Afford Anything - How to Face Your Financial Fears

Episode Date: September 27, 2024

#544: Remember that time you found a $20 bill in an old jacket pocket? The rush of excitement, followed by the quick mental math of what you could buy with it? That's your money mindset at work. In this episode, we dive deep into the psychology behind our financial decisions. You'll hear about the three money mindsets: anxious, obsessed, and avoidant. Ever clutched onto every penny out of fear? That's the anxious mindset. Spent big to impress others? Money obsession. Ever thought "I'd rather be happy than rich" or felt uncomfortable talking about money? These could be signs of a money-avoidant mindset. The episode shares a personal journey from being terrified of running out of money to developing a healthier relationship with finances. It's not just about saving or spending - it's about using money as a tool to express your values. You'll learn why being "good with money" isn't as simple as “just don’t spend it!” Think about Ebenezer Scrooge - he had plenty of cash but lived like a pauper. Is that really good money management? On the other end of the extreme, you have Montgomery Burns from The Simpsons as another example. He's loaded but obsessed with getting even richer, showing how the endless pursuit of wealth can leave you lonely and isolated. The talk covers how your beliefs about money can become self-fulfilling prophecies. If you think you're bad with money, you might make poor financial decisions without realizing it. You'll hear about the balance between time and money. Both are limited resources, and sometimes it's smart to spend money to buy back your time. After all, you can always make more money, but you can't make more time. This episode tackles the myth that work is always a drag. It suggests finding work that gives you a sense of purpose can lead to both job satisfaction and financial success. Investing comes up too. You'll learn why it's often simpler than the financial industry wants you to believe. Sometimes, doing less with your investments can lead to better results. We wrap up by talking about imposter syndrome - that feeling that you don't deserve your financial success. If you've ever felt like a fraud because your bank account looks better than it used to, you're not alone. Throughout the episode, you'll get insights into how your past experiences shape your current money habits. By the end, you'll have tools to start examining your own money mindset and working towards a healthier relationship with your finances. For more information, visit the show notes at https://affordanything.com/episode544 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Many people assume that money is tactical. Do this, don't do that. In reality, money is actually behavioral, not tactical. We know what to do, but so often we get in our own way. And so to be, quote, unquote, good at money, we have to really unpack our own financial psychology. And so today's episode is all about facing your financial fears. Welcome to the Afford Anything podcast, the show that understands you can afford anything, not everything. And that applies to any limited resource, like your time, your first,

focus, your energy, your attention. So which do you prioritize the most and what tradeoffs are you willing to make in accordance? Answering those two questions is the focus of this podcast. We cover five pillars. Financial psychology, increasing your income, investing, real estate and entrepreneurship. It's double I fire. And today's episode is all about that first pillar, financial psychology, the F in fire, in the way that acronym is defined here. I am your host, Paul. I trained in economic reporting at Columbia. I'm here to help you prioritize because that's the key to growing wealth.

So let's kick off with the misconception about what it means to be quote unquote good with money. A lot of people mistakenly think that being good at money simply means you have a high savings rate. Oh, it's easy to be good at money, just don't spend it. Right? But that notion is reductive. And it can lead to enormously dysfunctional behavior. Most of us or many of us know people who are quote unquote too cheap for their own good.

They cannot part with money. They can't let it go. They have a great savings rate. But they're often pretty risk-averse in their investments. And they don't use their savings for anything. Savings is deferred spending. It's money that we're putting aside to spend later. If that later never comes, then what's it all for?

And so the myth, the misconception that being quote-unquote good at money means that you, have a competitive savings rate. That's great. But what is it costing you and are you considering the context of how that money could be a tool in your life? Think about it. If we took this idea to its extreme, the notion of being good with money simply means not spending it. If we took that to its extreme, we would end up like Ebenezer Scrooge. He lived in self-imposed poverty. I, of course, he was a fictional character from Christmas Carol, but he lived in self-imposed poverty, despite the fact that he had enormous wealth.

