The Personal Finance Podcast - Why You Need to Bucket Your Money with Jesse Cramer

Episode Date: November 13, 2023

In this episode of the Personal Finance Podcast, we’re going to talk about how to bucket your money with Jesse Kramer. In this episode we will talk about: The birds eye view of bucketing your money and what we need to do in order to get started?  What we do with these buckets. Where should we place this money?  Bucketing strategy with your money How Andrew Can Help You:  Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!  Watch The Master Money Youtube Channel!  Ask Andrew a question on Instagram or TikTok.  Learn how to get out of Debt by joining our Free Course  Leave Feedback or Episode Requests here.  Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/ Monarch Money: Get an extended 30 day free trial at monarchmoney/pfp Policygenius: This is where I got my term life insurance. Policygenius is made so easy. To get your term policy go to policygenius.com and make sure your loved ones are safe.  Books Mentioned in This Episode:  A Random Walk Down Wall Street by Burton Malkiel More Than You Know: Finding Financial Wisdom in Unconventional Places by Michael J. Mauboussin Influence by Robert Cialdini Connect with Jesse Cramer: Website Article Twitter Instagram Linkedin The Best Interest Podcast Connect With Andrew on Social Media:  Instagram  TikTok Twitter  Master Money Website  Master Money Youtube Channel   Free Guides:   The Stairway to Wealth: The Order of Operations for your Money  How to Negotiate Your Salary  The 75 Day Money Challenge  Get out Of Debt Fast  Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

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Find your advisor at IG Private Wealth.com. On this episode of the Personal Finance Podcast, how to bucket your money with Jesse Kramer. What's up, everybody? Welcome to the personal finance podcast. I'm your host, Andrew founder of mastermoney.com. And today on the personal finance podcast, we're going to be talking about how to bucket your money with Jesse Kramer. If you guys have any questions, make sure to hit us up on Instagram, TikTok, Twitter,

at Master Money Co. And follow us on Spotify, Apple Podcast, or whatever your favorite podcast. player is. And if you want to help out the show, consider leaving a five-star rating and review on your favorite podcast player. Now, today we're going to be talking to Jesse Kramer from the best interest podcast and the best interest blog about how to bucket your money. And I really, really want to talk to Jesse about this because I think it's a really cool strategy, A, to make sure that you set your investments towards your financial goals. And B, it also helps you have layers to your investments and layers to your financial plan that will allow you to actually become bulletproof with your money.

So we're going to be talking about how to bucket your money is the first part of this podcast. And he goes through a timeline, basically, of four different areas where you need to bucket your money. Then we're going to be talking through some of the biggest mistakes that Jesse sees that people make with their money. And in addition, we're going to talk about his investment portfolio. And of course, we're going to ask Jesse what wealth means to him. So this is a really actionable podcast. Really excited for you guys to hear this once without further ado. let's welcome Jesse to the personal finance podcast. Jesse, welcome to the personal finance podcast.

Andrew, so excited to be on, man. Love what you're doing over here. And I hope I can add some cool knowledge to your great fan base. Absolutely. I know you definitely can. And I think we are really excited to have you here because today we're going to be talking about bucketing your money. And I think you have a really, really cool concept about how to kind of think of the timeline and goal-based investing with your money. And you have a great article on this as well. So if people want to follow along with that article. I'm going to link it up down the show notes below so they can check that out. But can you kind of give us the bird's eye view of bucketing your money and kind of what you need to do to get started? Yeah. Yeah. I think actually the term itself

bucketing your money, some people might have heard of it before, but they've likely heard of it very specifically in a budgeting sense. And the way that I use it and the way that I think people should use it, it's not really a budgeting exercise. It's more of an investing exercise or like a portfolio creation exercise. So right away, I just want to lay that down. What we're talking about today has to do with investing mostly, but bucketing is a metaphor. It's an analogy, just like so many awesome metaphors, an analogy in the personal finance space. And it's this accounting trick that, sure, thinking of putting money in buckets helps us kind of visualize it. But it's this accounting trick that helps us both objectively, like with the hard numbers of our financial plan, but it also

helps us subjectively, kind of with the psychological mindset that it takes to be an investor and thinking of different buckets of money, literally, applying different timelines to those different buckets. So we can dive into some of the details if you want, you know, we start by dividing someone's liquid net worth. So that's their cash, their stocks, their bonds, probably not their home equity or the value of their car. We're going to put that money into four buckets. Like you alluded to Andrew, it is going to look a little bit. it different if we're working or if we're retired. And once we get the money in the buckets, we're going to do some work, apply some timelines, and then make some investing decisions.

