The Mad Fientist’s New Rule To Retire Early Even Sooner

welcome to the BiggerPockets money podcast where we interview Billboard Chart topping musician Brandon the mad scientist and talk about houses babies and the flexibility of the four percent rule hello hello hello my name is Mindy Jensen and with me as always is my saving overspending co-host Scott trench great to be here Mindy I always love to invest my time with you on the BiggerPockets money I like that one Scott and I are here to make Financial Independence less scary less just for somebody else to introduce you to every money story because we truly believe Financial Freedom is attainable for everyone no matter when or where you're starting that's right whether you want to retire early and travel the world go on to make Big Time Investments in assets like real estate start your own business or become a Billboard top 100 musician we'll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams Scott I'm super excited to bring the mad scientist back for round four of our podcast with him he is always a delight to talk to since people have spoken with him he has been very very busy he's going to share with us what he was uh up to in these last few years but we are here today to talk about the four percent rule which I love you love he loves uh Scott let's give a quick overview of the four percent rule sure so the four percent rule is a rule of thumb that says that for the periods that we have data on market performance for if you started with a one million dollar portfolio and you withdrew four percent of that or forty thousand dollars per year in no historical 30-year period would you have ever fully run out of money um over the course of that retirement if you will so it's widely regarded as a very very conservative rule of thumb for early retirees if you want to spend you know forty thousand dollars you need a million dollars and you're done you're financially independent if you have a 60 40 stock Bond portfolio if you want to spend a hundred thousand dollars a year you need a 2.5 million dollar portfolio and so once you know your spending level you can quantify the amount you need to become financially independent and today we're talking to Brandon the Mad scientists as we mentioned and he really kind of took that analysis to another another level here and he broke apart that spending so let's say you want to spend a hundred thousand dollars a year you want a 2.5 million dollar portfolio this is a very comfortable Financial Independence portfolio but let's say that uh you know half of that portfolio was discretionary spending so those would be vacations travel that you didn't need to do but would like to do well in that case you wouldn't quite need two and a half million dollars you could get by with less perhaps much less perhaps you could get by on a five and a half percent safe withdrawal rate so you know for example if you need a two and a half million dollar portfolio to spend a hundred thousand dollars comfortably in early retirement if you were able to say 50 of that's discretionary and I'm willing to cut back in down years for the market you could retire and still spend a hundred thousand dollars with as little as 1.8 million which is a 600 000 difference it makes a dramatic difference in a time to early retirement for that individual so these rules of thumb are very important and the mad scientist brings three very simple rules to uh executing on what I just discussed there so if you're in a if once you have Quantified your desired spending and bucketed it appropriately and realistically into discretionary for you and non-discretionary spending for you then he has three rules that will allow you to retire with a substantially higher safe withdrawal rate so first while in a bear Market which is a market defined as 20 percent off of previous highs just withdrawal zero for that discretionary spending two if the market is in a correction about 10 percent below recent highs then withdrawal 50 percent of that discretionary budget so if it was a hundred thousand dollars in spending fifty thousand was non-discretionary and fifty thousand was discretionary to spend twenty five thousand dollars on discretionary items and then the third rule is all other times when the market is not down more than ten percent withdraw your entire discretionary budget so very simple rules might shave off years in the journey to financial Independence for many people very simple rules backed by math and data not only from Brandon's big brain but from Nick majuli and his data in Big Brain too they're not just making this up they have run the numbers they have discussed it ad nauseum it is past performance is not indicative of future gain but these two guys together have a really good grasp on the numbers the math the data behind all of this they're not just guessing and they wrote an article together which was published at themadfiatist.com and we will link to it in our show notes Nick majuli for those who don't know wrote uh the book The excellent book just keep buying which I highly recommend people go check out and we got a chance to talk with him on episode 347 of the BiggerPockets money Show podcast so go check that one out if you're interested and of course uh you'll know Brandon the mad scientist from his work over at the mad scientist or his three previous appearances here on BiggerPockets money okay okay now Scott we have a new segment of the show called The Money moment where we share a money hack tip or trick to help you on your financial Journey today's funny moment is if you're trying to book a flight with airline miles but are coming up just a little short look into purchasing more miles through the airline's loyalty program it is likely going to be cheaper to buy a few more points than to purchase the ticket with cash I actually did this on a flight a few months ago I had I was short like 400 points and I had to buy them in Thousand Point increments but to buy it was like 20 or something so I was able to buy a thousand points I got the points that I needed for twenty dollars as opposed to paying 150 or 300 whatever for the flight it was great I love this tip we are going to welcome Brandon the mad scientist back to the podcast if you don't know who Brandon is you have been living under a rock he is the mad scientist a man who Delights in reading the overly complicated U.S tax code and translating it into easily understandable English for all the rest of us he has a website called the mad scientist a Blog the mad scientist and a podcast the financial Independence podcast where he educates people on financial Independence Brandon has appeared on the BiggerPockets money podcast episode 18 episode 119 and episode 162. Brandon welcome back to the BiggerPockets money podcast I'm so excited to talk to you today yeah thanks for having me back it's always good to chat to you guys and I can't believe it's been that many episodes uh yeah I wouldn't have said it was that many but yeah thanks for having me back again I can't believe it's that been that long since we last spoke with you um I know nothing has happened since then yeah yeah lots has changed well can you give us an update about what's been going on since uh we last chatted on episode 162. yeah so uh biggest thing is we had a kid so uh we have a 10 month old son and he's keeping us very busy but very entertained as well so that's been amazing um even better than I probably would have anticipated or expected so that's the biggest thing the second biggest thing is we bought a house so we've been we had been renting since we sold our house in 2014 in Vermont and we just bought a house in ver in Scotland which is where my wife's from and that has also been an amazing change which has been a long time coming we've been looking for a couple years and uh yeah after after selling our house in 2014 and thinking I'm never going to be a homeowner again like I'm so happy to be a homeowner again so just shows you how much things change over the years and oh yeah I I think Matt I can't remember the last time we talked about maybe since then I've released an album which was the whole like big goal of um wanting to reach Financial Independence was to actually be able to write and release my own