How To Retire Early (and be in the top 1%)

Summary

In this insightful presentation, the speaker challenges the common misconceptions about wealth, emphasizing that living within one's means is key to financial success. Drawing from personal experiences and the wisdom of financial giants like Warren Buffett and Charlie Munger, the speaker illustrates how living frugally and investing wisely can propel anyone into the top one percent. The talk debunks the Instagram culture of extravagance, advocating for long-term thinking and the power of saving and investing a modest amount consistently.

Takeaways

• 💡 The speaker emphasizes the importance of living below one's means as a key to financial success and reaching the top one percent.
• 🚗 The story of arriving at a mastermind event in a modest Prius, despite being a millionaire, illustrates the point that wealth does not equate to extravagant living.
• 💰 The speaker suggests using 'back of the napkin' math to justify expenses and ensure that spending is a small fraction of income, even as income grows.
• 📊 A pyramid model is introduced to represent the tiers of wealth, showing that being in the top one percent of wealth is more accessible than many believe.
• 🤔 The script challenges the listener to reconsider societal pressures and personal desires to 'keep up with the Joneses' and instead focus on long-term wealth accumulation.
• 🏠 The speaker regrets purchasing a Bentley, indicating that relative to income, it should be a minor expense and not a status symbol.
• 🔢 The concept of 'dry powder' is introduced, suggesting the importance of having financial reserves to navigate unexpected changes or opportunities.
• 📈 The script highlights the power of consistent saving and investing, even with modest monthly contributions, to achieve significant wealth over time.
• 💼 The speaker suggests that most people can achieve the top one percent status with discipline in spending and a focus on increasing income.
• 🧐 The importance of not just making more money, but also making more money last by spending less, is a recurring theme throughout the script.
• 🚀 The final takeaway is the simplicity of the strategy to wealth: save a portion of income consistently and invest wisely, which most people overlook due to complexity bias.

Q & A

What is the main topic of the presentation?

The main topic of the presentation is about money, specifically the mindset and lifestyle of people in the top one percent and how to achieve that status.

What was the speaker's initial impression of wealth when he was a millionaire?

The speaker initially had a modest lifestyle despite being a millionaire, driving a car worth only six thousand dollars, which was a moment of realization for him about the disparity between wealth and outward appearance.

What does the speaker mean by 'living on less than five percent of what you make'?

The speaker suggests that to accumulate wealth, one should spend significantly less than their income, specifically no more than five percent, which allows for saving and investing the majority of their earnings.

Why does the speaker believe that spending less reduces anxiety?

The speaker believes that spending less reduces anxiety because it creates a financial buffer, which provides a sense of security and freedom from the stress of financial instability.

What is the significance of the 'top one percent pyramid' in the presentation?

The 'top one percent pyramid' is a visual representation of wealth distribution, illustrating the different levels of net worth from high net worth individuals to billionaires, and what it takes to reach each level.

What is the income requirement to be in the top one percent according to the speaker?

To be in the top one percent income earners, one should have an annual income of over four hundred thousand dollars.

What is the difference between being in the top one percent by income versus assets?

Being in the top one percent by income means earning over four hundred thousand dollars a year, whereas being in the top one percent by assets means having between one to five million dollars, which is more about accumulated wealth rather than annual earnings.

What does the speaker suggest as a simple way to accumulate wealth?

The speaker suggests saving a portion of one's income, such as twelve hundred dollars a month, and investing it in a stable market index like the S&P 500 for long-term growth.

Why does the speaker discourage spending money to show off or keep up with appearances?

The speaker discourages this behavior because it often leads to living beyond one's means and hinders the ability to accumulate wealth and achieve financial freedom.

What is the speaker's view on the relationship between happiness and spending money?

The speaker believes that spending money does not necessarily lead to happiness and that one can live a comfortable life on a modest budget, with the added benefit of reduced financial stress.

What is the 'simple retirement calculator' mentioned by the speaker?

The 'simple retirement calculator' is a concept that illustrates how the percentage of income one spends directly impacts their ability to retire early. It emphasizes the importance of saving a significant portion of one's income to achieve financial independence.