So that's the bird's eye view. But if you want, we can dive into some of the details. I would love to because the difference between someone who is working and someone who is retired is obviously a huge differential on how you manage your money and what you do with your dollar. So let's talk about first the person who is working. How should they kind of look at this bucketing strategy and have this timeline put together? Yeah, so someone who's still working, the really important difference that we all probably know between someone who's working and someone who's retired, the person who's working, their monthly bills are going to come out of their paychecks. Whereas someone who's retired, their monthly bills are going to be coming out of their investment nest egg, their portfolio. So we can start with someone who's working and we can think about these four buckets that we talked about, right?

Four buckets. The first bucket is going to contain their next six months worth of expenses, something like that, around six months. The second bucket isn't really going to contain monthly expenses, but what it is going to contain are any big savings goals that they have for the next, call it one to two years. The third bucket is going to look similar. It's any big savings goals that they have for the next, call it three to eight years. and then the fourth and final bucket would contain any money that this working person needs eight years and beyond. And that would include any of their retirement savings. And then so the difference here is that retirees are going to have much different needs.

And especially when I think about retirees all the time, I always think about the concept of when you get to retirement, one big thing you have to do is you actually have to start drawing down in your portfolio and actually living on this stuff. It is one thing to kind of think about this whole entire process. But then actually getting that point in time and actually doing it has to be a scary process. I think the way that you guys have mapped this out with the bucketing strategy makes it much easier for someone to kind of conceptually think about this and then take action on doing so. So when someone is retired, how would their buckets look different than someone

who is in the wealth accumulation phase or the working phase? Yeah. So the timelines of the buckets themselves are actually going to be similar where it's like bucket one, the next six months. Bucket two, call it six months out to two years. Bucket three, year three out to year eight, and then bucket four is year eight onward. But the amount of money in each bucket likely is going to change between someone who's still working and someone who's retired, simply because, I mean, for example, we'll use you as an example right now, Andrew. Perfect. Right now with where your family is at, are you at all worried about your grocery bills in 2028? No, I'm not.

Right. And probably one of the reasons why you're not is because you know you're going to be earning an income in 2028 and that income will pay for your grocery bills. when someone's retired, that kind of flips on its head. They're no longer earning income. Sure, maybe they're earning Social Security. But we know for the average retiree, Social Security only covers roughly 40% of their monthly needs. So that retiree, they do need to be thinking about the grocery bills in 2023,

2024, 2025, and onwards. So the buckets are going to look a little bit different. And one thing that maybe I haven't even touched on yet and maybe I should have is that for you, Andrew, for me, for anyone listening out there, you can use this framework, this bucketing framework, to take the money that you have right now. Put it in some buckets. Each bucket has these specific timelines that we talked about, although there is some flexibility in the timelines. And then there's the final step that we haven't quite touched on yet, which is we match the timelines of the bucket up to appropriate investment vehicles, up to appropriate asset classes. Because we know,

based on historical precedent, based on the risk profile of certain investments, that if you need investments in the next, I should say if you need money in the next two years, so that would be bucket one and bucket two. Some investments are appropriate for that timeline. Some investments are not. Stocks, for example, they are not appropriate for a two year timeline. So any of the money in buckets one and buckets two, that shouldn't be invested in stocks. Even bucket three, which extends out to roughly eight years from now, very few of bucket three dollars should be invested in stocks. But bucket four, ah, once you get to eight, ten, fifteen plus years, that's where historical data shows that you should feel pretty confident and comfortable investing that money into the stock market. You know,

at that kind of timeline, you have a high degree of confidence that you'll get all of your principal back and you'll likely get a very healthy return on that investment. When it's only one or two years back at buckets one or bucket two, well, you might have to invest that money in either a high-yield savings account or a short-duration treasury bond where your principal is guaranteed and you're going to get a small but reasonable rate of return. So the first step, divide up your money into buckets based on the timeline that you need that money. And then the second step is based on that timeline, match the liabilities in those buckets with appropriate timeline investments. And that is one of the biggest key factors to hear because most people know if they've

listened to this podcast for a long time, we talk about things, for example, like your emergency fund. And maybe Bucket 1 is very similar to that where you have six months of expenses just saved up in that emergency fund. The last thing you want to do with your emergency fund is invest those dollars. Why, you can think about this with the Great Recession, for example. If a recession hits and you have an emergency fund in place and you lose your job at the same time and all of a sudden your emergency fund gets cut in half and it's at the time that you need that money the most, that is probably the problem that you could ever have. So you have to, like what Jesse is saying here, keep that money in something like a high yield savings count. Why, A, protects your money. B, interest rates at the time

of recording this aren't that bad right now. You can actually get a decent rate of return on something like a high yield savings count or a treasury bill, all these other things. So that is one of the most important factors. Secondly, what Jesse's talking about here is that long-term money. You want to have those dollars invested eight years plus, where if you're not willing to own a stock for 10 years, don't even think about owning it for 10 minutes, the famous Warren Buffett quote that he always talks about. And that's kind of have to think about that long-term investing side of it. So we have bucket one and we have bucket four where bucket one is that high-yield savings count.