music and I did that so that uh feels still to this day like my biggest lifetime accomplishment uh just because I know all the torture that went into it and self-doubt and all the things I had to do to to actually release it but yeah that's that's all too so uh there's there's been loads of stuff happening well I'm sorry you're so bored in retirement I love the people that say I don't know what I'm going to do when I retire so I'm just not going to retire I'm like don't worry you'll fill up your time oh yeah no it's it's busier than ever these days and yeah now I'm trying to fit all that other fun stuff in between uh just you throwing a ball and chasing around my 10 month old it's so awesome to hear that congratulations on your album your uh little baby boy and your brand new house over in Scotland we should probably talk at some point um we could spend a whole uh episode on how the real estate markets differ in oh yeah um in in Scotland in the UK versus the United States but today we'd like to chat about um first and foremost an article that you recently published with Nick majuli author of just keep buying who we also chatted with your BiggerPockets money podcast um and you guys talked about the four percent Rule and how the four percent rule is actually the 4.15 Rule and now the 4.8 percent rule um could you give us an overview of this this work that you did with Nick and um the conclusions you you took my it yeah sure so it all came around because I had read his book just keep buying and I really liked it because all his arguments were backed up by data and historical numbers and lots of charts and graphs and things that I love so he reached out on Twitter and I was gonna have him on my podcast but I'm not doing much podcasting these days so when we were chatting on Twitter he's like hey if you ever want to run a simulation on something or want me to dive into some data for you just let me know and there's always been this thing that's bothered me about the four percent rule for many years but I'm very lazy so I never dove into any of the you know the thoughts that I had because it was just something that was just in the back of my mind for so many years so when he offered that I was like well that's exactly the thing that we should collaborate on because uh yeah the four percent rule obviously is very big for fire people because it lets people retire as soon as they hit that number that you know 25 25 times their annual spending which is four percent of their portfolio so it's a huge thing in the fire Community but it's always bothered me because it's it wasn't made for early retirement and it was made for standard retirement which uh a standard retiree in my view is very very different than an early retiree um for instance Mindy's just uh back from a beautiful vacation in Hawaii with her family and you know if the market was down 30 percent maybe she wouldn't take that and you know that's very different than saying like a 75 year old who has fixed medical costs fixed mortgage you know maybe less flexibility less of their spending is going towards discretionary spending you know yes they need to have four percent of your their portfolio and they need to adjust that upwards for inflation every year but the flexibility of an early retiree is very different and I didn't feel that the four percent rule captured that so I wanted to dive into the data and see hey if yeah you do have a lot of flexibility in your lifestyle and your budget um what could your withdrawal rate be and I assumed it would be quite a bit more than four percent and in fact it was you have a really great chart that's super helpful in this article calculate your new withdrawal rate do you talk about your discretionary expenses and it seems like the key here is to be tracking your spending sure well yeah that's that's a given for even retiring early in the first place because you need to know how much spending you need to be able to have your portfolio cover so so yeah that's that's the entry ticket to get in the game at all is to have a good grasp of that and to then be able to break it down into necessary and discretionary that's important for this particular article I wrote because um yeah the more of your spending that's discretionary the more you could pull back when times are tough and when the markets tanked 20 25 and being able to do that means that your portfolio is going to have a lot more probability of lasting because you're not going to have to sell uh when stocks are low and you can maybe ride out a bear market and not really do any damage to your portfolio because you know the the overwhelming trend is up and to the right for the market and the only time retirees get into trouble was when they have to sell when assets are depressed and some of your audience may be familiar with the sequence of returns risk sequence of returns risk is because you're withdrawing from that portfolio so if you're taking out money this year and you're taking out a big percentage of your portfolio when markets are down then that's going to really make it less likely your portfolio is going to last 30 40 50 plus years in an early retirement scenario so yeah so like like I mentioned earlier uh tracking your spending is the entry point into the game at all but yeah being able to break that down into necessary and discretionary is helpful if you're going to do a more flexible withdrawal strategy like I talked about so last year I did an experiment where I publicly tracked my spending um over the first five months of the year I was going to do it the whole year and I'm like wow this takes a long time yeah but it gave me a really good idea of where I was spending and I got some pushback from people they're like oh my goodness you have so many categories that's too many categories and I mean I did have a lot of categories I had some um you know I separated it out from alcohol and uh beer at breweries and you know parties because I have parties in my backyard but I did that on purpose because those are the things that I can absolutely cut out no problem whatsoever if the market takes a huge tank and I need to pull back on my spending great not having parties anymore not drinking alcohol anymore not you know traveling anymore I think it's really important to have like maybe you don't have to be quite as granular as I was you could just have you know necessary spending and discretionary spending in your you know your two buckets that you're you're tracking but I do think it's important to track what's what is necessary and what is more frivolous so that when if you do need to pull back if you need to spend a little bit less you can figure out how much is in there I love your chart I'm looking at it right now I'm like wow if I have 70 of my expenses are discretionary I could spend six and a half percent withdrawal rate and have a 98 success rate yeah so Nick put that heat map together so after you ran all the stuff you put that heat map together which I thought was a great way to visualize it because because you can see that you know the four percent rule isn't 100 uh success rate it's around a like 96 success rate which again nothing's ever going to be a sure thing like the future is not going to be like the past and things are going to be different so shooting for 100 success rate is very uh I think foolhardy just because it's it's not necessary like you're going to be flexible enough to to maybe deal with those scenarios if uh if you happen to have the worst luck that there ever was and um so yeah so looking at that heat map is very um eye-opening because it's it shows you it's like okay the four percent rule assumes um zero percent discretionary spending because it assumes that all of your expenses are going to be adjusted upwards for inflation every year and uh it it just assumes that you need to spend the exact same amount in real terms every year for the next 40 50 years of your early retirement but if you're someone like me who has over 50 of their budget is discretionary you know travel uh eating out going to bars restaurants things like that um over 50 of our spending was discretionary so you could have the same probability of success with a 50 discretionary spending with a 5.5 percent withdrawal rate so that's