Outlines

00:00

💰 Wealth Mindset and Living Below Means

The speaker introduces a presentation on the topic of money, focusing on the mindset of the wealthy versus the common desire to be in the top one percent. He shares a personal anecdote about attending a mastermind event in a modest car, despite being a millionaire, to illustrate the point that wealthy individuals often live below their means. The speaker emphasizes the importance of relative cost and using 'back of the napkin' math to justify expenses, advocating for living on less than five percent of one's income as a strategy for financial success.

05:00

🏆 Understanding the Levels of Wealth

The speaker delves into the specifics of wealth distribution, explaining the difference between being in the top one percent by income versus assets. He uses statistics to show that many people in the top income bracket do not have corresponding assets, indicating a tendency to spend rather than save. The speaker also outlines the different levels of wealth, from high net worth individuals to billionaires, and discusses the importance of living on less than one makes as a path to accumulating wealth.

10:02

📈 The Path to Financial Freedom

The speaker discusses the practical steps to achieving financial freedom, emphasizing the importance of saving and investing. He provides a simple retirement calculator example to demonstrate how living on a fraction of one's income and investing the rest can lead to early retirement. The speaker argues that the key to wealth is not high income but rather the discipline to spend less and save more, challenging the listener to reconsider their spending habits.

15:03

🛒 The Illusion of Wealth and the Importance of Saving

In the final paragraph, the speaker contrasts the superficial display of wealth on social media with the reality of long-term financial health. He stresses that anyone can achieve wealth by saving a modest amount each month and investing it wisely. The speaker concludes by reiterating the message that spending less than one earns is the simplest and most effective way to achieve financial success and retire comfortably.

Keywords

💡Money

Money is a medium of exchange used in financial transactions. In the video, it is the central topic, with the presenter discussing how to manage and grow it wisely. The script emphasizes the importance of living below one's means and saving a significant portion of income as a path to financial success.

💡Top One Percent

The term 'Top One Percent' refers to the highest earners or asset holders in society. The video explains that reaching this status is not just about high income but also about living frugally and investing wisely. The presenter uses the term to illustrate the lifestyle and mindset differences between the wealthy and others.

💡Outliving Means

To 'outlive one's means' means to spend more than one earns or owns, which can lead to financial instability. The script warns against this behavior, advocating instead for living within one's means and saving money as a strategy to accumulate wealth.

💡Mastermind Event

A 'Mastermind Event' is a gathering of like-minded individuals focused on learning, networking, and idea exchange. In the script, the presenter recounts an anecdote from such an event to highlight the contrast between perceived wealth and actual financial prudence.

💡Prius

The Prius is a brand of hybrid car known for its fuel efficiency. In the video, the presenter uses the example of driving an old Prius to illustrate the point that being wealthy does not necessarily mean displaying it through luxury possessions.

💡Relative Cost

Relative cost refers to the cost of something in proportion to one's income or financial capacity. The video emphasizes understanding the relative cost of expenses as a way to make financially sound decisions and to avoid overspending.

💡High Net Worth Individual (HNWI)

An HNWI is someone with significant assets, typically defined as having at least one to five million dollars. The video uses this term to discuss the different tiers of wealth and the financial behaviors associated with each.

💡Investable Assets

Investable assets are assets that can be invested to grow wealth, such as stocks, bonds, or real estate. The script explains the importance of having a substantial amount of investable assets to reach the top wealth brackets.

💡Long-Term Thinking

Long-term thinking involves planning and making decisions with a focus on the future rather than immediate gratification. The video encourages long-term thinking as a key to building wealth and achieving financial stability.

💡Retirement Calculator

A retirement calculator is a tool used to estimate how much one needs to save to retire comfortably. In the video, the presenter uses the concept of a simple retirement calculator to demonstrate the impact of saving a portion of income on the ability to retire early or achieve financial independence.