And nobody wants to be Scrooge, and nobody would argue that Scrooge was good with money. He was good at accumulating it, but he failed to use it as a tool to improve his life or to express his values. Scrooge was the absolute epitome of miserliness, and he had a famous catchphrase, bah, humbug,

which reflected a, disdain for anything that might cost him money, including basic creature comforts. We're not talking luxury, just basic comforts, and including expenses that would facilitate social connection. Scrooge as a character seemed to have a deep-seated fear of poverty, and that led him to behave transactionally, to value hoarding money over human relationships. I mean, he refused to even properly heat his office. And let's be honest, how many of us know people like that, the ones who keep their thermostat at really uncomfortable levels?

Because we get to eke out just a little bit of extra savings. That is extreme frugality. And it comes about when we mistake the tool for the end game. Money is a tool to help us live our best lives and express our values in the world. Money is not a substitute for life itself. It is not the end game. It is a tool that facilitates the end game. So if you're a person who's good with money, that means you're using money as a physical manifestation of your values. That's what it means to be good with money. It doesn't mean you save as much as possible. It means you use money as a representation of your

values. When those are aligned, when those are in integrity, that's when you're being good with money. Now, what causes a deviation in that alignment? What causes us to have a dysfunctional relationship with money? Well, I believe this can be boiled down to three categories. You're either anxious, you're obsessed, or your avoidance. So let's unpack each one of those three. And before I start, I'll say these ideas heavily draw from the research that was done by Dr. Brad Clonce, who is a financial psychologist who we will be interviewing in a three-part series on this podcast that's going to air in late October. So I want to give attribution to where attribution is due. In his research, he has actually found four categories, but I have condensed them. In my own take on his research,

I have condensed them down to three. And those three are anxious, obsessed, avoidant. And I want to start with the last one on the list, avoidance. Because this. This often relates to deeply internalized negative scripts about money. So if you believe that rich people are greedy or money corrupts, or I'd rather be happy than rich, as though the two were mutually exclusive, which is a false dichotomy, right? If you believe any of those ideas, that can even subconsciously lead to self-sabotage because, well, rich people are greedy, you don't want to be greedy.

if money corrupts, well, you don't want to be corrupted. If you're rich, then does that necessarily mean that you're unhappy? If you'd rather be happy than rich? And so when we hear these negative messages, there's a part of us that gets in our own way, a protective mechanism to stay inside what's familiar and what's comfortable. And where do we learn these unhealthy messages? Well, let's go back to the Ebenezer-Skrooge example,

because in popular media over and over, we see that the rich people are the villains. So let's take The Simpsons, the character of Montgomery Burns. And I mentioned this character in our recent podcast episode, one of the two recent podcast episodes, that we did with Katie Gaddi Tasan, the host of Money with Katie. In The Simpsons, Montgomery Burns, think about his catchphrase. Ebenezer Scrooge had the catchphrase, Bah Humbug, which was dismissive of spending money, what's Montgomery Burns' catchphrase?

His catchphrase is, excellent. And when does he say it? He says it when he's profiting at the expense of others. There's an episode where he literally blocks out the sun in order to increase energy usage that comes from the nuclear power plant that he owns. There's another episode where he's illegally dumping nuclear waste,

in the river, creating three-eyed fishies to save on disposal costs, right? And that's when he goes, excellent. He's this evil villainous character, cartoonishly so. He's also lonely, isolated, paranoid, constantly dissatisfied. We don't want to be an extreme cheap skate like Scrooge, but we also certainly don't want to be Montgomery Burns. And I did some digging as I was thinking about this, as I was planning today's episode, I was thinking about other characters, because if this were limited to a Simpsons reference, it would not be as pernicious as it is today.

But like, let's look at Game of Thrones. Tywin Lannister. What's one of his catchphrases? It's a Lannister always pays his debts. And on the surface, that sounds great. Oh, great. He repays his debts. Good.

