Transcript
Keith (00:01):
Welcome back to The Proper Cents Podcast, where money doesn't talk. It works. I'm Keith and we are here today with both of my co-founders and fellow money nerds, Nik and Eric. Morning guys. It's a beautiful day here where I'm at. What's going on in your world, Nik?
Nik (00:17):
I am looking out the window in Camas, Washington. I see the sun for the first time in about a month, you know, we were buried in snow. We've been quarantining, so it feels good. It smells like spring outside.
Keith (00:29):
Well, I'm right next door to you. So I resonate with that, but Eric, you got a different story down there.
Eric (00:35):
Yeah. I'm here in Arizona and it's been beautiful. 70, 75 touching 80 every once in a while. You know, the reason why everybody comes down here at this time of year.
Keith (00:46):
Beautiful. Well today's topic will resonate with us all, but most won't admit they're guilty of it. The broke stay broke by living like they're not. All right. So today we're going to cover a bunch of stuff guys, from social media influence on personal finance to keeping up with the Joneses, but really they all orbit this idea that being broke, but spending like you aren't, isn't a great financial plan. Nik, what do you think about that? Just from your gut.
Nik (01:12):
So I phrase this as the act as if. So I know several people in my circle that act as if that they've made it and sure they might make a decent salary and have a decent home, but they live well beyond their means. And they're skating on the brink where a bad event, a job loss, a year like 2020 where no one knows what is happening, can completely derail your plan and you never want to be skating on the brink of insolvency. So by acting as if they've made it, they're actually hindering their ability to get on sound financial footing.
Keith (01:52):
Eric, you down there in AZ you must see a bunch of this with the fancy trucks that match the fancy boats. And it must be curious to wonder what's going through people's mind, or maybe you just live in the land of riches down there. I don't know.
Eric (02:06):
Yeah. You're spot on. We see it all the time. My family and I, I admit we bought a boat last year, but it was a frugal purchase and well within our means at the time. But we do spend a lot of time places like the Lake and we see it one after another with $250,000, $300,000 worth of probably debt rolling down the boat launch, getting on their fancy boat and heading on out. And just looking at the general slice of American financial literacy, it's pretty safe to bet that a number of those are leveraged to their teeth.
Nik (02:48):
Eric, how would you define a frugal boat purchase? I've never heard anyone talk like that.
Keith (02:54):
Don't don't buy one at all.
Eric (02:56):
Yes. It is true. A boat is an expense. It is an ongoing expense. If you buy things like most people buy things or many people buy things, which is they go to the car dealership, they go to their mortgage broker and they determine how much they can pay a month and fit it into their monthly income. Then yes, you're going to have a hard time because you're going to have a $2,000 expense here, a $500 expense here. You can have things that pop up constantly. If you have the cash and it's not earmarked for other things, and you have your investments on autopilot and you are funded on your emergency fund and you can walk in and write a check for the boat. Then I would call that a frugal boat purchase.
Keith (03:47):
So Eric's made the first baby step and gotten himself a boat. But I think to really be cool down there, the graphics of the boat have to match the truck and the trailer. And then you need the house and the barn to store it. And the jet skis that tow on the secondary truck behind it, it's sort of a package deal once you started getting into it.
Eric (04:04):
Yes. A hundred percent. It's a rabbit hole and it leads, it falls into a lot of the money categories and the mistakes people make, because it's like anything else, you get your first car and you start driving around. And it's the greatest thing you've ever had because you went from no car to a car, which is actually about 95% of the jump. But then once you get used to your car, you start to see the paint's not as good. It doesn't have the power windows. It's not an automatic. It doesn't have the seat warmers. There's no AC blah, blah, blah. And pretty soon you start getting car envy. And the same thing happens on the Lake. You start off, you get the boat, which the difference between going from no boat to a boat is pretty much the whole thing. But then once you start to see all the big fancy boats out there, then yeah, pretty soon you start thinking about mortgaging your house and making a horrible financial decision, because you want a little bit better color to match the truck that you're pulling it with.