And bucket four is for our long-term investments. How do we think about bucket two and three? Where do you actually put those two buckets? Yeah. So this idea, the bucketing method, it's all about matching the timeline of the liability with the timeline of the investment. So bucket two, that covers, you know, it's not your emergency fund, but you are thinking about something that might happen in the next two or three years.

So for someone our age, Andrew, what might our goal be? Maybe we're saving for a house. Maybe we really want a boat. Maybe we live near the water. Something like that. And we want it in two years. Well, we need to think about an investment with a two year timeline, something where our principal is safe for those two years, or at least very close to being safe. And ideally, we get some return on investment. Can't be stocks. Stocks aren't a two year investment. If you look at historical precedent, it just doesn't work. There's too much risk that you can lose money over two years. But something, like a treasury bill, a one or two year treasury bill, short duration, high grade bonds, that makes a lot of sense in bucket number two. It's not sexy. It's not exciting. But the point is, you don't want to lose the money that you're saving for this important goal you have. Moving on to bucket number three, we apply a very similar logic, but now the timeline of our

liability has shifted out into the future. Now we're talking about four or six or eight year liabilities. We can start to dial up the risk a little bit more. We can own some longer duration bonds. We can own some corporate bonds, which are usually a little less highly graded than like a treasury bond, but they return a little bit more. We might even be able to sprinkle in some stocks, some alternative assets, maybe some real estate, something like that. We diversify a little bit more.

We add a little bit more risk in search of a little bit more reward, but we still want to feel reasonably comfortable that our principle will be there when we need it. Exactly. Here's what I love about this. This is what I love about having this system into place is we always talk about. talk about bulletproofing your money and having these kind of different steps in place in order to make sure that really nothing can happen to you financially. And this kind of does that for you where you have your six months of cash in place. Then you have yours two and three set up all the way up to year eight and beyond. And you have these different layers that is going to make sure

that you have that principle in place. So I do really love that because it helps you just bulletproof your money. Now one key thing that I love that you talk about is that there is no wiggle room for each bucket because I can hear people right now. You talk about this system and immediately they're going to say, hey, well, can I actually for the first, you know, the first bucket, can I only have two and a half months instead of having six months in place? But I love that you talk about there's no wiggle room. Can you talk about why that is so important? Yeah, I mean, I suppose on the timeline side, Andrew, especially on the emergency fund, I could understand someone wanting to tweak their wriggle room a little bit. But the real issue comes when when someone says, you know what, skip buckets two and three.

everything except for my emergency fund, I'm just going to put it in stocks. I mean, look at the last three years. Look at the last five years, someone might say. Stocks are up X percent. I started investing in 2016. Stocks have been awesome. I get that point of view, but that is a short-term mindset. There's no other way around it.

If we zoom out to a longer point of view, if we zoom out and look at a lot more historical precedent, if we really want to take risk seriously, you would realize that there's not wiggle room between the budget. that your needs in the next one or two or three calendar years, those financial needs should not be answered by stocks. If you feel like they are or if you feel like they must be, that's likely a problem with your financial plan in general. Similarly, your long-term goals, say the 10-year plus goals. If you're someone like you and I, Andrew, we're in our 30s, your retirement goals, the money you need in your 60s, 70s and beyond, maybe even your 40s or 50s if you're

financial independent retire early person. Those money needs, they shouldn't be answered by short duration bonds. You need to take a little more risk, search for a little more reward to get to those long-term goals. So that kind of flexibility that some people want, the wiggle room that people want in between buckets, that's not really there, or at least it shouldn't be there if your financial plan is healthy. The timelines themselves, I think especially on that emergency fund bucket, that might be the one bit of wiggle room that I think can be useful to individuals. And that makes sense because I think over that time, you can make that adjustment.

Say you're in a high demand job, something along those lines, and you can kind of make that adjustment in that point in time. Now, one thing I want to do, and I think this is going to be really, really helpful for a lot of people, is kind of utilize an example and see, how would you map this out? So say, for example, you had someone, maybe it's a couple who was married and they have two kids, for example, and they're in their wealth accumulation years.

