Understand that investing can be really simple. When something is daunting you will put it off out of fear of the unknown. Investing does not have to be daunting. In fact, keeping it simple is much better. If you watch financial news people will talk about lots of complicated stuff. However, study after study shows that just stuffing your money into a simple low fee index fund will consistently work out best. The great part about that? It’s very simple so you can do it yourself and dodge an expensive financial advisor netting you more money! I can walk you through getting it all setup in 15 minutes. Seriously it’s very easy.
As a part of my series about the The 5 Essentials of Smart Investing, I had the pleasure of interviewing Leif Kristjansen, the founder of FiveYearFIREescape (https://fiveyearfireescape.com). Leif quit working at 32 with a wife, kids and a house in an expensive city (Toronto, Canada). His wife even retired 2 years before he did and it was all possible because some savvy investing and expertise in rental housing. Leif’s no nonsense, straight-to-the-point blogging style is what really attracted me to get his input into this series. He’s very oriented around doing only what works well because he knows people have limited time to expend in day-to-day life. I knew the advice would be geared towards preserving my time and my readers valuable free time.
Thank you for doing this with us! Our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?
Once upon a time I worked in tech and I thought that was the path for me. However, one day I decided to take a decently long vacation. It seemed reasonable but the amount of work that I had to plow through before I could leave the office was overwhelming. So much so that I was completely spent by the time my vacation started.
After a week of recovery time and some me-time, I realized that no matter what I did moving forward there would always be a mountain of work in every job.
So I dedicated myself to learning how to escape the need to work by having strong finances. I put a lot of effort into it because I am kind of an obsessive person and I managed to retire a few years later in my early 30s. Then the journey was so interesting and reproducible that I started to write a book and a blog about it at fiveyearfireescape.com so that others could follow in my footsteps.
Are you working on any exciting new projects now? How do you think that will help people?
I have a kick starter I plan to work on after I finish writing my book. Most of my time though I just spend blogging, doing what feels fun and being a dad. Being a dad is a lot of work! Phew!
Ok. Thanks for all that. Let’s now jump to the main core of our interview. According to this report in Fortune, nearly two-thirds of Americans can’t pass a basic test of financial literacy. In your opinion or experience what is the cause of these unfortunate numbers?
Oh thats easy! Most of your financial prowess comes to light near the end of your life when you find out if you saved enough to retire.
Then since it’s something that rears its head decades from today it’s easy to put off learning about it and use your money for fun now instead.
People are generally pretty bad at prioritizing something that won’t be important for a long time, even if it kills them. So if heart disease is an issue, proper savings would be problematic too. Investing without the power of time is nearly impossible, so you have to learn to use it to your advantage and start investing now.
The other part to it is that most people think investing is complicated so they just throw their money at an advisor to invest for them. The advisor takes a big cut which hurts returns a lot and encourages people to procrastinate their financial education until it’s too late. Investing can be very simple, you just need to learn the simple ways of getting started.
If you had the power to make a change, what 3 things would you recommend to improve these numbers?
Again, very easy.
1 — People have to learn how important it is to save. Your savings rate is the biggest predictor of financial health and ability to retire early. That’s just the percentage of money that you save out of your total income. If you make little and save a lot, it’s much better than making a lot and spending a lot because if you spend a lot of money you will keep spending a lot post-retirement.
If you have great savings habits you are well on your way to a strong portfolio.
2 — You have to know that investing is really important. While saving is very important, you can JUST save your way to happy financial health. This might sound obvious but a lot of people leave their money in the bank or something cash-like all the time.
Cash is safe and it makes you feel safe but you are missing out on the amazingness that is the stock market. Having all your money in cash or CDs is never the right answer. I don’t care how recession-like the world looks, don’t hoard cash.
The stock market goes up 10% per year on average and your checking account goes up about 0%. If you are trying to dodge a recession you have to be impossibly accurate to get those numbers to work out. So don’t try.
3 — Understand that investing can be really simple. When something is daunting you will put it off out of fear of the unknown. Investing does not have to be daunting. In fact, keeping it simple is much better.
If you watch financial news people will talk about lots of complicated stuff. However, study after study shows that just stuffing your money into a simple low fee index fund will consistently work out best.
The great part about that? It’s very simple so you can do it yourself and dodge an expensive financial advisor netting you more money! I can walk you through getting it all setup in 15 minutes. Seriously it’s very easy.
Those are all simple things but if you are financially illiterate it’s really all you need. Everything else is just playing with your food.
Ok, thank you! Now to the main question of our interview: You are a “finance insider”. If you had to advise your adult child about 5 non intuitive essentials for smart Investing what would you say? Can you please give a story or an example for each.
My adult children…ok first off my adult kids will be very responsible and smart (they better be, or I will have a long talk with them) so I won’t pull any punches to give super-safe advice. Also, they are my kids so they know those three tips for general financial literacy. My kids are going to be advanced savers for sure.