Nik (04:59):
So Eric, I'm reading Atomic Habits and it's a great book. And there's a name for what you're talking about here. Like if you buy a brand new boat and you drive a 1986 Buick that's towing this boat, well, all of a sudden your 1986 Buick, which you might have love pre-boat purchase suddenly is a fricking eyesore next to this monstrosity. So you go and buy a 2021 Tahoe, and now you've bought the boat, which dovetailed into the Tahoe, which maybe you're wakeboarding and your ensemble that you have on the boat, your speakers, like you just tend to, it's a snowball effect. Your boat becomes the Tahoe, the Tahoe becomes your attire, and it just becomes a runaway freight train of lighting money on fire.
Keith (05:51):
Yep. That's all good stuff and very true, and actually a perfect segue into what the topic is. So let's just jump both feet into here and get into the specificity of what we want to cover. Eric, let's start with you. You're kind of interesting case in this deal. And I think that you're kind of the panel expert on this topic generally, just because you've been broke before. But I think that because you didn't spend and live, like you weren't that sort of makes you the the panel expert. Talk to me about that.
Eric (06:25):
Sure. So, first off, I'll start by saying, I love the title of this. The broke stay broke by living like they're not. Because it resonates with me because I've lived like that. I I've done that. I've made those mistakes. My wife and I, girlfriend at the time, met in college and after school, she got a job down in Los Angeles. I didn't have anything better to do. So I moved down there. We both got jobs and we lived at the edge. We had, you know, a small income coming in between the two of us with two entry-level jobs. We paid our bills on time. We had good credit scores. And so what did we have? We had relatively high credit card limits and we kept getting them and we kept grabbing them and taking them out of the mail and signing up for a new one and using it over here.
Eric (07:11):
And we really did fall into that keeping up with the Joneses, you know, here we are in Los Angeles, it's an absolutely vibrant place to be. There's so many things to do. There's so many perceived rich people. There's absolutely a lot of rich people, but there's a lot of people trying to be rich. And so it's easy to fall into that mindset when you're out with your buddies and they're trying to one up each other on what type of whiskey they're going to drink. All the way to, what kind of car you're going to drive. So long story short, we found ourselves absolutely in debt up to our eyeballs while we were moving to the next stage of our life, talking about getting married, wanted to have kids and go through that process. And we knew we were carrying this giant anchor.
Eric (07:57):
And around that time I came across somebody that if you spend any time in the personal finance space, you've probably heard of him His name is Dave Ramsey. And his expertise really has to do with getting out of debt. But he's not like your typical pay a little bit more towards the highest interest rate credit card, make sure you've got a payment plan saving for retirement. He's a a debt boot camp type guy. You start here, you change your entire life. You live like nothing. You eat rice and beans, I think is what he calls it. And you take every single available dollar and you pay off your debt with it. Well, my wife and I bought in, we bought it hook line and sinker, we did it and it was hard and it took us two years.
Eric (08:42):
But when we came out the other side, not only had we readjusted our financial situation by paying off all of our credit cards, student loans, car payments, you know, we probably owed something on a mattress at one point. We came out with that all gone. But the thing we didn't anticipate was our financial muscles were really, really strong. So that enabled us over the next coming years when we started having kids, you know, I found myself unemployed a couple of times for some layoffs. At one point when my wife was pregnant with our second child and I lost my job. So we had no money coming in. But because of that intensity that we had done because of those financial muscles that we had built, we didn't have any debt. We were able to slim our entire budget down to absolutely bare minimum.
Eric (09:32):
And we were able to ride it out off of savings. And that enabled me to start a business that later became our main source of income. And we sold it at one point. It just opened the door for opportunities. Whereas if I had still had those credit card bills, had student loans had car payments, I would have had to just rush out and take the first job that would pay me just to maintain the minimal amount of stuff that we had. So I started on the end, living high on the hog. What do they call it? All hat, no cattle Copying everybody around us keeping up with the Joneses. And through forced situation, we were able to transition by looking at money differently, by learning how to manage it appropriately, we were able to open up opportunities that would have never been available to us.