Maybe they're in their early 30s. they're trying to build out well so that they can hit that retirement age and they want to go out and they want to retire. How would you set up this bucketing system for them and then kind of think about, hey, which accounts would I put each of these buckets in for them if I was going to map this out? Yeah, totally. Let's walk through an example. So let's say we have a family. We'll call them the G.N. Colas. All right. They're a 40-year-old couple, let's say. They have two children, like you said, 12 and 8. They know they're spending because they're good at tracking their finances, which is very important. They spend $6,000 a month. Both parents are working. So they fall in the working category that we talked about earlier.

And when we ask them what their goals are, of course, retirement is one of their goals. Thankfully, they have 20 years until they're 59. 5. They have 20 years until that real first retirement gate. But they expect one of their cars will probably need to be replaced in a couple years. And their older child is 12. And they expect that child will start college in six years.

So now we have some facts. We've done some fact finding. Well, let's start bucketing some of the. their money. Bucket 1 will contain six months worth of spending. Like you said, it's basically their emergency fund, Andrew, six months, $6,000 a month. There should be $36,000 there in bucket one, and they're going to put that $36,000 into a high yield savings account. FDIC insured, safe, earning right now probably four and a half or five percent. That's pretty nice. Bucket 2. We ask ourselves, well, they don't need to worry about groceries for the next two years

because their monthly income is covering that. Did they have any other financial goals in the next two years? Well, they did. They talked about needing a car. So let's say, for this couple, they earmark $35,000 for their next car. They're going to invest that money in a two-year treasury note that's AAA rated backed by the full faith and credit of the U.S. government. And right now it's earning around 5%.

So that's bucket two. Move out to bucket three. Do they have any goals in the next three to eight years? They did. Their older child is going to be starting college. So let's say the couple, they earmark $150,000 to cover the first three years of college payments. That money is going to be split between maybe some five-year treasury notes, maybe some corporate bonds, maybe some alternative assets, and even maybe some stock index funds. Finally, bucket four, the rest of their liquid assets should be thought of as bucket four.

Hypothetically, let's say this couple has $300,000 between IRAs, 401Ks. I mean, they've been working for 15 plus years. they've been diligent savers. That bucket four, if they're comfortable with it, 100% stock allocation would make sense. They shouldn't be touching that retirement money for another 20 years. Their income is covering all their day-to-day spending. We've now allocated all their other dollars into the four buckets.

We've told them how they should allocate those buckets, cash, bonds, stocks, et cetera. And what we've actually done in a pretty cool way, and this almost goes back to something, I think I mentioned at the beginning. Occasionally someone will ask me, Andrew, you know, Jesse, you suggest that this particular person should have a 6040 portfolio. How do you come up with that?

Why is it 6040? I don't understand. What we've done through this process with this hypothetical couple, the Giancolus, is we've built from the bottom up, they've $36,000 in cash, $135,000 in bonds, $350,000 in stocks. That's roughly, I can tell you, it's 67% stocks, 26% bonds, 7% cash. it's pretty darn close with a traditional 70-30 portfolio. But rather than just kind of pulling it off the shelf and saying,

oh, based on their age, 70-30 seems to make sense. No, no. We built it objectively from the ground up. That's what I love about it. That's why I think these examples are so helpful because you can actually see a practical application of how something like this would work for someone in the wealth accumulation phase. And you can see how you diversify these assets

and there's just so many layers to this that I think is so helpful in bulletproofing your money, like we keep saying here, and allowing you to have your goals in place and making sure that you're actually, you know, going and moving towards those goals. Now, if somebody was in the retirement age, can we give an example of how they would bucket their money and how that is different from folks who are in the wealth accumulation phase? Yeah, totally. So let's talk about another family. We'll call them the Smith's very generic name. They're 62, which is the first age that they might want to collect Social Security.

So they're 62. They just retired. Some of their stats, they have a million dollars between their four 1Ks and their IRAs, they would like to spend $50,000 per year in retirement. Now, for the first five years of their retirement, based on, say, the financial plan they put together with their planner, for the first five years, 100% of their spending is going to come from their nest egg, from their savings. And then when they turn 67, which, according to the Social Security Administration, is called full retirement age, then they're going to start collecting Social Security, and that's going to start covering half of their spending needs thereafter.

So, let's compare the Smiths to the Johnson's. Bucket 1. Well, they do need six months worth of living expenses there in their bucket 1. For them, $25,000 in cash, high-yield savings account. Same thing. But now when we go to bucket 2, when we talked about the G&Colas, I'm sorry, the first family, the GnColas, I might have just misspoken. The G&Colas bucket 2 was this $35,000 for a car.

