feel like I’m saying that a lot in this episode. Imagine a scenario, if you will, where you are very diligent and in your first year of savings, you save a thousand dollars. And you put it into your account and you get 10% on your investment. Well, congratulations. What is 10% of a thousand dollars? It’s a hundred bucks. So, for the entire year of that saving, you earned a hundred dollars or another way you can think about it, that’s about equal to one night on the town. I take my wife up for dinner, we have some a good meal, maybe drink some wine, maybe go see a show. That’s about a hundred bucks. And so, when you look at it, my ability to control my expenses is going to give me a better return because all I gotta do is just figure out how to make two nights on the town cheaper or zero and I will have a better return than my thousand dollars will saved. And so, that’s why your income is so important here and that’s why investing hasn’t been part of the conversation yet because 10% out of the market is amazing, but on the thousand dollars, it’s next to nothing. And so, the levers you have available to you that are gonna have the biggest impact on your life are your income and your expenses. And so, increasing your income and holding your expenses steady, that gap is the amount that you can save because at this point, the amount you can save is far more important than the investments you choose.

[00:17:06] Now, let’s just have a little side note here because everybody wants to make a good call when it comes to investing and this is what the math says: it really doesn’t matter what you choose. So long as you’re invested in the market, your chances are good you’re gonna be on the positive side of things over the long term. Now, there is one exception to that rule and that is when people try to time the market. There’s a lot of uncertainty right now and people are like, “Well, should I pull the cash and look for the bottom and then invest and then buy at the bottom ’cause wouldn’t that be a good strategy?” No, no, no. This is actually an awful idea. That’s like the best way mathematically to lose as much money as humanly possible. Because what you’re doing is you’re trying to pretend that you have some sort of logical formula you’re gonna follow, but you’re not. This is all emotional because if it was purely logical, you would understand that time in the market is far more powerful than timing the market. And so, understand that the amount that you are saving is far more important than the actual individual investments that you choose. Okay. That’s the end of the side note.

[00:18:12] It’s worth pointing out that savings is this middle step because the goal here during your savings part is to start to replace your human capital — that’s the skills that you bring to the market and the skills that you’re leveraging to make your income. You’re trying to replace that with financial capital. That’s the goal of savings. And so, this parth here is actually kind of boring. Where income is super exciting because you can gamify it, you’re seeing yourself grow and grow and grow, a lot of people hit a plateau and when they hit that plateau, the income chasing starts to become a little boring because, well, you’re starting to look at it and say, well, to make the next leap, maybe I have to do something I don’t want, which is start working weekends again or, in my case, realizing that I would have to go back to the hours I was working at the beginning of my career, which were insane. So, maybe I just decide to stay right here and work on my expenses so that I can increase my savings rate. But let’s be honest. When you’re just looking at like how much money can I put away and how much money can I save? This is the long-term part that actually is kind of boring. And it’s super important to have your vision handy because that’s where you start looking at it and going, “Ah, this is why I’m saving and I know I’m in it for the long haul.”

[00:19:32] But let’s get on to the sexy part, which is the third level which is investments. And everybody loves this idea that we’re gonna get to the investment stage and we’re gonna do the cool thing and we’re gonna make tons of money and it’s gonna be amazing. But here’s the problem, ladies and gentlemen: this is the stage the vast majority of people don’t reach and there’s two reasons why they might not reach the investment stage: circumstance — that is, we never made enough money to be able to put enough money into savings to replace our human capital with financial capital and so, it never actually became a point where we actually had to say, well, yes, I need to manage investments now — and also choice because the investment stage is where you’re actually going to have to manage the money that you put away. In the savings stage, you settled on a strategy and you just put money away, right? You can find this a lot in J. L. Collins’ The Simple Path to Wealth, which you can go to fiscallysavage.com/books and pick up a copy there where he talks about this. You set on a strategy. In his case, he’s talking about indexing, so you pick a couple of very low cost index funds. That’s your strategy. You’re gonna hold that strategy for the next 30 years and you just keep buying into the market, right, when you take your entire savings rate and that’s what you invest in and you’re done. And J. L. Collins is a titan in that world and has been extremely successful with it as have been the vast majority of retail investors of which we are all part. And J. L. Collins will say, well, that worked during your savings phase. Why would you change? You don’t need to sit here and horse trade on investments. And so, that’s the choice we’re talking about. I don’t wanna manage my investments. But you might be at a stage where you have enough money socked away that your returns on your savings start to equal your income and that is the defining point between the saving stage and the investment stage — when the returns of your savings equal or exceed your income, and not before. So, if you’re looking at it — a quick and dirty way to look at this is to take all of your assets that are invested in the market and take that and multiply by 0.04 or 4%. If that 4% is equal to or greater than your income, well, congratulations. You’ve hit the investment stage. And you’ll notice that you probably have a long way to go until you get there, which is why it’s important to really focus on those first two stages. But if you do find yourself where like, hey, I’m in the investment stage and I want to actually manage this money and because now that 10% return versus an 8% return is material to my monthly income stream. Well, that nest egg might require some minding. And if you remember back a couple of minutes ago, I talked about a specialized economy. Why do you think you should know how to manage this stuff when you are specialized somewhere else in the economy? And so, nine times out of 10, people hire other people who know how to do this better to do it for them. It’s not often the case. I tend to be more on The Simple Path to Wealth J.L. Collins train but I’m not in the investment stage yet. My investments are doing well and I have a very respectable savings rate but I am thoroughly in the savings part of these stages. So, in that, I’m like you far more than I’m like a lot of the internet gurus who made a lot of money doing something else and then now are trying to sell you something that maybe they themselves didn’t do.

[00:23:14] And it’s important to know where you’re at because I’ve had to remind myself repeatedly since 2015 when I’ve left teaching that I’m not in the phase of my life where savings and investing matters until I was. And when I crossed that line, when suddenly my income exceeded my expenses, I had climbed the corporate ladder and my wife had done the same to a point where, hey, we can really start savings. And that was a process that took years of moving from job to job to increasing skills to really plotting out a course and having a plan. Because when I first had this realization back in 2015, I knew I needed to increase my income. And one of the things that I did and I still do to this day is I celebrate what I call to be Teacher Day. Teacher Day is the day where the total amount of money that my wife and I make together equals the amount of money that I was making with all three of my jobs back in 2015. And as I sit here telling you these stories, ladies and gentlemen, I want you to know that it is possible to continue to work your way through this because I’ve done it and I’ve coached people through it and I’ve seen other people work their way through this very system. As I sit here today, ladies and gentlemen, I am saving more than all of my earnings from all of my jobs combined in 2015, which was the year that I quit teaching. That is possible and it’s over the long term and I hope that you are ready to start walking this path with me.

[00:25:05] Outro: Thanks for listening. If you like what we do here, please hit that subscribe button. Leave us a rating and review. And share the content with somebody who would benefit from the message. You can follow us on Instagram, Facebook, and Twitter, all @fiscallysavage. And head over to fiscallysavage.com to get our free tools, suggested reading, and everything else you need to take control of your financial life and live free.