Keith (10:30):
Yeah. Roger that. So, although Eric, you were able to kind of pull yourself out of some bad habits. Nik, not too far off from your story, it sounds like you kind of came out of college and were doing well for yourself, but also kind of bought into that needing the new fancy stuff, kind of watching what your neighbors were doing. Tell me a little bit about that.
Nik (10:50):
Yeah. So, first I want to hit on something. What Eric said was very astute where he mentioned when he was unemployable and lost his job, that his monthly nut was so low that he had a buffer to start a business. And that really hits home for me. And I don't want to derail this too much, but I think this could be a topic in itself that having a low, monthly nut as they call it or no debt. Sure. That's great from a financial standpoint, but also it allows you to take risk. Like I am a business owner myself, and if I had a huge mortgage, a bunch of loans, expensive car loan, I might not have been able to have the foundation to not take income for a year or two and start a business. So I think that's something that we can come back to you. But as for my own story, I wasn't like destitute or anything. I, I got a job pretty quickly out of college. I was a finance major. But my base was coming off of nothing, the most money that I ever made was working as a house boy, like working a house boy job in college. And I made 500 bucks a month, which I think I did the math a couple of years ago.
Nik (12:08):
And I think I made like $2 and 50 cents an hour, which is well below the legal limit. So after I graduated, I actually got a job making 40 grand a year, which is fine for a college graduate. But to me, I had just signed a multi-year NBA contract. I had several thousand rolling in and from a relative standpoint, I've never felt more rich in my life. Even though I still had student loans, I still was paying rent. I lived in downtown Portland. So I actually went out with my dad and I'll never forget this. I bought a brand new 2005 Jeep grand Cherokee. I mean, this thing was sweet. It was the premium package. My dad was actually upselling me on the lot, that base model is terrible.
Nik (12:59):
You should look at the premium. So I ended up just fleecing money. I didn't negotiate. I didn't know anything about how these car dealers snake you into these 60 year term loans. I was a fish, so I ended up saddling myself with like a $750 a month payment on this car. And coupled with my rent, I literally was spending every last dime that I made. And it was because that I honestly felt like I was making more money than I ever had. I never had a budget. I never had to think about money. And when I look back on those years, it was just a lack of understanding. It was a lack of a personal finance baseline. I had nothing to work off of. So fast forward a few more years, I start to ascend in my career and I got married at 30, that's probably, a few years before that I started to get serious and I put together a budget and I started saving for retirement andI just got sick of having no money in my savings account. That's what compelled me to do something. I look back and I calculated what I had made for the first five years that I had been out of college. And it was a decent amount of money, but I had nothing to show for it.
Keith (14:18):
Yeah. So it's interesting. Just kind of depends on who you ask kind of depends on their experiences, but I think it's obvious at the end of this, that we've all got stuff we can be working on financially speaking. So the broke stay broke by living like they're not. Nik, this sounds similar to the proverbial, keeping up with the Joneses, doesn't it? You know, something about that.
Nik (14:37):
That sounded like a loaded statement, Keith. But yeah, so keeping up with the Joneses is kind of a reference to humans being tribal beings, right? So back when we were hunting with spears and knives and swords and all that, if you became separated from your tribe, it meant death. And from a social standpoint, we've been conditioned to mirror, essentially those that are closest to us. So this has been an explosion in this movement as well with the advent of social media. Because back in like the eighties, if you lived in Detroit you probably worked at the Ford plant. And so did your neighbors, you probably wore the same clothes, lived in the same type of house and had the same type of car. It was very comfortable. You were essentially mirroring your neighbors.
Nik (15:29):
So the feeling of keeping up with the Joneses was muted, but now I can get on my phone or get on my laptop and I can compare myself socially and financially with literally millions of people. And if you've used social media in any capacity, you know, that most people post the highlight reel of their lives and the lavish vacations, and, the shopping sprees and the country clubs and all that. And suddenly, let's say you're down on your luck, or you're comparing yourself to the highlight reel of someone's life, you can feel like you are a piece of shit. So that might compel you to go out and buy stuff, buy a new car, buy new clothes. Because again, we're social tribal beings and we want to feel like we belong.