Well, for the Smiths, the retired couple, their bucket 2 is going to look different. they're no longer collecting an income. So they need to put in bucket two roughly the next year and a half worth of simple monthly spending that they're going to need to have. They're spending $50,000 a year, 18 months worth of spending at that rate, $75,000. So they're going to put $75,000 into bucket two, invest it into two-year treasury notes. Bucket three, similar logic. Whereas the Gncola's, they put, what, 150 grand into bucket three for college savings?

for the retired couple, the Smiths, they need to ask themselves how much annual spending are we going to need years three through eight. Social Security is going to come into play based on some of the preliminary facts that we went over earlier. And if you run the math, the Smiths, the retired couple will have $225,000 in bucket three. And we'll say that they split that between five-year treasury bills and stock index funds, just to keep things simple. The remainder of the Smith's assets, if you do the math, they have 600. $75,000 remaining, that's going to be invested in bucket four, which is predominantly stocks. So now, if we zoom out to the total allocation of the Smith's portfolio, we see 25,000

in cash, $225,000 in bonds, $750,000 in stocks, roughly a $7525,000 portfolio, which traditionally people might say, boy, 7525, that feels a little bit aggressive for two retirees. We do need to consider, though, that Social Security, I mean, literally, Social Security is fixed income, literally fixed income. You are getting a fixed income month over month. So Social Security can be thought of as adding something to their fixed income allocation. In fact, if you think about someone pulling $25,000 a year in Social Security income, which is what they're going to start doing at age 67, we can almost do the reverse 4% rule and say $25,000 in fixed Social Security income is equivalent to

what kind of nest egg invested in bonds. And whether you use the 4% rule or maybe a more conservative 3.5% rule, which is what I'd like to do, that social security income is the equivalent of owning $700,000 in bonds that are paying 3.5% per year. So now we can kind of rerun the math and say they have cash, they have bonds, they have stocks, and they have Social Security, which is worth $700,000 in bonds. How does their allocation look now? And the answer is is it's basically 55% fixed income, 45% stocks. Now, that is a much more traditional retirement portfolio, heavier on the fixed income side, a little bit lighter on the stock side.

And I love that idea of playing the reverse 4% rule essentially on your social security. That is a great, great thing to go through. And you know you're a personal financer when you love thinking and talking about this stuff because I just loved all the stuff that you just said there. And I love these examples. So that is absolutely amazing. Now, I want to shift gears here. And I want to talk about you and what you did and your money and all those different types of things as well.

So you left an engineering job, which we just did a TikTok about the highest paying salaries in the country. And nine out of the 10 of them were engineering degrees, which is funny. But you left that engineering job to go work at a financial firm. So why did you do that? And why are you so passionate about this? Yeah. Oh, great question. I'll give the real quick story.

So I have two degrees in mechanical engineering. And my old firm, they design and build satellite telescopes. So that's what I did for seven years. and about midway through that time, I kind of developed this nerdy love for personal finance and investing, kind of like you, Andrew, right? And I started to share with my coworkers. I was kind of like the 401k guy at work, helping people out. They encouraged me to start writing, start sharing what I was doing. That's how I started the best interest and the best interest, the blog and the podcast. That was about five years ago now. We're coming up on the fifth anniversary of the best interest. Now, two and a half years ago,

So about halfway through the life of the best interest, I'd looked myself in the mirror one day and said, man, I love doing this. I love sharing this knowledge. I love helping my readers out. I love one-on-one calls and helping people face-to-face figure out what direction they need to go in with their finances. How can I do more of it? So I had conversations with banks and brokers and hedge funds. Anyone who had anything to do with money, I said, would you hire someone with my skill set? The best conversation I had was here in Rochester with a local where a fiduciary, which is really

important to me, financial planning firm. So very heavy on planning, very heavy on kind of the nitty gritty math-based details. Start with a plan. That plan informs the investments, kind of just like bucketing your money does, right? You plan first, you invest second. And we're all about this long-term diversified point of view, which again, I really agree with. So day by day, I'm now face-to-face helping people out, plan their financial futures, running the best interest at night. all my effort is aligned and I love it. I simply love it. That's absolutely amazing. It's so cool that you kind of found your purpose as you went along this path. And now you can help people day to day do what you're so passionate about, which I think is absolutely amazing. We go through this. Now, you work with a lot of clients and

you see a lot of people who are handling money. And in addition, you've talked to a lot of people who read your blog and listen to your podcast. And what do you think is some of the biggest mistakes people make with their money? Yeah, a few come to mind. One of the biggest ones. And I think it's so big because it truly is simple to fix. Maybe not easy to fix, but it's simple to fix. One of the biggest ones I see is when people come in and they say, Jesse, we're a successfully employed couple. We're earning $30,000 a month, but we don't really know where it goes. Like, I mean, obviously, it's like we send the kids to camp and sure, we're doing some dining out. And like, you know, we want to enjoy our life. But like, there's nothing left at the end of the month and we don't really