that's a pretty major jump so to put it into like early retirement um numbers so say your spending is 40 000 a year with a four percent rule that means you have to wait until you have a one million dollar portfolio to be able to retire early but if you have the flexibility that uh I talk about in the article and you have 50 of your spending going toward discretionary expenses you'd potentially only need to save up 727 000 which you know that's like a quarter less than that you would have to save in your entire career and you could retire that much earlier um again it comes with caveats because there's no free lunch but you know the article itself was more just like a thought exercise to get people thinking about it and not to be so freaked out about okay I need to save until I have you know a three year two and a half percent withdrawal rates and it's it's just Overkill um and I think people are potentially working a lot longer than they need to be if they if they in fact want to retire earlier can you define fixed and discretionary expenses yeah so I think it's it's for everyone to Define for themselves so for me personally like I mentioned in the article some things that people would classify as discretionary or like not negotiable for me so for for instance like I want to go back to the States at least once a year to see my family and friends and yes that's travel and that's technically fun and I could cut back on that if I needed to it's not like a central like roof over my head or food in my stomach but for me to have a fun and enjoyable early retirement then I definitely need to go home to the states so for me that's not discretionary that's That's essential but if you wanted to like Bare Bones it and like what's essential it's like all right mortgage or rents essential Food grocery budget's essential and you know Heating and utilities and all that sort of stuff but that's the thing with this this method is that you can just Define that yourself and for me some things like going out for dinner once a week that's I think that's going to be essential for me just well not now with a 10 month old but me eventually get back to that because I do enjoy it and it just adds to a really varied and interesting life so um so yeah at the at the default level Essentials the things that you have to have to live with you can't live without but um for this strategy you can Define that however you want that was one of the things that I thought was really interesting about this because my mind immediately leaped to okay how do you take the conclusions um that you guys put together to their logical extreme and say what what does that mean right so what is discretionary what is fixed well let's say that you're thinking about house hacking for example and you buy a duplex and the other side covers your mortgage well now you don't have any fixed expense for housing potentially if you've paid off car um you have no fixed expense for commuting maybe just a little bit of the insurance and gasoline there so that leaves you with you could theoretically take this and say wow there's a tremendous amount of expenses that are in fact truly discretionary here and you can start chunking down the amount that you need to live the financially independent lifestyle pretty pretty uh dramatically by following these conclusions and get up there in upwards of 50 60 70 discretionary spending absolutely and that was the side benefit of this idea and this whole strategy I liked the idea of one having people focus on reducing their fixed costs and also for someone like me who's super naturally Frugal and struggles to spend on myself even though I know we have enough and I know that you know there's lots of room in the budget to to do things fun things and buy nice things and stuff um I also liked the flip side of that where you have this discretionary budget and in years that the Market's doing well then you have this money that you feel like oh I can spend all of that discretionary budget and I'm gonna try to make the most of it so I liked both of those side benefits it's like one it gets you to focus on your fixed costs and maybe lower those as much as you can which is really the important thing like the the fixed cost or the or the main thing that will impact your spending and the success of your portfolio and things like that but then it also lets you live a little with your discretionary budget what I like about the article is that it shows you from the opposite you know you you mentioned a few minutes ago people are like oh I it's not the four percent rule I have to you know knock it down to the three and a half or three point seven five or even two and a half percent rule then I'll be okay you're like no look at this you can actually increase it depending on what your spending is so many people question the four percent Rule and my first thought whenever anybody questions the four percent rule is have you read the original article the original bengan article in the Journal of I can't even remember what it's called is so interesting and so I mean convincing he did so much research he didn't just say you know I think four percent's gonna be okay he did so much research and you know insert the past performances not indicative of future games but so smart and this is not the what can you squeak by withdrawal rate this is the safe withdrawal rate worst case scenario if you hit the worst case scenario ever of all time the safe withdrawal rate is four percent and you can extrapolate it up or ramp it up in times of really great returns so I like that this article if somebody was questioning the four percent rule could look at it and say oh I really could do more I don't have to pull back and do less but you know we're all human and we don't think in those terms we think you know oh worst case scenario or I'm I'm gonna run out of money are you gonna run out of money in one day like then you're doing it wrong yeah you definitely didn't save enough if you're gonna run out of money in one day but Brandon do you uh continue to look at the market do you continue to keep it an eye on the market even though logically you don't have to oh yeah big time yeah it's still an interest to me um yeah I would be better off not because yeah the what what's the Fidelity study where it was like the dead people and the people that forgot they had the account were the ones that performed the best because they weren't and they're messing around with it um so yeah I'd be better off not looking but yeah no it's it's still an interest to me so I still look um and yeah I was just speaking to Nick the other day actually and uh Nick was just saying how um I think with a four percent rule you're more likely to die with four times your initial amount than you are to retire to to die with less than you started with so that's how uh as just to reiterate what you're saying how you know people go crazy and start thinking like 2.5 Rule and you know all of those arguments assume that this time's different and the future is going to be different which it will be different but to know that the Futures can be different and to assume it's going to be that much worse uh I don't I don't buy that I if anything I think the future is brighter and productivity is going to increase dramatically due to you know Automation and Ai and things like that so I'm if anything more optimistic for to own these stocks than I am pessimistic that this time's different and I have any idea that it's gonna why it's gonna be different and I know so much that it's going to be to to to then say that it's going to be 2.5 the only way to go or it just uh it doesn't make sense to me just diving down this tangent one more step to just you know show how much I agree with what Brandon's saying here right there's this study about how housing costs have skyrocketed over the last 40 years and when you normalize for inflation and then the size of new construction homes they haven't really increased that much it's just that everyone today when they're buying a new home is typically buying a much bigger home with more bedrooms and more bathrooms than homes that were constructed 40 50 years ago so to that point like 40 50 years like like we have cooler stuff now you can get an iPhone you can get a