Keith (16:20):
Yeah. And so when we break this down, it actually kind of what you're saying, Nik, it seems oxymoronic like on the one end evolution has taught us. And I think that Eric can speak to this more directly but to kind of look around and do what other people are doing. Because that must be what works. But at the end of the day, it's actually negatively affecting our decision-making and putting us in a worse financial position moving forward. Eric, you got thoughts on that?
Eric (16:44):
Yeah. I think Nik started to touch on the point that I was going to make there. It goes all the way back to our days on the plains and cavemen and that sort of stuff. You know, we are living in a modern society with a prehistoric brain. Evolution takes a long time to adjust in our bodies especially when it pertains to the psychology and how we process information. So for most of humanity, it was important to look around those that were around you and mimic their actions. As a child, how are you supposed to know if these red berries are good to eat, unless you watch your mom and dad do it? So we're sort of swimming upstream a bit because we have our caveman brain still. But we're in modern society. You can see it in examples like advertisements, look at the news. Well, if you watch the news its pretty much just going to be drug commercials.
Eric (17:43):
But if you watch anything modern today, take Apple, right? Arguably one of the best ad campaigns or multiple ad campaigns over the last decade or two. Are they sitting there telling you about how fast the processor is or what level of Snapdragon CPU is in the phone? No, they're showing you a video or a montage or singing a song about someone that you can relate to. And they're showing how good their life is. And they're making you think all I need is this item. And then my life will look like that too. So, like I said, we're swimming upstream, it's a caveman psychology. That's the tools that we're equipped with. And we are stuck looking at things all around us all day that are giving us the trigger to buy and the neighbors down the street with the new boat, with the fancy cars, with the remodeled outside, and the lavish parties is just another example of how difficult it is to overcome those sort of prehistoric psychological tendencies.
Keith (18:55):
Yeah, absolutely. So evolution is sort of changing and our caveman brains aren't working in our favor anymore. Let's get tangible here. So if we shouldn't be looking to our neighbors for financial directives, just on what they're posting on social media, Eric, what the heck should we be doing?
Eric (19:15):
You need to live your own life. You need to figure out what that looks like. You need to understand things like money, doesn't buy happiness. It can certainly help make life a little bit more fun. And it adds a level of security that probably isn't there for people that don't have it, which is a big part of being happy. But you need to understand that the Jones are broke. Half of America, can't put together a thousand dollars to pay for an emergency. They got to put it on a credit card or borrow it from somewhere or take it out of retirement account. So they're not what they look like. Nik touched on it earlier talking about social media, and that's a prime example. That's just all of this stuff on steroids. We are living in a society now where you see 5% of everyone else's life, but it's a curated top 5% of their life.
Eric (20:06):
And if you're not sure if that's what's going on, look at your own feed. If you post things on social media, are you posting about the last time you got in an argument with your spouse or when your kid got caught stealing something from the cafeteria at school? Probably not. You're doing the same thing. And so we're living in this hyper society where all we're seeing is the best of what everybody else has. And if you want to talk about how to get out of that, you have to start by recognizing that's what's going on and you have to identify what's important in your life and to drown out the noise.
Nik (20:39):
Yeah, Eric, and I think there's a couple other things that I would point out there. One, people are so self-absorbed even if you buy nice shit, most People don't even notice anyway, because they're worried about themselves. And then the second part of that is people won't like you because you have nice shit. That's kind of the assumption, if I buy, if I buy a new car that's just as nice as my neighbors, I'm going to be part of this club. People like you because you listen, you're a good person and you're respectful. Whatever makes you, you, that's the reason that your friends want to be friends with you. And then kind of piggybacking off of that, just play your own game. What works for your neighbor, what works for your ex girlfriend or boyfriend on social media, what works for your brother-in-law's family might not work for you. So identify the game that you're playing. And, I always like to say that wealth is what you don't see.