understand why. That right there is kind of this mistake of failure of measurement, as I call it. Somehow, some way, no matter where you are in life, you need to be measuring your money. It might be nitty gritty with a you need a budget app budget, something that you and I like to do, Andrew. It could be that detailed. It could be something as simple as check your bank account at the end of every month. Compare it to last month. Did it go up? Did it go down? You're just measuring in a very coarse way what your monthly cash flow is. And the mistake I really see when I ask people, when I try to dive into details and understand how they're in the situation, and I say, well, how are you measuring your money? Like, are you somewhere on the spectrum between detail, detail,

detail, you need a budget versus, hey, I just log in once a month and check my bank account? The answer is they're not on that spectrum anywhere. They're even further off the spectrum than logging in once a month. They're not measuring their money in any way. And that calls you. calls to mind this famous quote by Peter Drucker, who's like a management consultant guy in the 1960s, he famously said, you can't manage what you don't measure. You can't improve your finances if you're not measuring your finances. It can be pretty simple. You don't have to go full detail like Andrew and I, but in some way, shape, or form, you have to be measuring your finances. And I think this leads back to a very human trait that a lot of us share, which is the fear of the

unknown. We see finances as this unknown. It's a bit of a black box. Oh, we don't really know what's going on in our bank account on a month by month basis. And that's a little bit worrying. And do I even want to stick my hand in that black box? I don't know what's in there. Am I going to hate what I see? It's like the stories that you hear of some people who say, like, I feel sick. I know I have a family history of cancer, but I don't want to go to the doctor because I don't want to find out. I don't want to know. That's a very real human emotion, that fear of the unknown. It's totally understandable. but I think we also have to be able to take a step back and say, while understandable, it's not rational.

It's a bit blunt for me to say that. But listen, if you're feeling sick and you think you might have cancer, you have to go to the doctor. That's the rational thing to do. And similarly, if you have no idea where your money is going and it stresses you out and you know that you should probably fix it, you cannot ignore it. You have to measure your money in some way.

Absolutely. I cannot agree more. and I love that you're hitting on the psychology side of this because for a lot of people, if you don't want to face the facts of what's going on with your money, let me tell you this now. I had to do it early on when I was living paycheck to paycheck when I first started my job. I didn't want to face it either. But one thing that happens is once you start to face this, every single month, it gets a little bit easier and a little bit easier. As long as you understand, hey, I'm going to make mistakes every single month.

I'm going to roll with the punches, as wine have talks about all the time. And it's just something that I am going to do where I know I'm going to make mistakes. I've got to plan for those mistakes. And then I can actually move forward. but you have to make sure that you are managing or measuring your money in some way, shape, or form in order to understand what is going on. That is exactly spot on. And I think most people just don't do it the right way. And like Jesse said, it doesn't have to be some complicated thing. It could just be making sure, hey, my cash is going up every single month. But just making

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or any season. Plan started just $12 a month. Learn more at tellus.com slash online security. No one can prevent all cybercrime or identity theft, Conditions apply. Now, I also want to shift to, this is one question I like to ask a lot of our guests, is shift to, if somebody looked at a pie chart of your investments, and you had your investments in place, you know, you've been doing this for a long time, you have a passion, personal

finance. What would that pie chart look like when it comes to stocks, bonds, real estate, or anything else? How do you actually invest your money? Yeah, so they would probably see that I'm a little aggressive, or at least, that's the thing. I guess it's all a specter, right? I mean, to some people, they might think I'm a little bit boring. But I think probably compared to the average 33-year-old, I'm a little on. the aggressive side, maybe hold a bit more in stocks than others do. But once they actually look

under the hood of, I would say it's probably maybe 85% stocks, broad-based stocks, in a lot of ways, it's index funds, especially when we're talking about these big, big markets that are very efficient. For example, I mean, the U.S. stock market index funds, especially large-cap index funds. But there are some cases, some very small allocations, especially in undeveloped or underdeveloped markets, places where the market is much less efficient. And we can come back to exactly what that word efficient means, where I do have some holdings of actively managed funds in those places. Now, I would totally understand if someone listening to this said, that sounds stupid, I hate

doing that. I would never do that. That's fine. I totally get it. But I will say there's a track record that supports in those places where you have inefficient markets where active management can be a good thing. Very small allocations. We're talking like 2%, 3% allocations in a couple spots here or there. But what people would broadly see in, you know, kind of like 80, 20 rule of my portfolio, broad-based index funds, very low costs.