Tesla you can get you know uh uh you can travel faster and more cheaply than previously so it's just your money can purchase way more today but to keep up with the Joneses will inevitably be harder and harder and harder with each passing year to live the lifestyle that you'll see uh folks of Instagram the beach isn't getting any better the the weather in in Scotland isn't getting any better or or worse like if you want to go out and enjoy the outside at a park like you're gonna like that time is going to be perfect now and in the future and it's free or very low cost at that point in time and I think that's what folks really I I don't think folks really take that through to the conclusion if you want to maintain your lifestyle today going into the future you'll probably be able to do so adjusting for inflation at a relatively cheaper and cheaper rate throughout the years but if you want to keep up with the newest Technologies and live in the newest places then that's where the the discretionary spending needs to needs to have ample room for growth yeah couldn't agree more and yeah keep not caring what the Joneses are doing is a is the biggest uh trick for pursuing Financial Independence or doing whatever you want with money because um yeah I feel like that was such a gift that I didn't care so that made it a lot easier and I don't know how how you do that but yeah it makes your whole life a lot easier not caring what the Joneses are doing because the Joneses are pretty crazy so you you in your article put this you know took took keeping up with the the Joneses I guess what this tangent to a mathematical uh calculation here you said that you have withdrawal rules that you have in certain market conditions could you go through those um for how you recommend someone who's starting perhaps at the four percent rule or or something like that that or or at the the withdrawal rate you suggest and then how you'd recommend they they think about their spending from a discretionary standpoint yeah absolutely so yeah like I said before there's no free lunch so just because you have 50 discretionary spending doesn't mean you can just bump up from a four percent rule to a 5.5 rule without changing anything about how you spend your money um so it just doesn't work like that sadly so when we're going back and forth with Nick we were trying to think of a way to incorporate discretionary spending and flexibility into a withdrawal strategy that wasn't like overly cumbersome or just really complicated and the conclusion we came to was right okay so let's say that every December 31st if you're retired with this new method you look at your past performance over that year and if the market is in a correction so if the market is you know 10 to 20 off its highs then you make one change to your discretionary spending otherwise if it's 20 or more down from it's the market highs then you do this other change otherwise you can just take your entire discretionary budget so to go back to the scenario of where you're 50 of your spending is discretionary this is how it would look so um so say you spend forty thousand dollars a year fifty percent of that is discretionary so that means your central spending spending which is twenty thousand dollars that's gonna just increase every year with inflation because we figured you know this is essential stuff so it does have to keep Pace with inflation so if you're renting you're gonna have to keep Pace with rental inflation um if you're factoring health care costs into that then you're going to want your Essentials to be covered by to increase with inflation um the discretionary is not adjusted for inflation so for instance so let's say you're twenty thousand dollars of discretionary spending if the markets are up or if they're down less than 10 percent then you take out that full twenty thousand dollars for that year if um if the market is in a correction so 10 to 20 down you would take half of that so ten thousand dollars would be going towards discretionary spending and if the Market's in a bear market so 20 plus down then you would have no discretionary budget and this goes back to my other statement of like you know you Define discretionary how you want it so definitely put put some essential fun in your essential bucket so that you're not having just a completely terrible year when when there's a bear Market uh the good thing is you know it's very rarely in a bear market and it uh the market like I said is overwhelmingly up and to the right so most years are going to be good so you're going to be able to get that full um discretionary budget um but like I mentioned before like I there's some side benefits to this that I think are really good for early retirement um and one of those is one it'll allow you to annually assess what you're spending on discretionary wise so it's easy to get into a routine and just spend the same thing every year and you may not even like it anymore so having this at the Forefront of your mind at least once a year to be like actually I don't need that uh you know Healthcare membership or health club membership or whatever or maybe we did travel too much last year and it wasn't actually that enjoyable and we'll just cut back this year I think that's beneficial so secondly it could also fix one of the things that I was most surprised about in that was most challenging for me and that was the fact that money no longer was a motivating factor in my life so my entire life has been geared around money like study hard in high school to get a good you know to get good grades and get a good SAT score so that I could get a good college and that would lead to a good job and studying computer science you know that was going to hopefully lead to a good salary and you know my whole life like even side businesses and hobbies like we're geared towards like oh I can maybe make some money off of this um to then have enough and to realize like oh money more money doesn't matter in the same way that you know more tap water doesn't matter which was a reference that Mr Money Mustache wrote about like a decade ago I think that when I read it I was like that doesn't make any sense but now you know when you're in that position it's like oh yeah it's like yeah it's great having tap water and it's great knowing that it's there and you need as much as you want you can take out and it's great and it's gonna be good for you but you know you're not filling up buckets of tap water just to you know to save and to have more of it and like you know what I mean it's not like I'm going out and Scavenging for more tap water but getting more of it doesn't really make sense and that was really a tough transition to make in my mind because then it was like well what motivates you and not having that biggest source of motivation was very disorienting but having this method then yeah maybe you're going to want to have a side business to account for those down years and you don't want that discretionary spending to drop to zero so maybe you are going to be more inclined to like pursue that side hobby that yes there's annoying things that you have to do up front to get over the hurdle of then making money but maybe that desire for money will still be there and it'll push you through those things to to do rather than just having sort of no motivation no monetary motivations anymore um which again I don't think is a uh it's an interesting way to live but yeah I don't know if it's better or worse I think that it comes down to you know if you have if you're in if if you are an early retiree and you have a million dollar portfolio and you want to withdrawal at the four percent rule right again going back to the basics here that a lot of people are very comfortable with right 40 That's 40 Grand a year and the market crashes 20 percent in the first year well you know maybe if you want us either you can cut back on to spend and spending discretionary spending like you suggest Brandon or you could just get a part-time job for that one year and much more likely to your point that you referenced earlier and that that Nick calculated you're four times more likely to end up more wealth over the end of 30 years you're much more likely to see the average 10 plus percent Return of the stock market