Good job. But he isn't repaying his debts because it's the right thing to do. He's repaying his debts because that's how he maintains power and status and reputation. It's how he maintains political influence. And he crushes anyone who gets in his way. He's obsessed with his legacy. He's so obsessed with his legacy that it destroys his family. It's the ultimate irony.

And I'm not giving away any spoilers here, but he is so obsessed that it, harms his relationships with the very people who share the Lannister name. The Lannisters are the wealthiest or one of the wealthiest families in Westeros. And they're also one of the worst. And so again, it's that internalized script of, you don't want to be like that guy. You don't want to be Tywin Lannister. You look at Harry Potter.

Look at the character of Draco Malfoy and the Malfoy family. Like, they're snobs. They're just total. snobs and they look down on Ron Weasley and the Weasley family because the Weasley family is middle class or lower middle class. You know, they're sweet and they're loving, but they're kind of poor and the Malfoy's are established in their blue bloods. But it's another classic example of associating villainy with wealth. And I mean, without giving away any spoilers. Obviously, Malfoy is not the real villain in the story. The villain there is Voldemort. I think I can

safely say that without spoiling it. But, Traiko is still just not the kid you want to sit next to at the cafeteria. You'd rather hang out with Ron Weasley or Hermione Granger. And even Harry himself lived underneath a stairwell. The good guys in the story always have really humble beginnings. And so all of this leads back to why people can sometimes internalize those ideas and then kind of become avoidant and stop really taking care of their finances and stop trying to improve the amount of money that they can earn and stop trying to learn how to invest and stop trying to buy other assets like real estate or businesses and just kind of grow complacent. And let me be clear, it's one thing if you are in a really healthy place and you've made the conscious decision that you are going to prioritize other things with your limited time on this earth, it's another thing entirely if you're doing so from a place of avoidance. So there are two behaviors that on the surface may appear quite similar, but depending on

what it's rooted in, that's the distinction between whether it's healthy or not. Now, on the flip side, you've also got people, and this is the total, opposite end, people who are obsessed with money. And this is the, you got to blow it to show it, mindset, the luxury brands, the fancy cars, like all flash, no cash. And so they're driven by this need to spend money in order to impress other people. You know, there's that classic saying you spend money you don't have to buy things you don't need to impress people you don't know or that you don't like. And at the risk of stating the obvious, we see a lot of that on Instagram. We see a lot of that on social. But we also see it in our day-to-day lives in the parking lots where we work,

in the middle schools and high schools, and on the college campuses that either we ourselves recently attended or that our kids now attend. You know, they say you can tell someone who's middle class because they are flashing a lot of very obvious conspicuous brands. And you can tell someone who is truly wealthy because they're not. Even if they have well-crafted, well-constructed items, there's no overt branding. That is quiet luxury. the kind in which you enjoy the craftsmanship of something fine, but you don't like or want or desire the brand cachet that comes with it.

So this is money obsession. And it's one of the mindsets that causes us to be quote unquote bad with money, just as much as being avoidant or internalizing those negative scripts about money also causes us to be quote unquote bad with it. in both cases we sort of fear money. Even the people who blow it to show it also kind of fear it. They fear that one day it won't be there. They fear that they themselves are nothing without it.

And they fear that it'll never be enough. Also, so we're talking about people who are obsessed with money, but we'll go to another category, people who are anxious, have that same fear that there will never be enough. but people who are really super anxious about it, and I used to be one of those people, that ultra anxiety comes from the scarcity mindset, this idea of, oh, I've got to clutch onto every single penny, because maybe I'm not going to ever be able to make more.

Maybe this is it. Maybe this is the last of it, the last water in the desert. So there's this huge anxiety that comes in, And that can lead to what on the surface seem to be frugal habits, great. But it's rooted in a deeply, deeply unhealthy place, in a fear that you're trapped underground and this is the last ray of sunlight. And so you're not really thinking about making more. You're just trying to clutch on to what you have. Right?