💡Spending Less Than You Make

This phrase encapsulates the principle of not spending more than one earns, which is a fundamental strategy for financial health and wealth accumulation. The video repeatedly emphasizes this concept as a key takeaway for achieving financial success.

Highlights

The speaker emphasizes the importance of living below one's means as a key to financial success.

A personal story about driving a modest car despite being a millionaire illustrates the point of not spending extravagantly.

The concept of relative cost is introduced to justify expenses and maintain a frugal lifestyle.

The speaker shares his strategy of living on less than 5% of his income, regardless of the amount made.

A pyramid model is introduced to represent the different levels of wealth and how to ascend to the top 1%.

The top 1% income earners are defined as those making over $400,000 a year, contrasting with asset-based wealth.

The disparity between income and asset levels in the top 1% is highlighted, pointing out spending habits.

The speaker discusses the influence of Warren Buffett and Charlie Munger on his long-term financial thinking.

A client's story is shared to caution against overspending, especially in uncertain economic times.

The idea of 'dry powder' is presented as a financial buffer for unforeseen circumstances.

The speaker's personal preference for reducing expenses to lower anxiety is shared as a strategy for success.

The significance of saving a portion of income, even if small, is emphasized for long-term wealth accumulation.

A simple retirement calculator is introduced to demonstrate the impact of saving on retirement goals.

The concept of 'time' as a factor in wealth accumulation is discussed, alongside income and savings.

The speaker argues that the choice between spending for appearance or saving for freedom is a personal one.

The final message encourages the audience to spend less than they make as a path to financial independence.