in the early years and blow way past the spending goals the the amounts of money that you want to set aside for spending so if you're willing to just run those odds you're like oh my downside is great I'm gonna I'm gonna work at Starbucks for you know part-time for part of this year um as my worst case scenario that's pretty good and your best case scenario is you again pursue these side projects your your your much more likely scenarios you pursue these side projects you release an album it goes platinum and you make millions right is that what happened here no no it didn't go platinum I did get on the Billboard charts thanks to the math fantas listener which was ridiculous uh so yeah it made it onto the Billboard charts for one week which was still amazing and I got the plaque it's it's in the states off to get it now shipped over to this my a house now that I have a proper Studio but yeah got the plaque with the Platinum disc on it and saying where it landed on the charts and everything which is is ridiculous uh so yeah but no no no uh no Platinum sadly so that's phenomenal and we're linking to that in the show notes here so if you want to go read the article uh or listen to Brandon's album you can go check those out at the show notes Here at BiggerPockets money but anyways that so the point is you're much more likely to have a large Surplus once you reach any of these milestones for you know eight four five six percent whatever around Financial Independence and begin pursuing your own thing and living the life you want and and I think that that's an important takeaway from all of this math we do all this theoretical research we do all this math to back into these numbers and the answer is if you're just reasonably flexible and creative over that period of time you're probably gonna be fine you have a whole year every year to figure out those uh any of those things to Mindy's Point earlier you're not going to run out of money overnight if you've accumulated an estate of hundreds of thousands or millions of dollars and invested in a 60 40 stock Bond portfolio which yeah and that brings up two good points which uh reminded me of as you were saying that so the first is that as you mentioned we haven't even touched the five portfolio due to some of the software I wrote before I even started the mad scientist that's earning money um and we don't really spend that much so we still don't spend the match that much so that's an important caveat because everything I wrote about is all theoretical I'm not actually living that withdrawal rate which again living it is definitely different than theoretically thinking about it but I'm not living the four percent rule either so I can I talk about it in a in a in a sense of like yeah I'm looking at this from the outside so that's an important caveat to make just to tell people that because I don't want anybody you know thinking oh this guy's not living the walk or walking the walk the second thing is it reminded me of the big change that I forgot about at the beginning of the episode when you said there's lots of things that have changed and that is that I have started to spend more and I love it and as somebody who's supernaturally Frugal who is like you know spending money is like it means that I failed in some way and that's like the last resort um over the past few years I've tried to get better at spending and it has been so much fun and we can talk about that more if you want but that was the other thing that I knew I knew there was one other big change that I had forgot about at the beginning and that was it yeah I wanted to talk about that too because your latest podcast episode with ramit uh inspired quite a bit in my own personal life so thank you very much um the back to a point that I've been trying to make but then we keep going off on these other tangents that I wanted to make earlier is that you won't run out of money overnight because you are going to continue to monitor the market even after you retire I don't know a single early retiree who has got in here and then they're like you know what I am never going to pay attention to the market again I'm totally fine I'm just gonna go off on my little four percent rule plan and never ever ever look at anything again and then you know Wallop gets a surprise oh my goodness the Market's down I had no idea I mean it's not like the news doesn't cover it in perpetuity every time there's a you know blip in the market so you will be able to course correct and I think being aware of the fact that it's not the four percent rule it's a 4.15 and it's really the 4.8 and you that's the worst case scenario and you know keeping track of what's going on in the market and oh wow it's down maybe I'm not going to take that epic three-week trip to Hawaii with my family and spend like crazy because the mad scientist and ramit told me to maybe I'm I'm gonna pull back a little bit maybe I'll just go to LA or I'll go up to the mountains of Colorado or maybe you'll have a epic three-month trip to Thailand and you'll come back having spent less than you would have had you not gone anywhere because you're young and you have flexibility and you're adventurous and you're all these things that maybe a 85 year old retirees not and that that was the whole point of the article yeah I love it so we just we cover all this math we cover all these reasons why by the four percent Rule and these other rules of thumb make it so Ultra conservative you should really be going higher uh than that why is it that no one I I mean I met one person in all these years we've been talking about financial Independence who is actually retired on the four percent Rule and then not got and not had some sort of you know side bet you know a pension or a large cash cushion or a business or a side hustle or a book or a whatever with this why do you think what do you think it is about you know the the amount of energy that's been devoted to reassuring us on this number and the fact that if you talk to any early retiree essentially uh none of them have actually left at the four percent really all have an Ace in the Hole because they're all over Achievers yes yeah Big Time personality yeah I think uh yeah if you've if you've been able to do this in your 30s or 40s or 50s or whatever then yeah you're an Ever achiever and you're obviously very interested in things and you research them and you take them to the extremes if you think you can and you're just wanting to do something else as well so when you can do something else without without having money being the thing that drives you then you can make decisions that nobody else makes and like for example with the mad fientist I post maybe once every three four five six months and that's like every every how to make money blogging tells you that's the worst thing you can do you have to do every week or you have to be consistent um I say no to so many like interview pitches because I'm like my audience won't find this interesting yes you're gonna promote my blog and that would help grow this the podcast but I'm saying no because I'm not interested so my audience isn't interested so every decision I make for Matt fientist is with my audience mind and money doesn't even enter the equation so it's like that's gonna help my blog stand out from somebody who's pitching like everything that's paying them or like you know there's plastered with ads or whatever it's like you get to do these things for another reason and then people notice that and then you end up making money ironically anyway because of that because because of that that you're not trying yeah so how should we think about the these rules of thumb like is this the beginning of this the finish line is that is that the really is that the is that the Practical reality of these rules like the four percent rule in spite of the fact that they're clearly you're way past it financially you've got all the money you need for the rest of your life as long as you're confident you're spending projections I think it's a safety blanket okay so I knew I would make more money after quitting my job I just knew it because I all so many of my interests like right now I'm after speaking to ramit and him helping me spend more he's like try to think of ways