And one of the most important things is asset allocation. And that comes from bucketing your money. asset allocation is the percentage of your money that's in asset class A, asset class B, asset class C. So based on my age, based on my risk tolerance, very large allocation into stocks, smaller allocations into bonds and alternatives. I love that. And I think you explain that perfectly because people need to understand, hey, your risk tolerance is probably the biggest factor overall to figuring out what your asset allocation is. And so once you understand that risk tolerance, did you kind of craft your portfolio and base it on that. So I love that you bring that up. And that is absolutely perfect.

So I'm going to come to some of the questions that we ask a lot of our guests here. And I'm going to see what your take is on some of these. Because I love asking these questions. And sometimes we do a rapid fire, but you can go as long as you want on some of these. So what are some of your favorite books that you have read? Specifically in the finance realm, I really like a random walk down Wall Street by Burton Malkiel. I was just thinking about that one the other day. There's some amazing, amazing facts in that book.

And for anyone interested, that is one of the books that really was the underpinning of passive indexing in the first place. This book was written in maybe the late 60s or early 70s. And when you read this book, you're like, oh, this is why index funds make sense. So it's a terrific book, excellent explanation there. There's a book by a gentleman named Michael Mabousin, I believe it is. But the book is called More Than You Know. And what I'd say is for anyone out there, if you tune into this podcast once in a while,

because you know you're kind of interested in finance, this book might be just too far into the weeds for you. But if you're listening and you're like, no, I'm an investing nerd. I like this stuff. I just love consuming this kind of content. This is a great book for you more than you know. So those are the two finance books that really come to mind. I mean, I'm looking at a shelf here, Andrew. I probably have 50 books up there. Maybe the last one, it's not a finance book, but it's super helpful, I think, and just understanding the way that people work is a book called Influence by Robert Chialdini. Just amazing book that I feel like now, once I'm I read that book, there are so many day-to-day interactions where I'll see something. And I'm like,

oh, that's exactly what Robert Chaldeany was talking about in that book. So that's another terrific one. Influence is probably in my top five books of all time that I've ever read. So I highly recommend that one. And we'll link all those in the show notes so people can check those out as well if they want to check those out. So what part of your work or life makes you come alive? Oh, so much of it now, which I'm really excited about. When I was an engineer, I feel almost a little bit bad because I very rarely had that come a live feeling as an engineer, but now I feel it every day. So it might be something as sitting one-on-one with a client who's a little bit worried about what's going on in the markets here in 2023, understandably so, especially if you're retired and you're no longer adding to your portfolio. But just walking

them through why they're in the portfolio that they're in, how their plan is still going to be very successful in the long run, why it makes sense to kind of be patient, to slow down, to relax, like those kind of things. Those conversations for me are really rewarding. And then, on the content creation side, I mean, I am probably a writer first and a podcaster second, although now podcasting really is competing as being close to 50-50. But whenever I put out a piece of content, you can probably relate Andrew and you just get great feedback on it where people start sharing it. And like that is such an amazing feeling to know that you're adding, the way I think of

it is as a true engineering nerd, you've got signal and then you've got noise. When you're adding true signal to the internet, because the internet can be such a noisy place. You know a signal because all these respected people are sharing it. That is an awesome feeling. And I almost want people to take note. If you're in a job that you absolutely hate or it's maybe it's just a job that is not fulfilling for you, kind of look at what Jesse's roadmap was here, where he kind of dipped his toes in the content side first and started to write more about it. He was learning as he was writing and going through this process. And then all of a sudden, he realized, hey, I am really good at this. A. And B, I'm really, really passionate about this because I'm doing this work for free right now.

Why don't I do it full time? And I think it's a really cool path that you actually. took and a path that is probably the safe way to go about this as well that I think is a really, really interesting way to think about this. What is your biggest fear when it comes to money? Ooh, that's a good one. I think overall, there are probably some personal answers that I could come up if I had enough time, but the one that comes to mind, Andrew, is everything we've talked about today, a lot of the stuff that you and I talk about in general, basically everything that any financial professional, at least in the U.S. does, is based on this tacit, of assumption that the future will in some way resemble the past. Now, of course, we say past results

do not necessitate future outcomes. We have all those taglines, which I totally get. But I'm speaking even a little bit more broadly than that, which is, you know, the past 100 years have been this phenomenal time for America relative to the rest of the world. It's been a phenomenal time for the American worker, for American investors, all that kind of thing. And a lot of what we do says, yeah, that's going to continue out into the future. I'm not saying it won't. But what I am saying is it's not a guarantee. And that's something that I think not everybody understands. I think a lot of people, they look at the stock market and they're just like, yeah, goes up