That's scarcity mindset. And that's money anxiety. And when you have that, it takes a lot to learn how to spend. It's funny. It's the same fear as people who are obsessed with money, different iterations, different expressions of that same fear. We're going to take a break to hear from the sponsors who make this show possible. And when we come back, we're going to talk about a closely related concept,

which is imposter syndrome. We'll talk about that. We'll discuss the self-fulfilling prophecy of money mindsets. We'll discuss the myth of work as necessary drudgery. We'll cover quite a bit more ground. That's all coming up. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient.

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and more, terms apply. Don't miss out on early Black Friday deals. Head to Wayfair.com now to shop Wayfair's Black Friday deals for up to 70% off. That's W-A-Y-F-A-R.com. Sale ends December 7th. Welcome back. Now let's talk about something that may be plaguing a lot of those of you who are we're listening, especially if your financial situation has improved over time.

If you're in a very different place today than you were in 10 years ago, 15 years ago, 20 years ago, imposter syndrome is this nagging feeling that you don't deserve your success, that you are somehow faking it, or that you will be, quote, unquote, found out as a fraud. The poet and author, Maya Angelou, described her feeling every time she published a book. She was like, oh, this is it. This is where they're going to find out that I can't write, which is, of course, absurd.

She's a beautiful writer. She won the Grammy. She won the Presidential Medal of Freedom, which is the highest civilian honor in the U.S. She won that for her writing. The post office issued a stamp about her. And yet despite or perhaps because of all of those achievements and accolades, she openly publicly talked about that feeling that,

oh, man, one day they're going to find out. They're going to find out, right? That is imposter syndrome. When it comes to you and your money, this can be an incredibly intense feeling, because you probably remember those early years when you were working retail as an entry-level associate making a little bit over minimum wage. And you remember all of the self-doubt, but before you earned what you do now, before

you amassed what you do now, you remember all the self-doubt that came before it. And when you think about your story, your trajectory, you can see. so clearly see the ways in which luck played a role, as it does for all of us. You can even pinpoint those inflection moments, the chance meeting, the random conversation that led to X, which led to Y, which led to Z. And all of a sudden, you had this opportunity in front of you, and you found yourself in a completely different place, right? even projects that are slow slogs have their points of inflection punctuated along the way.

Maybe you bought a bunch of Tesla or Nvidia stock in 2014. Heck, maybe you bought a house in 2014 and you've held onto it ever since. And you had nothing to do with the market run up. That wasn't the result of your personal brilliance or your late nights and early mornings with your sleeves rolled up, toiling. So it almost feels like an accident. You just happen to buy the right asset at the right time. And poof, here you are.

And you look around and you see a bunch of your friends who have worked just as hard or harder than you. But they didn't buy the asset. And they're in a drastically different place. And so it doesn't feel real and it doesn't feel right. And you wonder, why me? But why me is a question that some people ask at times of distress. But why me is also a question that you ask at times of victory. And that's what imposter syndrome is.

And we feel this disconnect between who we are and the reality surrounding us. It's like we've stumbled into this. life with this set of really great circumstances that wasn't meant for us. And this feeling, if you have it, know that it is enormously common, particularly among people who've experienced a big change in their life, significant financial growth. Maybe it comes up for you as a feeling of guilt about your success. Maybe it comes up for you as this constant worry that you're going to lose everything and end up back where you started. Maybe that leads you to being overly frugal to adopting that inner Ebenezer Scrooge.

Maybe that comes from a place of feeling like it's not really, quote, unquote, your money to spend. So how can you spend it when it doesn't even feel like it should be yours? Maybe you downplay your accomplishments. Maybe you're uncomfortable when other people praise you. or acknowledge what you've built or what you've done. Because again, you see people working so much harder for so much less. And you're like, why me? So if you feel that, if you feel that imposter syndrome,

I want you to know that while that feeling is so common, it's not reality. It's a story in your head. And where you are today is the result of a combination of choices, work, and luck. But remember the famous quote, the harder I work, the luckier I get. It's a quote that's been attributed to a lot of people,

Thomas Jefferson, Mark Twain, George Allen, so no one knows who really said it. It might be an old Amish saying, but it gets repeated often because it's so real, the harder I work, the luckier I get. And if you can remember that, then that might help take the edge off some of that imposter syndrome. Because remember, your job is to use your money in a way that aligns with your values.