you could spend more on something you love like what do you love I was like I love coffee I love my morning coffee ritual my pour over my beans grinding it smelling it buying different beans all this stuff and he's like well how could you spend 10 times in the amount and like it blew my mind it made me sweaty I had a actual physical reaction to it because I was like I'm already spending a lot like this is already a lot I'm spending like 10 pounds a week on fancy beans and they ship to directly to my house and like I just bought this 300 pound grinder that's super fancy and like it literally made me sweat but since then I've just kept going back to it and um and now I think I'm gonna buy a 3 500 pound roaster home roaster slash home roasting slash commercial that does like a kilogram of beans that I can roast and even then I think I'm gonna start selling them because my neighbor sells like cakes to all the hikers that go up the hill and I'm like oh maybe I'll just team up with her and I can you know uh sell some beans from her and that'll help me get better at roasting because I'll be roasting more because I won't have to drink everything I roast and there there it is again it's like there's another way that money is going to come in that it doesn't have to and it's not going to impede on my enjoyment of the roasting hobby but it's just another way that it's coming into my life that you know um I wouldn't have expected so anyway so I knew that I was going to be making money some way because all of my hobbies have logical ways to make money I guess but it's a safety blanket like someone who's so risk adverse that they're saving 70 of their their salary they need to know that if everything goes wrong and I'm you know confined to my beds and I can't go out and make money or I can't make money on the internet or anything then I'm gonna be okay and that's what I think a four percent rule was these days and I think the people that need a 2.5 percent rule need a really thick safety blanket that's just overly excessive and they're just gonna be too sweaty under that's the safety blanket to kill the the metaphor finally love it so this is this is a great set into talking about the the idea of spending more and all these these Concepts that I think are really hard for a lot of five people and I can see a lot of people who are listening who are not yet financially independent rolling their eyes at this problem um so I want to go back one second here and ask you about the arc here right you started out and you were very frugal like you saved a large portion of your income and that's how you built your wealth you amassed a large number of interests and various things you have music royalties you've got the bad scientists blog you've now got your coffee roasting Enterprise um you know all all of these items are contributing to your wealth and now you have this very large Surplus I'd imagine that enables you to spend more and you've got to shake these habits that that got you here to enjoy make the most of the wealth that you've uh created here do you think that's the arc that people should set themselves up for or do you think that there's a like do you think that the the necessity or that being so Frugal and so extreme in the early days is a necessity to give you the ability to have these problems uh about letting go and spending more today yeah no that's an that's a very interesting question and I think you have to know yourself so if you're a naturally spendy person then this is a whole this conversation seems crazy to you but I know for the fire community and I know Mindy and her husband are right there with me um when it comes to not being able to spend even though they probably could um I know I know this is definitely a much more prevalent situation for fire people um so yeah I think first is to know yourself and if you're naturally spendy then you know don't just let yourself go crazy uh you really need to dial that in but yeah for someone like me um who is looking back on his journey to financial Independence and now after that with the Surplus um I'm lucky in the sense that I there's not a lot of regrets getting to Phi um my wife and I traveled to 50 countries you know we did it cheaply and we were really good at Travel hacking and so it didn't break the bank but we didn't set we didn't sacrifice those experiences which I'm really grateful for and really the only thing I regret about my entire journey to Phi was missing out on a few uh Bachelor parties with my buddies in in my 20s because like I lived in Scotland they lived in the States I wasn't going to fly to the states a month before the wedding and then fly back for the wedding you know I wasn't going to fly the month before for the bachelor party it just seemed crazy to me but I can't get this that time back and a book that I only recently read that I wish I had read in my 20s and 30s uh was uh die with zero and that was after I published about I published this episode with the remeets and a lot of not fontus readers were like you need to read this book and so good because it talks about like how there's like a season for everything and you know I'm not going to get that drunk 20 idiot time back with my friends and I'm not in those stories where they all were 20 year old drunk idiots together and I wouldn't want that now in my 40s I could have a half a beer and then I'm gonna fall asleep because I got a 10 month old so in that sense I wish I had just relaxed a little bit but also I you know spending is a skill and I had not I did not have that skill and I'm only developing that skill over the last two or three years as I've actually actually worked on it so I think I could have let my foot off the gas a little bit during my time to fi and I could have exercised that spending muscle it to figure out hey what is worth spending on and I just thought all spending was bad whereas now I'm like wow some of this stuff is really making my life better like some of these things that I'm buying which I always hated things stuff but man some of my stuff is like it makes me so happy every day and then spending on experiences as well like elevating some of those experiences has been really fun so yeah so I think I would have eased off the gas a little bit maybe taking a little bit longer to reach the five goals and everything but um but I'm thankful there's not too many regrets okay you just said two things that really really hit hard um you said I thought spending was bad and I hear you I feel you I totally identify with that and I'm I'm just starting to get over it uh I can't tell you how timely and helpful your episode with ramit was um and how seen I felt from that episode thank you so much when he told you to start spending more 10x I'm like I'm sweating too when you're when you're sweating um you said but some of this stuff makes my life better and I have never until like what is that phrase I was today years old I was I don't know a month ago old when I started realizing that spending isn't bad if you can afford it and some of the stuff that you spend makes your life better or more enjoyable or you know you just like it and it's okay to spend money on something that you enjoy and spending is a skill and it is hard to make that very big change and then right after your episode came out Pete had an article about buying a Tesla he just spent fifty thousand dollars on it and did you see the hate he got from that no I didn't people were so mean I mean some people were like hey good for you and some people were like oh my God I'm never reading your blog again I can't believe you would be like this why do you have to and by Pete I'm sorry I mean Mr Money Mustache um why do you have to be so so hate-filled he clearly can afford it he's not you know simultaneously on food stamps and spending money on big fancy things that he can't afford he's got lots and lots of money that he can afford to to buy this car no problem yeah so that that that makes me think of two things um first is that's sort of why I've stepped back from the fire community over the last few years because at first when it all started out like it just felt like all these people like doing really interesting things like breaking the mold going against common knowledge and doing