over time, not every year, but it will go up 10% per year on average if you wait 30 years. That's not a guarantee. And you kind of have to understand some of the underpinnings that go into that to realize, okay, there are, just as there always have been, there are potential paths in the future where things might not go the way you wanted them to go. A very simple one to explain that has nothing to do. This isn't an anti-patriotic statement or anything like this. It's what we saw in COVID. So COVID-19 hit. The world shuts down. The stock market took quite a crash for a few months there. And then thankfully, we realized, while still a pretty nasty virus in retrospect, and a lot of people passed away and a lot of people got

sick, it wasn't as bad as we originally thought. I hate to be the bearer of bad news here. And I'm not a doctor. However, I have read about the 1919, Spanish influenza. That was much worse, much more severe. Thankfully, there just weren't as many people around, but there's no rule of nature that says a pandemic like that one couldn't happen starting tomorrow. It'll happen. Things like that will happen. Hopefully we're prepared for it. Hopefully we can deal with it.

But there are these shocks, some of which have to do with geopolitics, some of which might have to do with pandemics, some of which, who knows, they're black swans. We can't really define them. that might change the future such that it's much different than the past. And that might really turn all of our assumptions when it comes to money completely on their heads. For sure. And I understand that fear because I think it's one thing that we've been thriving for a very long period of time. And there are a lot of things that could happen that could come into play that could change that. So it's really, really important for a lot of people listening when you're running the numbers on your actual retirement numbers. Now, when we talk about this to motivate people, a lot of times I'll use 10% to historic actual returns to motivate people to start to invest, things like that.

But when you're talking about your real retirement numbers and you're trying to plan this out, using a conservative rate of return is really, really important. And if it's more than that, hey, that's icing on top. But making sure you're conservative with your numbers is very, very important. So that's a great point to point out as well. I think that's one amazing one. So if you're going to tell your younger self something about money, what would that be? Oh, man.

Oh, that's a great question. How young are we talking here? Let's say if you're going to tell yourself as an 18-year-old. That's a good one. That's a good one. I would probably, I'm trying to think of what I would really do different if I had to go back. It's an interesting one. I think I got lucky, Andrew, in that I discovered the kind of stuff that we're talking about today

in my early to mid-20s. I didn't have too much time to make dumb mistakes. I think one thing that I'd maybe tell myself about money is to always give myself a little bit more time before making spending decisions. One of the stupidest spending decisions I ever made occurred on the spot one-on-one, with a salesman who I invited into my home and only after reading influenced by Robert Chaldini

did I realize how badly he sold me and I made a really stupid decision that in retrospect it's like wow I should have just given myself a couple days to think about it and I would not have made that decision. So that might be the one to give myself a little bit more time

before making any big money decisions. I love that one. And then the last one I want to ask you is my favorite one and it is what does wealth mean to you? Flexibility. That is the That is the one key that I think a lot of, we hear the recurring overall, but I think that is one

huge key for a lot of people. Yeah, I think that it could mean anything to anybody. And I think it's okay if your answer is, you know, wealth to me, it means a lake house. And it means the ability to go up to that house in the summer and to spend my time watching the kids play on the lake. That totally, that's wealth. I get it. But it really means to be, it's the flexibility to be able to take that path.

if you want it. Or it could be the flexibility when that time comes in life to say, you know what, we've actually gone to a lakehouse locally, an Airbnb. My kids don't like it. So now I'm going to choose a different route for my money. So it's totally okay if wealth to you is a very specific dream that you have. But just to me, based on my own life experience, based on some of the stuff I see with my clients, wealth is the flexibility to choose many different options in the future where

it's like, you know, money doesn't buy happiness, but it buys flexibility. And flexibility often leads to happiness. Absolutely. I love that last line is that flexibility does often lead to happiness, which is really what we are trying to pursue is freedom with our time. So that is absolutely hitting a nail on the head. Well, Jesse, thank you so much for coming on. This was absolutely amazing. Where can people find out more about you, your podcast, your blog, everything else? Awesome. So I'm not really big on the socials, at least not anymore, Andrew. So the best place where people can go is my website. You can sign up for my weekly newsletter there where I send out my new content as well as some really cool stuff I've

encountered throughout the week. So it's just this weekly email. And the website is best interest. Dot blog. Perfect. And we will link that up in the show notes below and we'll link your podcast up in the show notes below as well so people can check that out. And thank you so much for coming on. We truly appreciate it. Awesome. Thank you for having me, Andrew. It was great to talk to you. Rosen lasagna, medium power. 15 minutes. Sounds like Ojo time. Let's play. the fun with Play-Ojo, the online casino with all the latest slot and live casino games. What you win is yours to keep with no wagering requirements, instant payouts, and no minimum withdraws. Hey, I just won. Woo-hoo!

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