So stop thinking about yourself, frankly. You know, imposter syndrome is being stuck in thinking about yourself. Whereas if you're thinking about how can I be good with money, how can I be good with the tools that I have, then you're not thinking about yourself anymore. you're thinking about how to be a good capital allocator, how to use the resources at your disposal in a way that aligns with your values. Right? That's a focus on the external world.

That's a focus on, so what do I do? So to tie this portion up, the stories that we tell ourselves, these become self-fulfilling prophecies. If we believe that money is evil, then we might subconsciously sabotage our own success. or if we've achieved some success but we feel like we don't deserve it, that imposter syndrome, we also might subconsciously sabotage it. If you embrace the idea of I'm bad at money, you're going to make bad choices.

You're more likely to at least. Because that is a mindset that's driven by fear, our fear of our finances. But if you adopt the mindset of I'm good with money, defined as I align my money with my values, And I am a wise capital allocator. Okay, that's a powerful story that can then become a self-fulfilling prophecy. So let's move to another set of stories. And these are the stories that we tell ourselves about work. There's this idea that work is drudgery, that it's something that, you know, we punch our

time cards, proverbial time cards, purely for the sake of a paycheck. and that work and life are pitted in opposition with one another. So this is the issue that I have with the construct of quote-unquote work-life balance is it is a construct that pits work against life, as though the two are in opposition and it's a zero-sum game. Every hour you spend at work is an hour that you are not spending at life and vice versa. and so under this construct, work and life become boring factions, each trying to claw a few hours back from one another. Now, before I continue, I do want to pause and make a few disclaimers.

First, there's a distinction between a temporary job that you take on for a short period of time just to pay the bills. We've all been there. We have to do it. And when I say temporary, sometimes temporary might be five years. temporary doesn't just mean seasonal. It might be something that goes on for a while. But even if you're in this position for five years, five years over the span of a 40-year career is nothing.

It's just over 10%, which means almost 90% of the rest of your working life could be spent doing something more fulfilling. Even if you have to take this temporary measure in order to do the work required in the work required in the evenings on the weekends, in the margins, in order to ascend to the next level. So I want to make the disclaimer that I'm not saying that every job should be puppies and unicorns. Some jobs do suck, and they are drudgery, and you just have to stick it out until you can

get yourself to the next level. And what is that next level? That next level is a career that you actually want, one that has mastery, autonomy, and purpose. We know from the literature, we know from research, that the three biggest predictors of workplace satisfaction is a sense of mastery. Are you improving within your craft? A sense of autonomy. Do you have time and space to do your thing and some reasonable level of freedom within your day-to-day activities? And do you have a sense of purpose? Are you satisfied that what you are working towards, the contributions that you are making within your organization,

are they leading to something better? Is there purpose within those outcomes? I know a lot of people who find the fire movement, financial independence retire early, because they want what is fundamentally a well-funded career change Most people that I know inside a fire, there are some exceptions, but most people I know, if they are in their 30s or 40s or even early 50s, are not looking for a complete and permanent cessation of all income. Instead, most people want to do something that's more fulfilling. They may not know exactly what, and whatever that thing is may or maybe.

may not pay very well. You know, we spoke earlier about puppies and unicorns. Maybe. Maybe you want to work at a non-profit animal shelter. Maybe your purpose is to rescue puppies and senior dogs, and blind dogs and disabled dogs and dogs of all varieties. Maybe animal rescue is calling you, but that would require such a drastic change in your finances. You want to batten down the matches and make sure that you and your family will be okay. And so I think what's beautiful about fire is that it gives us the freedom to go pursue our calling and to do so in a manner in which we feel secure. And so work is only drudgery if you're not doing the thing that fits you.