them and that was very exciting and then it got so big 2018 2019 and now it's so big that there's a group think within the fire community that like why would why would Mr Money Mustache get hate for making a choice when everyone knows he's very good with money and he's responsible and he's um able to do what he wants with it and it's getting to be like this group think and now I'm rebelling against the fire community so it's like when I started I felt like I was rebelling against common Financial knowledge and now after Fire's taken off so much I feel like I'm rebelling against fire because yeah every individual is different and like I nobody should be judged for any decisions they're making because you don't know what goes into those decisions and especially someone who's as knowledgeable and intelligent and as Mr Money mustaches it's like why would you go against him the second thing is the Tesla has always lived in my brain as something that um I feel encapsulates this problem more perfectly than anything else so I happen to know Mindy and her husband very well and I know her husband has invested in Tesla way back in the day and probably made enough just off that one investment to buy 50 Teslas and he's obsessed with Tesla he's obsessed with EVS he reads about them all the time and yet he still doesn't have a Tesla and I think my work can't be done on this topic of like freeing people from the chains of their past frugality until Mindy and her husband get that Tesla because I think that yeah just epitomizes uh what I'm I'm currently now trying to fight against I love it and I think but I I don't want to lose sight of the fact that you know the journey to financial Independence starts for most people with this pretty extreme bent on frugality and it's consistent across all three of us uh for sure right and it's part of your identity I think for a number of years right this is how you view yourself you don't you know you make conscious decisions about these places you're very clear conscious about where you live what you drive how you spend your money on food you tightly control expenses and that's a necessary stepping stone and we should encourage people to do that that's the that is a step in the in the road to success here right as the years go by a five seven year grind this but you but not so hard that you skip your buddy's bachelor party right or the wedding or the trip with your friends and family right I love that caveat right these are life experience you're never gonna get back but where you lay your head at night for five or seven years that can make a big difference about whether you're going to become financially independent what kind of vehicle you drive what you eat on a day-to-day basis all that kind of good stuff just to interject real quick because I think that's what's made this so fun is that I've gradually added these things to my life and it it's different I I Look to some of like my younger siblings like they just went from University to rate to have the fancy car in the nice place and the all the stuff and like I sort of feel bad because the they didn't get to have that like sort of grungy apartment Life After College and they didn't sort of like have to struggle and like go to hostels and and you know like some sketchy hostels in their European backpacking trip and stuff so like I feel like yeah adding this stuff in gradually is so much more fun because you're getting that dopamine hit just super gradually but it's um and and you can more likely afford it so I'm sorry to butt in there but that was such a important point that you made is that yeah you definitely need to sort yourself out early especially if regality is not natural like it is to all three of us but um adding it gradually makes it way more fun because you just get that slight dopamine hit uh as you go and and then you like again imagine what's going to be fun when like some of these younger kids are 40. it's like when you're when you're you're maybe not you're not getting wasted with your friends and stuff and traveling the world and stuff like like I I'm glad I had this nice house to be like my 40 year old thing like now I get to buy these cool things for my nice house whereas if I had that super fancy house right when I got to be 20 without you know without house hacking or without having roommates or without you know then what would be what would be getting my kicks from uh these days in my 40s yeah I think that's right but you know one of the things I wanted to make a point was in that journey to a frugality of extreme frugality that's your identity that was my identity for a long period of time perhaps that was how you viewed yourself Brandon that's perhaps how Mr Money Mustache viewed himself and then after a while that ceases to become important like it's just not a relevant factor in your life to be frugal there's a huge pile of surplus money the tap you know if you leave the tap on uh tap you know because it's flowing water right the metaphor we were using earlier um you know like for an extra few minutes to fill up your your your your water bottle with a little bit excess like that's great like you can do that and so that changes and I think that folks uh ingrain too much of the like frugality thing is like this lifetime concept um in there that then they lash out in the in the financial Independence community at the folks that are starting to spend more right um which will happen inevitably if you just spend less than you earn it and continue to invest the pile will grow bigger and bigger and bigger after you hit the four percent rule for example once you get to the beginning of the end uh whatever we called it with the four percent rule the safety blanket that's exactly right and that's that's one of the issues I see with the fire Community because I had that struggle just me personally without a name for it but now there's a name for it and now there's a community and now there's a Reddit subreddit that people are gonna judge you for all these decisions so it's even worse so for me it's taken a lot of years and thinking and like actual like dedication to try to unwind some of that natural um identity association with frugality but now it's even harder when you're immersed in that community that you know um espouses it's so much in it and yeah that's that's a shame that you know like then people are judging people for it which is uh even even worse because yeah um that's not the point it's not it's not who has the most money at the end wins it's that's not the point at all yeah or who can spend the least amount it's being comfortable it's being flexible it's having enough money that now you can do whatever you want I was uh having dinner last night with friends and they said you know we were we were talking so there was a couple Jen and Scott and then we we met a new new to the Phi Community David and he was like well you know I like my job and Scott said well you don't have to retire you you know you can still work if you want to and I think that there's a lot of people who are like oh well I have to retire I'm or I don't want to pursue Financial Independence because I don't want to retire I'm financially independent and I still work you don't have to quit if you like your job you can continue to work you can Cobble together some sort of employment situation that you enjoy most maybe you work five hours a week maybe you work you know 20 hours a month or whatever um it's whatever you want it's it just gives you flexibility and it isn't about you know how how little can you spend although I do I do find enjoyment in Jacob Lund fisker's extreme frugality uh I I find it fun to voyeur uh through him but I'm not going to go that that route but I also don't think that he Minds it either like I think he really enjoys that that's not something that he's doing and he finds pain in it but he keeps doing it anyway I think the lesson is go all out give yourself this problem right in life this this is what this is the kind of problem that you want and and get to that 50 60 70 uh savings rate but don't get so wrapped up in that as your identity that at the end you can't evolve to living the lifestyle that you want and make make yourself happy right there's a there there's more more to life