Nik (21:35):
When you see someone with a nice car, you can make some assumptions. Yeah, that person has pretty good income. They qualified to take out a loan to buy that car. So they must have, some sort of level of wealth and they might even be rich, but wealth is really what you don't see. It's the investment accounts. It's the 401k, it's the equity that you have in your home. It's the lack of debt on your balance sheet. That's what true wealth is. And that's never going to come across just because you drive a brand new Beamer.
Keith (22:08):
Just like in personal finance, always be compounding, right? Well, the the truth of it is bad decisions also compound. Eric, you talked about 50% or so of Americans, and I actually think it's much higher than that. Couldn't put a thousand dollars together in a pinch, and would have to rely on a credit card. And I think we can all understand that the worst time to borrow is when you're in a financial pinch. Right? So I think what you guys are saying. I'll paraphrase Dave Ramsey here. "People buy shit they don't need, with money, they don't have, to impress people they don't like."
Nik (22:36):
Keith drops the mic. That's well said, Keith.
Keith (22:41):
So this all sounds real good and great. But for the people who are actually listening to us today who are maybe identifying now as trying to keep up with the Joneses, if they can be so honest with themselves. Eric, do you have any actual, tangible steps? Outside of just the discussion that we had that can be taking Today, whether it's eight or two, or just coming to Jesus and being honest with your financial situation, what can people do today in order to start breaking this funk and breaking these bad habits and start looking for a better future?
Eric (23:13):
Well, we kind of touched on it a little bit ago, talking about "play your own game," I think is the way Nik said it. Live your own life is what I was saying. You need to identify what it is that brings you happiness in your life. I want to go a little bit further on to an example Nik said earlier, talking about a car or something, looking at somebody that bought a new car. One of the examples I like to use is I call it the Ferrari example. If you're a car person and you think Ferrari's are cool, and you see somebody driving down the road in a Ferrari, and your thinking about how awesome you would be, and how happy that would make you and how everyone else would view you.
Eric (24:00):
They would think you were so cool if you had that Ferrari. But the thing is, is your not even thinking about how cool the person driving that Ferrari is at that moment. You're only thinking about yourself and what other people would perceive you as. You're doing the exact same thing. And if you had that Ferrari people are not driving down the road, thinking your cool, they're thinking about how cool you would think they were if they were in that Ferrari. So it's kind of like what you said, trying to impress people that you don't care about with money, you don't have. That's it. When your financial literacy is high enough as well, and you see somebody like that in the Ferrari pulling up to valet parking, walking into the restaurant, you're smart enough to know that it's a high probability, that they don't actually have a lot of wealth.
Eric (24:50):
They're either spending a lot of money because they just came into it. They might be renting it. They might be leasing it. There are some people that do have it, but it works against you in that sort of stuff. So, you know, I think that the takeaway, or as far as actionable steps, you need to really identify what makes you happy. You need to figure out what type of resources it's going to take to get you there. And then you need to start to put together an action plan, such as whether it's budgeting, saving, paying off debt, building for retirement, those sorts of things. And those are things that we talk about all the time here on this podcast and we will cover extensively in the future as well.
Nik (25:30):
No, I was just going to say, Eric, all of that is a hundred percent, right. But I feel like people will throw out these generic goals like, Oh, you know, my plan is to not have any debt by the end of the year. And that's all well, and good. That's a fine end goal. But if you keep the same processes, the same systems in place and the same behaviors, then that's just a fantasy land goal. That's not going to happen. You need to commit, take ownership of the entire process and really change who you are from a financial standpoint. Right? So looking at all of your behaviors, changing your systems and just changing the way that you think about yourself. Like I can say, I'm going to save a hundred dollars this month. Okay. That's fine. That kind of comes off. like I'm going to try to save a hundred bucks, but I really am still a spender. But if you shift your mindset and say, "I'm a saver," it's a subtle difference, but it's an identity change. So that's great to have goals, but you need to first start with the identity change. Second, change your processes, change your systems and change your behaviors that will lend itself to your goals.