By contrast, if you've found the thing that fits like the late Betty White, or Charlie Munger, you might, might be happy to do it until you're 99. And maybe you take a break for a, maybe you take a break from the time you're 70 until you're 85. And then at 85 you get back in. Because heck, if you're 85 and you're going to live until 99, you still got a good 14 years. So never say never, because you don't know what you're going to want when you're 85. And if you are healthy and if you found your calling, there's a chance you might want to do more it. Okay, we're going to take one final break to hear a word from our sponsors. And when we come back,

we're going to talk about the ire of fire. Welcome back. So you know how in the traditional fire acronym, financial independence retire early, the FI is crucial. Well, if your goal is fire or FI, the FI is the crucial part because financial independence is the common universal shared goal of everybody who is in the FI or Fire space. The RE is optional, right? The RE, the retire early, is one of many possibilities that could come after FI, but it's optional. It's a choice.

No one is going to drag you kicking and screaming away from your desk while you protest, like, no, I just really, I want to send another email. But I need to circle back. You can have all the money in the world. No one's going to force you to quit your job if you don't want to. Taylor Swift is financially independent. Weird Al is financially independent. Carrot top, I assume, is probably financially independent.

But all of them can still work if they want to. So anyway, FI is the core of it. R.E. optional. Same thing in the double I fire, my own take on it. the phi with two eyes, that's the necessary part. Getting your financial psychology right, that's what we've spent this entire episode talking about. That is the crucial component of having a healthy relationship with money.

And unless you have a healthy relationship with money, then no matter how much or how little you have, it's going to be dysfunctional. It's going to be unhealthy. You're going to be quote unquote bad at money. But if you can get to a healthy relationship with money and use it, to reflect your values, that's when you become, quote, unquote, good with money. So financial psychology is the foundational piece and it cannot be ignored. It is the core.

It is the heart of what we are doing. And then the two eyes, increasing your income and investing. If you do just those three things, right, get your money psychology right, boost your income and build investments. Do just those three things. You can ignore the rest of it. You can ignore the RE part, which is real estate and entrepreneurship. You don't need to do that.

That stuff is optional. You can spend your entire life being a renter. Plenty of people in New York are renters for life. In fact, you have multiple generations that will just pass down the same rented apartment from grandparent to parent to child to great parents. grandchild. In New York, they're not owners of it, but it's a rent-stabilized apartment, and heck, they're not moving. So real estate is an option, but you can have a wonderful financial life without either investing in real estate or purchasing a personal residence. Neither of those

are necessary. And similarly, entrepreneurship, not everybody wants to be an entrepreneur. If it appeals to you, it appeals to you. If it doesn't, it doesn't. And the worst reason to do it is FOMO. The worst reason to do it is, well, everybody on TikTok is doing it. So the R and the E, the real estate and the entrepreneurship, those are optional, just like the RE in fire, the retire early. It's an option. But the FI, that part is crucial. Get your money mindset right, increase your income, and make investments. So that's the distinction between F-I and RE in both sets of acronyms. But now let's take a look at the ire of fire.

Because ire, IRE, in my take on it, lives along a spectrum from most passive to most active. And I know that passive is a loaded word. So in order to avoid a semantic debate about what quote-unquote passive means, because so many people misinterpret the word passive to be a euphemism for free money, and it's not, but unfortunately it's taken on that connotation. So in order to get away from this misleading connotation and speak about passive activities in a more digestible manner, I'm going to use the term residual, right? So ire, the ire of fire, is laid out along a spectrum from most residual to most active. And so here's what I mean by that. So the first of the two eyes, which is increasing your income, there are a myriad of ways to do that, ranging from learning a new skill to pivoting your offering, which means maybe you transfer

the same skill into a new domain, a new industry. or if you're a freelancer, you find an alternate target client or customer, to negotiating for more, asking for a bigger raise, going into that prepared and confident. The thing about increasing your income is that you front load that workload and you earn residual payment from it for as long as you continue working. If you learn a new skill,