Also this is the non-intuitive stuff. All the straight forward finance topics I’ll skip. The diversify, strategic asset allocations, invest well, save well, tips I will skip over and go straight to the strange stuff.
Weird Tip #1 — Time is critical
The fundamental thing people are trying to create with their money is usually time. By being able to retire on time or early you get time to not work. By having good finances you give yourself the ability to not have to work extra hours etc to cover your bills. Or you make time by making money and paying people to do things like cut your grass.
Everything revolves around time and investing is not different. When you read about a lot of investing tactics or side hustle techniques people forget about that. Once upon a time a friend recommended that I do online surveys for some extra income. It sounded interesting so I tried it out for a week but I realized I was only getting about 10 $/hr.
I could have worked at Taco Bell and made that much money, or worked some overtime at my real job instead.
So whenever you see a recommendation for investment tactics or other sources of income, pay attention to how much time it will take up. I am very conscious of how much time things take (like this article) and if you don’t chase the right tactics you might as well just work more instead of doing odd side hustles
Weird Tip #2 — Don’t read the news
This is along the lines of Tip #1. Many people feel like it is a noble task to stay on top of current events. I don’t know how we were convinced of that but most news is useless. If you are trying to accomplish something impressive like an early retirement you need to spend the time you have very wisely.
Don’t waste it elsewhere. Be focused.
News is the worst offender of time wasting and if you cut it out of your life it will generate a lot of extra hours for you to invest with. I used to be a news junky but I realized one day, the news cycle is never ending, very time consuming and didn’t get me closer to my financial goals.
So I stopped watching, listening and reading the news. I look up one 5-minute news summary per day and limit myself to that. Not reading the news was critical for my early retirement and now I have more time to spend thinking about investing and listening to useful podcasts.
Weird Tip #3 — Not all debt is bad
People vilify debt. “Pay it down, go crazy, payment free houses are great,” they say. Some debt is really great though. Mortgages are amazing in particular and enable real estate to be an amazing investment because you can get an insane loan and make money off of what you borrowed. You make a lot of money with a mortgage so if you think that through it’s not very smart to pay your mortgage down.
I come from a family of debt payers and when I decided to get into real estate (AKA getting extra debt) it caused a lot of familial tension. I’m happy I stuck to my guns though because real estate has worked out really well for me. I definitely learned some painful lessons that other people should learn too, but mortgages are what make it all possible.
Some debt is still bad so it’s important to differentiate. Basically if you can make significantly more money off of your loan than you pay in interest, it’s ‘good’ debt.
Weird tip #4 — Hide your identity
If your financial skills are rock solid you will eventually become very wealthy. When you become wealthy people will try to convince you to spend your money. There are different ways to deal with this but I strongly recommend you just hide your immense wealth.
I hide my wealth really aggressively and it’s been great to me. It has allowed me to avoid negative detractors from raining on my parade, getting charged ‘rich people premiums,’ and pressure to spend more money. Hiding your wealth to some degree is a critical factor in gaining wealth. It’s a bit chicken and egg but it’s true.
Weird Tip #5 — Have a dream
This is the most important tip I can probably ever give to help with investing. Sometimes it will be hard and demoralizing but the only way to get to the lofty heights of investing or anything else is to have a goal.
Then when you have that goal you need to turn it into a motivator for you. If you don’t do that you will fail or not achieve what you could have. Guaranteed.
I learned from my years in high level sports that you need to power your way through some issues with sheer motivation. So, I plastered my goal of leaving the workforce all over my phone and house so that even when something bad happened and I wanted to quit I would be reminded why I’m doing all this stuff.
Whoa, those tips are non-intuitive, I wish I could see what else is rattling around in your head! To know where you came from, none of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
Well, I mentioned I hide my finances pretty aggressively from people so there are many people who know enough about what’s going on to actually weigh in on topics.
There is one guy though. He was a professor in college, I don’t even remember his name. He helped me to be comfortable being weird and question everything put in front of me. If it wasn’t for him, I wouldn’t have questioned working until I’m 70 and just paying off debt as a way to riches.
My life would be obviously worse without his prodding many years ago.
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
“Be weird and be comfortable being weird.” I just made up that quote but nobody knows your situation like you do. Not your doctor, not your friends and not random people on the bus.
If you follow the norm you will have normal outcomes. Retirement age for millennials is projected to be in their 70s on average. That sounds horrible, so be weird and buck that menial life that many people are destined for.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂
Oh wow! Ummm, outside of the really huge things like world peace. I truly do want people to know that they can escape the 9–5. Working at most companies can be very harmful to your family life and destroy your life’s true passions.
I want to help people escape that, it’s the exact reason I created FiveYearFIREescape.com. My life post-mandatory-work is way better yet so many people still toil away in cubicles.
I like to think I’m like Neo in the Matrix releasing people…it keeps me motivated.
Thank you for the interview. We wish you continued success!