Transcripts

what's going on everyone i've got a

special presentation for you guys today

this has been on my mind for

um probably about half a week now um

and it's gonna be about money all right

everybody's favorite topic

um and it's probably not gonna be what

you think it's gonna be but it's gonna

be really good

promise so um one of the things that's

top of mind is that i get a lot of

conversations from entrepreneurs who are

like i just want to be in the top one

percent i wanna

and the thing is is the people who are

in the top one percent

live a different way and they also don't

live now the way they did

to get here all right and so i'll tell

you a quick story and then i'm going to

show you what i mean with this

beautiful pyramid and if you're

listening then i'll try and explain it

visually

or audio wise so when i was um

very early on in my career um or earlier

than now right uh i was

showing up to a mastermind event that i

had it was the first mastermind event

um i think we had 28 people who were

showing up and all these people were

paying

40 000 a year and i remember

pulling up to our event it was in

albuquerque uh new mexico

and um they were walking into the hotel

as i was pulling up right

i was like nervous and excited and all

that stuff and um

one of the one of the girls monica

guitar um

uh was like as we're getting out of the

car she was like i thought you guys were

supposed to be rich

and she literally said that and i still

remember to this day because it was like

such a moment for me

um i don't even know if she remembers it

but uh we were pulling up in a prius

that had a crack across the windshield

and a dent in the side door

all right and this car was probably a

six thousand dollar car tops

right and the thing is is at that moment

i was a millionaire like i had a million

dollars in cash right

um sitting in my bank account after

taxes and yet i was driving a 6 000

car and so one of the things that i

consistently

see um is people outliving their means

and this is that's not a new message but

for some reason

it still doesn't resonate with people

and so i'm going to level up this

conversation a little bit

because you're like but wait alex i

thought you now have a bentley which i

totally regret by the way but i do have

a bentley

and we have a very nice home the thing

is is

a bentley for me relative to my income

is less than one week's income for me

income and so one of the

important things to understand is the

relative cost

of any of anything that you have and so

i have always used this back of napkin

math to justify

expenses all right and so as a result of

that

i always have lived on less than five

percent once i started making money less

than five percent

of what i made which pretty much meant

that until i was making a million

dollars a year or more i lived on thirty

thousand dollars a year

right which is if you've heard my other

story about once layla and i made our

first hundred thousand dollars

i told her this is awesome that means

that we have three years of living if we

make no more money

all right because we knew that on on on

1500 a month we could live

right decently comfortably and i'll tell

you this

comfort's nice but there's not that much

more enjoyment you get out of like

driving evently versus a normal car now

i'm sure there's car people who are like

whatever but i'll tell you that the

incremental gain that i have in my life

is not worth the money

this is probably the last expensive car

i'll ever have it's also the first

really expensive car that uh

we ever got but what i wanted to do

though um and kind of shift the

conversation is not just talk about you

know

making uh or spending a lot less than

you make because i saw somebody recently

who was one of our clients

um they graduated from the program and

then they went on to start an online

business they were gym owner

um and i saw the expenses that they were

incurring and i was like man

like that worries me you know what i

mean it just it it worries me because i

i see a lack of judgment

um because you don't know how things are

going to change i mean i think if the

last year for anyone can say that

things can change quickly and i want to

have tons of dry powder

tons of reserves to pull on if i need

them and so for me i get more anxiety

by having expenses and so for me to

actually lower my anxieties i lower how

much i spend

and so if that's something that you can

associate for yourself as in the less

money i spend the more relaxed i am

um then i would encourage you do it

because for me it's been one of my kind

of

secret sauces of success is just like

just don't spend a ton of money

especially relative to what you make and

so what i want to do for the rest of

this

is kind of first talk about what it

looks like to get in the top one percent

and then how to get there all right so

right here you've got a pyramid and if

you're listening um then you can

listen along but there's four layers to

this pyramid all right and this is kind

of the top one percent pyramid

the bottom layer of this is people who

have these are considered high net worth

individuals

all right that means you have one to

five million dollars in assets

all right now this may surprise you but

uh

the people at this level and i've got my

notes here so i'm going along with this

um in the united states it's 1 in 69.