Eric (26:44):
I love that. I love that example because in budgeting, we teach about prioritizing different things. So the way most people, when they actually get down to writing a budget, they start with their income, they write their expenses and then whatever's left over, then they start to add those to the category, right? They start to add that to the savings category, whatever's left. While that's better than not having a budget, that is the mindset of a spender. The mindset of a saver reorganizes that list. You start with income, you put your savings goals and then you are allowed to spend the rest. And so just that subtle shift in mindset, like you're talking about where you move from being somebody that thinks you can save whatever you didn't spend for the month versus, well, this is how much I'm going to save. and then I'm going to build my life around whatever is left. And that subtle shift like you're talking about is the thing that over time compounds and moves financial mountains.
Keith (27:51):
And for those of you listening that picked up some good stuff today that are saying, "Okay, maybe this is me. Maybe I do have some of these problems, and I need to kind of take focus to that. "This is what we do at Proper Cents." And we're happy to kind of walk you through this. And so we invite you back next week to continue to listen to this and get your financial matters in order. Because it's okay to know that you don't know everything and reach out for some help. And so Nik, real quick, what would you say to people that may be embarrassed or just don't want to acknowledge their financial situations or don't have time they think to read books on this or really study up on it. Aside, of course, from paying attention to what the three of us are kind of preaching here. How important is it to understand what you don't know and reach out to people that can help, whether that's family or professional or otherwise?
Nik (28:42):
Well, for complex issues like this I like to invert the problem. So, ask yourself what, if you continue on your current path? Which is often a much worse outcome than being embarrassed in the short term. It's okay to ask for help. What's confounding in the US, is we have no formal education system that addresses personal finance. We're left to figure it out on our own. True, it's not 1980 anymore. We don't have to slug down to the library and check out a book in the snow. We're privy to our cell phone and our laptop. So the information is out there, but you need to understand that good habits can compound and bad habits also can compound. And if you continue on your current path, one day, you're gonna wake up at 55 years old, have nothing saved for retirement. Living paycheck to paycheck. It's never late, but that's a horrible place to be. So make the tough decisions now to better your future,
Keith (29:47):
Eric, any final thoughts before we wrap this up?
Eric (29:52):
Find your enough. That's a term that I've come to absorb recently, and I love it. It's short, it's sweet. And it means that there's always going to be something on the horizon. There's always going to be somebody that makes more money. There's always going to be somebody who has a bigger house. There's always going to be a better car, a promotion that's never going to end unless you're Elon Musk and Jeff Bezos duking it out for the richest person, depending on stock price today, there's always going to be somebody that has more than you. And so, true happiness is found in loving what you have instead of lusting after something that you want. And so I always like to tell people think about in the past, when you thought forward, what you wanted your life to be. There's a good chance that the life you're living right now is a version that your previous self thought was enough.
Eric (30:57):
But once you got to that, you started looking to the next horizon. So when I say find your enough, it means find what is enough to make you happy and make you satisfied and make you safe and comfortable, and be able to do the things that you want with the people that matter the most, and then build around that. It doesn't mean you have to stop improving. It doesn't mean you have to stop gaining wealth, or getting nicer houses or nicer things. It means at a certain point, teach yourself or learn how to become satisfied with what you have, because otherwise you will be on a perpetual treadmill and you will never get to the end of it. And one day you're going to die. So find what makes you happy, build your life around that, and then expand from there.
Keith (31:45):
Yeah, that's it right there. Be happy with the now. And if you want something in the future, put a plan together and start building around that. And that's exactly what we're doing here at Proper Cents is helping you roadmap that out. And next week, we're hoping to dive into a more specific topic. If anybody out there would like us to dive specifically into something, please just write us. But in the meantime, guys, remember be money nerd. Being a nerd is cool. So ride along with us next week and another Proper Cents podcast, and be sure to check us out at www.propercents.com.
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