Passive Investor Tips is a weekly series hosted by full-time passive investor and Best Ever Show host, Travis Watts. In each bite-sized episode, Travis breaks down passive investor topics, simplifying the philosophy and mindset while providing tactical, valuable information on how to be a passive investor.
In this episode, Travis discusses the dilemma many Americans face by not investing enough, and instead being sucked into the power of consumer culture. He shares his experience with living below his means in order to achieve his goal of earning enough passive income to retire early, and encourages people to do the same.
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TRANSCRIPT
Travis Watts: Welcome back, everybody, to another episode of Passive Investor Tips. I'm your host, Travis Watts. In today's episode what we're talking about is how to do more with less. Disclaimers as always, never financial advice; not telling you or anyone else what to do. Please seek licensed financial advice.
So I'm shooting this video here just on the fly, I'm about to go into a conference here in Las Vegas. And every time I return here to Las Vegas - I've been coming here since I was a kid - I'm reminded at the extreme consumerism in excess in our culture. Everything here in Las Vegas is an upsell, let me tell you. I went to check into my hotel room 30 minutes early, and they said the room's ready, but if you want to check in right now, it's going to be an additional $30. Then I find out I'm paying a resort fee on top of what I already paid to book the hotel, and I asked them about the pool, and they said "Well, the pool's down right now, it's under maintenance. But you still have to pay the resort fee." Then I asked them how I get to my room from the check-in, and they said "Oh, no problem. Go up the escalators, you have to walk all the way through the casino", which by the way is filled with thousands of billboards and ads and bars and restaurants and people trying to upsell you on everything, not to mention, of course, gambling, just to get to the elevators to get up to your room. Crazy world that we live in, especially here in Vegas.
I was walking down the strip last night, and I realized a lot of this marketing that we're subject to is about FOMO, which stands for fear of missing out. It's always about "You need this product or service to elevate your status. You don't want to miss out on this exclusive show or event that has limited tickets, and you better RSVP right now." And some of the lines for these restaurants go all the way around the block, people lining up to pay $30 for a hamburger and fries because a celebrity has endorsed this restaurant.
So while there's nothing inherently wrong with this type of marketing - it clearly works - it does pose the question, is all of this necessary for you? Could you make last and in fact be able to do more? And that's what we're addressing here in today's episode. I get asked all the time from investors and from peers and at conferences, "Why don't you, Travis, become a general partner? Why don't you do your own syndication or your own business? Isn't there more money in that? Why don't you maybe go back to flipping houses? You talk all the time about how your return on investment was so great doing that. Why don't you return to it?" And the answer to this that I know my priorities and the reason I'm a limited partner passive income investor is for the lifestyle preference and to free up my time.
So financial success is great. Don't get me wrong, it's great. But not if it comes at the expense of what really matters. So what really matters? Well, our family, our health, our time... No one's trading places with a billionaire who's about to pass away, because time is ultimately more valuable than money. Most people would agree with that... Not everybody.
So let's examine a few examples of how you could do more with less. And the first thing to understand is most Americans retire with less. In fact, if you're tuning in today here on YouTube, I want to share this chart with you. I'm going to put it up here on the screen. So what you can see here on this chart is that the median income for American households aged 45 to 54 is around $97,000 per year. And the median income for households age 65 to 74 falls to $55,000 and some change, this according to the Bureau of Labor Statistics in conjunction with the Census Bureau. So that's almost a 50% drop in income for retired Americans, and it only goes down further from there as your age progresses.
So the problem with being young for a lot of people is you have plenty of time, but you don't have money. And the problem with being an older retiree is you may have the money, but you lack the time.
Break: [00:05:51.15]
Travis Watts: So my question for you today is could you possibly retire sooner? And I want to look at an example of an individual who's a high income earner making $200,000 per year in gross income. And the reason I use that metric is I work with a lot of accredited investors, and that's the minimum income threshold to qualify as being accredited. Alright, so of this income, we'll take $50,000 off the top, we'll say that's dedicated to taxes. So effectively you have $150,000 a year to live on.
Now, what I did myself in this scenario is I lived on $50,000 a year and sometimes even less, and I took the remainder of that income and I put it into passive income investments. So if we use a simple yield, let's just say for simple math purposes my annualized yield was a 10% total return; maybe that was equity, cashflow, a combination of the two... It doesn't matter. I'm just using a simple example. So that would mean that $100,000 a year got put into my investment accounts, and I was able to produce $10,000 extra each year in passive income specifically.
So essentially, every five years I was creating financial freedom, because I then would have $50,000 in new income, and I was living on $50,000 per year. So a decade into this experiment, if you will, I had enough passive income to easily be able to retire if I chose to do that. And this right here is the key point. This is the secret sauce. Most people don't invest enough, number one. Number two, a lot of people get sucked into the consumer culture.
So even when I made lower income, I had jobs that paid me $10,000 a year, $20,000 per year, $50,000 per year, $100,000 per year and so on. I always lived below my means for a period of time, and that's another key point - a period of time. I don't advocate live extreme frugality and minimalism till the day you die. The goal is to get you to your goal, whether it's financial independence, financial freedom, retirement, whatever you want to call it; the ability to eventually free up your time.
So that's just a little bit about how I went about it. I'm not recommending that you do the same thing. We're all different. All of our circumstances are different. So you do you. But I just wanted to share this stoic idea with you today on this quick episode, that's frankly been around for thousands of years... And that's this idea that you can be twice as rich by desiring half as much.
So something to think about here for the week... I hope you've found some value in this episode. You're listening to Passive Investor Tips. I'm your host, Travis Watts. If I can ever be a resource or mentor for you, please reach out on social media, by email, you can find me through multiple platforms, and I'd be happy to help out. Share these episodes with anyone you think could find value, and we'll see you in the next episode. Thanks so much for tuning in, have a Best Ever week, everybody.
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