so 1 in 69 people is has between one and

five million dollars

so being over a million is not even top

one percent anymore

um i mean it sort of is but like it

technically it's a little like if you

actually had one million dollars you

wouldn't be in the one percent

um but i find that but that's in assets

not income

right that's in assets not income you

don't need to make a million dollars a

year to be in the top one percent

right and what's crazy to me is that the

top one percent income

is 400 000 a year but the top one

percent in assets

is only a million or a million and a

half bucks

how nuts is that it means people spend

all their money

that's what that means so if you have a

top one percent income

you should be way above the top one

percent in assets

but it doesn't work that way because

people always want to show off

and people can't think long term and the

only thing that i've been continually

reading about because i've been

really pouring a lot into really reading

a lot about monger

and um and uh buffett so warren buffett

and charlie munger who

are founders and one of berkshire

hathaway

is how they live and how they think in

terms of long term

and so i'm going to transition to

talking about how to get there but i'm

going to finish this little chart for

you

so this is the top 1.5 percent roughly

of the u.s is one to five million in

assets and that's one in 69

so if you i for me i like the one in

personally it makes it more real for me

so 1 in 69 people all right now in the

us

the next level is very high net worth so

you go

high net worth to very high net worth

individual for this

it's 0.3 percent all right of people

that's crazy now here's what it is in

math that's one in

338. so one in 338 people

is worth between five and thirty million

dollars that's what they have in

investable assets

five and thirty million dollars

i'm i'm purposely putting this out there

to hopefully counter the instagram

culture of

flexing in front of a lamborghini or

bentley right whatever

because most people are broke

like most people are poor and i i think

that i'm gonna i'm gonna i'm gonna lay

out a a a plan for you that's very

simple

to get you above this to really just be

in the top one percent

and the thing is is like i said the top

one percent income earners or

earn over four hundred and twenty

thousand four hundred forty thousand a

year depending on where you're looking

that's per year so for you to get over

five million

like you just need to live on a lot less

than you make if you're in the top one

percent

income earners you should be in this

five to thirty million dollars within

not a ton of time right and then the

the level above that is ultra high net

worth individuals

which is uh one in 13

83 and that's uh what is that that's

point zero seven percent all right point

zero seven percent

all right and then finally i'll just

finish this little chart out

um billionaires is uh one in

468 000 all right

and uh and the percentage there is point

zero zero zero four zeros

three zeros three zeros two percent all

right now the reason that uh the jump

between the the third stage and the

fourth stage is so large is that

the range is between 30 and a billion so

everyone that's between got between 30

and a billion

is in the next level and then

billionaire is the fourth category so

these are kind of like the

the four layers above the one percent

the very first layer kind of gets you

into the top one percent

more or less right and then um above

that you have the varying categories

the thing is is that in order for you to

get to

above five million dollars so not even

top one percent but top point

three percent all right one in three

hundred and thirty eight so you walk

into

the 238 people you're probably the

richest person in the room

all right for you to do that

you got to save like 15 grand a year

for 30 years that's it and that's

assuming just nine percent

returns which is just the stock market i

just put in the s p 500 and don't do

anything with it

right that's not doing crypto that's not

that's not that's not learning how to

like

it's literally just save a

you know 1200 a month and and put it

into the s p and do it every month

that's it if you make four hundred

thousand dollars a year so you're making

thirty five thousand dollars a month

right if you live on five you can put

ten thousand dollars and you'll be at

the

you'll be at the top end of this right

but everyone just spends so much money

and so

i i i just when i see this

it's both incredibly encouraging to me

and also incredibly saddening

it's encouraging to me because i feel

like genuinely everyone can get to the

top one percent which doesn't make math

mathematical sense but it makes it makes

realistic sense and you feel like but

alex

how do i how do i save twelve hundred

dollars a month right

so it's two things it's income and time

right

net income being like minus your

expenses so it means it's

make more money spend less money the

easiest thing most people do is they

just spend too much money

right and i know that sometimes you can

like

it's sometimes apparent depending if you

like follow my instagram or whatever but

like

layla and i think i was asking for her

to give me the numbers from last year

but we live on less than five percent of

what we make

all right and you're like well sure

that's because you make a lot yeah but i

lived on that when i made nothing

right and so i think most people like

you should live on 30 grand 40 grand a

year and the thing is is that you

already know

in your heart that spent making that

spending more of the money is not going

to make you happier

i'll tell you right now it's not and if

the point of spending money is to make

you happier i'm telling you it's not

sure like i have this studio

i can justify it as a business expense

um but

i did this mostly because i enjoy it and

to me from from a percentage of income

it's negligible

right and so i got this fancy setup only

after i had already crossed three of

these levels

right

i'm saying this because it just it

frustrates me because

i really believe anyone can do it i

really do you should have to live on a

lot less than you make

and so anyways to finish this out right

what do you do most times you're going

to have to sell something right either

you're selling someone else's product or

you're selling your own product either

way

i say product i mean product service

whatever right but either one of those

categories

and if you make a hundred thousand

dollars a year a hundred thousand

dollars a year and you live on 30 you

can do this

not only can you get into this quote

bottom level the top one percent

but you can get the top point three

percent right now if part of you is like

well

you know that then what's what's the

point of living

it really depends on on what you value

if like and this is kind of backwards

because it's like the type of person who

wants to have more money wants to spend

the money they have

then i can understand it but then at

that point just

don't yearn for more does that make

sense so like don't be dissatisfied that

you haven't achieved your goal for me

what i'm looking at is like how can i

get into this category by the time i die

and use that to impact humanity like in

a way that's that's meaningful

that's what i'm that's what i'm trying

to do right and so

anyways i told you the prius story to

illustrate a point which was i was a

millionaire and living on less than

three thousand dollars a month

right um i owned my car our rent was

1200 bucks

and layla and i lived on

we bought food at the grocery store you

know what i mean like we went out once a

week like it wasn't

like you can do that and live a normal

life like a comfortable life

and that was when we were making a lot

of money and that's because i always

have a fear

or had a fear that i would i was like

what happens if we stop making money i

don't i just don't want to

lose everything and so i think if you

can be satisfied and decrease your

anxiety or make the amount that you

spend

decrease your anxiety you will be

happier so i'm going to leave you with

this one piece

as a final note on this

which is the simple retirement

calculator all right world's simplest

retirement calculator

so if you

live let's say let's say that you are

currently

uh 30 years old all right so you're

currently 30.