you have to do the hard work of learning that. that skill initially, and depending on what skill that is, that alone might take years. But then beyond that, outside of continuing education, a lot of your ongoing learning is going to be on the job. And so the work that you do to learn a skill that increases your income, the bulk of it happens at the front end. That's theoretically what college, grad school, was supposed to be. And for certain professions it is. It, in theory, was supposed to be a model for taking four to eight years of your life to dedicate towards sharpening your skills so that you would then have that as a skill set throughout the rest of your life. Now, whether or not that's actually

been true for you is going to be highly dependent on what field you're in. But similarly, transferring that skill set to a different domain that might be more lucrative, there's going to be a lot of work up front associated with that. Once that's done, it pays dividends, so to speak, for the rest of your life. Likewise, asking for a raise, negotiating for more, setting that higher bar up front, you know, if all of your future raises are based on a benchmark of whatever salary you have managed to secure, well, raising that benchmark has residual impacts, downstream effects that compound over years and over decades. So when I say that the ire of fire is most residual to most active, right, we're anchoring it with that first eye, which is increasing your income,

and all the residual benefits that that creates the downstream, the multiplying downstream effect, which is also called compounding that that creates. The next I, investing. For public markets investing, and of course there are many, many types of investing, there's buying private companies, etc. But for public markets investing, particularly if you are a passive investor, as I am. In fact, I'm currently at the time that you listen to this podcast, I will be at the Bogleheads conference,

a conference of people who are big fans of John Bogle or Jack Bogle. he goes by both, or he went by both, he's passed away. He is the founder of Vanguard and widely credited with being the inventor of the index fund. But people who are big fans of Mr. Bogle refer to themselves, ourselves, as Bogleheads, and I'm at the Bogleheads conference right now as of the time that you're hearing this. But what is the philosophy that he taught and the investing strategy that he taught? It's passive investing. It's index fund investing.

And if you're new to personal finance, it takes a little bit of time to learn what all of these terms mean. What is an index fund, right, if you're brand new? But it's not that complicated. And once you figure it out and you automate your contributions and you rebalance periodically, it's pretty residual from there on out. So the ire, the two eyes in ire of the ire of fire, are both very residual in... in the compounding effects that they can have over the span of your lifetime. Now, going all the way to the other side, the opposite extreme, is entrepreneurship.

That is incredibly active. It's a huge lift. It's a lot of work. It's, you know, the expression, all work 60 hours in order to not work 40. Entrepreneurship, especially early entrepreneurship, those first few years, it's a, massive lift. But if done well, it can bring enormous wealth. So that is the most active side of the ire. And then real estate, you know, what's cool about it, what I love about it, is that it is a hybrid between entrepreneurship and investing. It's mostly investing, but it's got a smidge of

entrepreneurship in there because when you buy a share of Coca-Cola stock, you have no say in how the Coca-Cola company is run, assuming that you're not an employee there. But when you owe a piece of income producing real estate, you have decision-making authority that influences the returns that it gets. You can add your own value to the deal. So real estate is this beautiful hybrid between investing in entrepreneurship. And so when I say that Iyer is a spectrum from most passive to most active, or phrased another way, most residual to most active, that's what I'm talking about. You can trace that progression. So decide for yourself, and this is going to be an individual decision for each person.

Do you want to maintain your focus on the residual side of that spectrum? Or are you also enthusiastic about being on the active side of that spectrum? And that's an answer that's probably going to change in different eras of your life, as you have different levels of responsibilities and time and energy and everything else that goes into the decision-making of how active do I want to be versus how much do I want to really optimize the residual end. But as you think through it, I hope that that framework of the ire of fire and the residual-to-active spectrum, or the passive-to-active spectrum,

I hope that framework helps provide some structure to your decision-making. Well, that is today's episode. Thank you for tuning in. if you enjoy today's episode, please share it with a friend or a family member or a neighbor or a colleague or anyone in your life who you think could benefit from hearing this. That's the single most thing you can do to help the fire spread. My name is Paula Pant. This is the Afford Anything podcast, and I'll meet you in the next episode.