than having a large pile of money and continuing to spend um like you're a college student you know at that point but again you know if you want this the this world of financial Independence you have to go through that phase to a certain degree and we can't forget that either uh sitting on our relative High horses here after having gone through that grind uh individually no I think that's a fantastic point and that's yeah exactly all of life has to be an experiment because we're so bad at knowing what makes us happy and I definitely took it way too far in the frugality of space and I I definitely pushed that boundary boundary I tested it um and realized that that was way too too miserable for for a long-term life and now here I am on the other side and you're right that the sequence does matter don't test the the fund spending side and see how far you can go in that without first testing the other way so you're absolutely right the sequence matters first tests and find your boundaries on that edge and then slowly start adding things back in that you think could benefit your life and then get used to that spending and get used to using money for that reason and then um and then yeah hopefully one day you'll be in a situation where you're you're able to then test the other boundary and um and yeah that's it it's it's way more fun than I thought it would be um and it's way more challenging than I thought it would be because I haven't ever hit the targets that I've set to try to test that other boundary yet because it is I'm so so used to being that Frugal guy um in old habits die hard I love however meat told you to spend 10 times the amount of money and so you bought a coffee roasting business essentially so I haven't told him that all habits die hard because I haven't bought it but uh yeah I'm definitely gonna get back in touch with them because I would I wouldn't have thought of that otherwise so we'll see how it goes well Brandon any are there any other things you want to share with us before we kind of wrap up here no I think yeah we covered so much of uh of what I've been thinking about recently and yeah I appreciate you guys getting me on the show to talk about it because um yeah it helps helps with my thinking as well and my plans for going forward because like I said it's all an experiment I don't have the answers and nobody does have the answers because it's so individual so you have to find the answers for yourself okay and then this Eiffel to talk to you time of course but but we will find you before you come back again okay so the most important thing to go to is Matt findus.com album um because there you can find all the the music stuff I'm doing which is what I'm really super into after after leaving my job and hopefully gonna start playing some live shows so if you can follow me on Spotify and stuff that all helps with booking gigs so then we can meet up in your hometown and we can talk about Finance stuff I've ever beer but at least then I'll be there with uh with the music stuff which would be super fun um so yeah Matt findsis.com album but you can find me anywhere that mad scientist exists because that's me um it's a made-up word so I'm I'm that scientist on Twitter and Facebook and Matt findus.com and yeah that's everything I think so thanks for having me again it's always great chatting to you guys and where can we buy the Roastery that'll that'll be very local so it's a very small village in Scotland you'll have to come to but uh I'll see you at one of my shows and I'll tell you where and I'll maybe bring some beans with me do that okay thank you Brandon this is so so much fun and we will talk to you soon thank you so much thanks again guys see you soon bye all right Scott that was Brandon the mad scientist he's always awesome I'm sorry Brandon the mad scientist Billboard Chart topping musician uh new dad new homeowner and uh future coffee roaster Master Brandon the math scientist yeah I love talking with Brandon every time what a what a a humble happy hard-working brilliant person right I mean every time we talk to him we learn something he's he's very thoughtful he he his ego is so in check I I just enjoy talking with him every single time and love the life that he's created for himself um through humility hard work smarts and discipline and grind yeah he is such a delight and he's so giving he loves to take those horrible tax documents and read through them and translate them for you he loves to take these complicated issues and think about them and look for loopholes look for ways around them and this most recent article about the four percent rule is just yet another example of him taking this hard and fast rule the four percent rule that has been kind of uh overly simplified by a lot of people oh it's four percent it's always four percent he's like no it doesn't have to be four percent it could be five percent it could be six percent I think it's important to keep track of where your money's going I think it's important to keep track of what the market is doing and if you are on the path to financial Independence if you are in a position of being financially independent you are most likely going to be tracking your spending at least Loosely and you are going to be keeping track of the market because that's the kind of person you are so this is not adding anything to your plate it's just giving you more options and that's kind of what Financial dependence is all about yeah I completely agree and I also think I just want to come back to that conversation we haven't earlier right like we're I think that the three of us are going through this this wonderful shift in thinking about oh how what is what does abundance look like now that we've kind of crossed this hurdle of the four percent rule um and are well beyond it each of us um that does not change the fact that the way I got here the way Mindy you you got to your current level of wealth the way branding got there was a grind of many years that was pretty intense and all out and very frugal and very dedicated for a long period of time mixed with a high income and low spending for many of those years uh especially in the the later stages of the journey to Phi and there's Evolution that comes after that and I at least want to continue to really heavily encourage that I think it's a healthy approach and yeah like go go all out for those first couple of years and then look up after you've cried across that four percent Rule and begin you know open up and say the rest of my life the next five decades potentially um if you can do this in your 30s or 40s are going to be uh uh whatever I want them to be and I can go and reinvent myself five or six times don't let it become your identity to the point where you carry on too cheap uh after after the the after the the thresholds for financial Independence are hit absolutely I really love water analogy from Mr Money Mustache I don't need to have Home Depot buckets full of tap water around my house I can just go to the tap and take it out whenever I need it I don't need to hoard it around the house money's the same way all right Scott should we get out of here let's do it that wraps up this episode of the BiggerPockets money podcast with Billboard Chart topping artist Brandon the mad scientist get his album at mad scientist.com album he is Scott trench and I am Mindy Jensen saying later days manta rays BiggerPockets money was created by Mindy Jensen and Scott trench produced by Kalyn Bennett editing by Exodus media copywriting by Nate Weintraub lastly a big thank you to the BiggerPockets team for making this show possible foreign [Applause] [Music] [Applause] [Music]

Channel: BiggerPockets Money

Views: 57,792

Keywords: retire early, how to retire early, early retirement, the mad fientist, mad fientist, financial independence, financial independence retire early, personal finance, how to retire, retirement planning, early retirement planning, fire movement, financial independence retire, the fire movement, the 4% rule, how much to save to retire early, retirement plan, retire in your 40s, retire in your 30s, retire at 40, biggerpockets, biggerpockets money, biggerpockets money podcast

Id: e4y4V12oXE8

Length: 64min 19sec (3859 seconds)

Published: Mon Jul 10 2023