and um you want to retire

all right so let's say you want to

retire soon let's say you want to retire

by the time you're 40. all right crazy

[ __ ] you're going to try and retire

entirely by your 40. okay cool i dig it

so if you're a retired boyfriend i'm

saying retired but realistically you're

going to work because you like working

but let's just say that you won't

you don't want to have to work you want

to work on the stuff you like working on

after you're 40.

cool no problem

the percentage of your income that you

spend is going to be the thing that

dictates how

quickly you can retire not how much you

make

so for example if you make 400 000 a

year like i said

right and you save

10 right

versus making a hundred thousand dollars

a year

and you saving uh let's say eighty

percent

is what you save then what you're what

you

every year you're adding four years of

retirement

because it means that you're spending 20

and saving 80k whoo that's great

that means for every year you're getting

four years back which means

if in 10 years at this point you'd have

40 more years

right once you hit 40 because you had 10

years of stockpiling for each year

right you'd have 40 years of living now

mind you that's assuming it's your

current level and that the money that

you now have saved up at this point

because you should have 800 000 right

and that's assuming that none of the

money you had made any money so it'd

probably be closer to like 1.2

right million by the end of that decade

that's really conservative still maybe

even 2 million

right at that point that this money

isn't even making you money that's just

literally assuming a straight

decrease in how much you spend right

that every year would just go down which

isn't even realistic

right but if you did that then you'd get

there and that's on 100

a year right that's it

on the flip side if you're at this 10

guy then every year he gets one tenth of

a year

right because he's saving 40 it costs

him 400 to do a year which means that

this guy is never really going to be

able to retire

right and he's always going to be

stressed or she's always going to be

stressed

and so i say that only to illustrate one

point which is

you have to spend less than you make

it's sometimes a simple [ __ ] that people

don't want to do

and it means that you can either have

your ego and how you look to everyone

or you can have your ego based on the

freedom that you feel and i know that

the vast majority of people will never

do that

i get messages every day from people who

are like

you know they've been trying for 10

years to make a million dollars a year

rather than

maybe trying to make a hundred thousand

dollars first right

and the thing is is to be in this top

one percent you don't need to make a

million dollars a year

not even close you're not even close you

don't even need to make close to a

million dollars here

to be in the top one percent right if

you just add a little bit of time

you can get in the top one percent just

being reasonable right you can get in

the top point three percent

by also being you know unreasonable

because compared to everyone else

right just because the thing is is most

people

are insane in terms of their irrational

with their behavior and their

expenditures they are stressed about the

amount of money they spend and yet they

are the

they're in complete control of how much

they spend just spend less

and you'll be less stressed so anyways

that is my money money message for

everyone today um

we still continue to less on live on you

know five percent

maybe ten percent of what we make i

don't think we live on ten percent

we live on five percent of what we make

and the thing is is like at that point

if you live on if you live in five

percent or ten percent of what you make

then it means that literally one year

if you as like walk walk with me for a

second

if you live on ten percent of what you

make and your money grows at ten percent

then in one year you could retire

assuming you have a stable income from

the the savings that you had on the

other 90

right figuratively one year 15 months

whatever but you get the idea

right does that make sense for everybody

like if you live on 10 percent of what

you make or you live

like you're like but man that's like

poverty levels it's like

yes but it's poverty levels in your mind

based on your perception

not based on reality of the fact that

you're going to be stockpiling

money that will continue to feed you

forever along you want

right and so the the moral of the story

is

spend less than you make the the greater

you can create that disparity the faster

you can retire or get to a point where

you choose to work on the things that

only you want to work on

right and getting into the top one

percent

is literally a matter of saving a

thousand fifteen hundred bucks a month

and putting in the s p 500

that's about it it's all there i mean

like that's that's it

that's all there is to it and the thing

is is it's

so simple no one will do it

that's okay but you're a smart cookie

and you're gonna do it because um

you think that simple things are usually

the keys to the universe which i

agree with you so keep being awesome

lots of love

and i'll catch you guys on the flip side

bye