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Personal Finance Interview: Financial Samurai on Smart Savings

Personal Finance Interview: Financial Samurai on Smart Savings

It's probably an understatement to say that the 2008 financial crisis left the analysts, brokers and bankers working on Wall Street reeling. But some in the industry used the chaos and uncertainty of the times to re-evaluate how they looked at money.

The anonymous blogger behind Financial Samurai says he lost 30 percent of his net worth back in 2009 while working in equities, but that the experience taught him the importance of diversifying his portfolio with risk-free investments. It also spurred him to start writing his blog, which eventually played a role in allowing him to leave the rat race behind.

"It's easy to think you're an investing genius when all you've ever experienced is a bull market," he says. "If you're taking advice from someone who just started investing in 2009 or 2010, then I highly recommend you find someone else who has been through the ups AND downs. Experience really counts when it comes to investing."

Here, he shares his insight on savings (something he knows a thing or two about having retired at 34) and offers his advice on investing and reaching your own retirement goals.

Greetings, Samurai. Please tell us about Financial Samurai. When and why did you start your site?

Financial Samurai started in the summer of 2009, right in the middle of the financial crisis. I had just lost at least 30 percent of my net worth due to investments in stocks and real estate and was feeling pretty distressed given I worked on Wall Street in Equities. I've always loved writing so I decided to finally pay someone off Craiglist to help get Financial Samurai off the ground. Writing was my catharsis to make sense of all the chaos.

My father encouraged me to start a site back in 2006, but I had just finished going to business school part time for three years (Go Bears!) while working 50+ hour weeks. All I wanted to do was "relax" by just focusing on my job. It's funny how pain and suffering spur us to get off our butts and do something.

Who should be reading it?

Anydiv who wants to achieve financial independence sooner, rather than later should be reading Financial Samurai. Our motto is to "slice through money's mysteries" so we can lead richer lives.

I write practically all the content myself based on firsthand experience as a stock investor for the past 16 years, as a 13-year Wall Street veteran, a landlord of 10 years, a manager in a brutally competitive industry and as someone who wrote a book on how to negotiate a severance package to give people the courage to break free. I'm slowly beginning to share my experiences, as an entrepreneur as well given it's been two years since I left Corporate America.

Building passive income for financial freedom is also a big theme on Financial Samurai. At the end of the day, I'd like people to generate multiple streams of income so that they are hedged, and have a means to pursue what they really love to do. Money is pretty meaningless beyond providing for the basics if there's no bigger goal.

What's the story behind the name Financial Samurai - why is a samurai a good mascot for money management?

The Samurai is a warrior who conducts him or herself with integrity and honor. I'm very big on discipline when it comes to managing and saving your money. If one is disciplined with their money for a long enough period of time, very good things will happen. I'm also big into respecting one's elders. The easiest solution to never saying, "If I knew then what I know now" is to simply listen to someone who's been there before. Find a mentor and cherish him or her for all their wisdom.

In your first job after college, you started saving 50 percent of your post-tax income ... how did you do this?

Manhattan was a very expensive place to live off a gross annual salary of $40,000 my first year. I had to get my sister's boyfriend at the time to co-sign a $1,800 a month studio I was renting with my buddy. Renting a studio was the first decision to saving money. We just figured a studio was like a more luxurious college dorm room.

The studio was only an eight-minute walk to my office at 1 New York Plaza, Goldman Sachs' Equities headquarters. Not having to commute very far saved me time and money.

The final money-saving trick was to stay until past 7 p.m. (even though I got in at 5:30 a.m.) to eat at the free cafeteria across the street at 85 Broad St. That's where the investment bankers worked and I'd just take the escalator down to the food area, stuff my face, and doggy bag some leftovers to eat later on or eat for breakfast.

Once you have your living and food down, the rest is easy. I maxed out my 401k, which had a limit of around $10,000 at the time and aggressively saved as much after tax income as possible.

What inspired you to be such a big saver right from the start?

I was motivated to save because I knew I couldn't last for longer than five years working 14-hour days. The pressure working as an Analyst on Wall Street was immense. I gained about 15 pounds, developed severe allergies, had plantar fasciitis, and lower back pain due to all the stress. I needed to save in order to have options to escape!

A part of me also felt like I had won the lottery getting a job at Goldman Sachs. I went to a non-target public school (William & Mary) and felt at least in the beginning that I didn't belong. Everydiv else came from an Ivy League school or had parents as Managing Directors. I felt that I had better save up because surely my luck would end. I was lucky to have lasted for 11 more years with another firm in San Francisco after two years in Manhattan.

What's one of the biggest financial mistakes you've made and what did you learn from the experience?

My biggest financial mistake was buying a vacation property only a year after the bubble burst. I thought I was getting a good deal down 10 percent, but the property proceeded to depreciate by another 30 percent!

I still own the property six years later, and don't plan to ever sell. But I learned that when you have an influx of cash from a bonus, an inheritance, or whatever, that it's best to sit on your money for at least three to six months before doing anything. The cash was burning a hole in my pocket, and I just had to invest it in something else since I already owned my primary residence and a rental property.

For people just out of college ... what do you think are the smartest, most straightforward investments to jump into?

The easiest investment to make is to buy SPY, the S&P 500 ETF. I would say for 90 percent of the people out there, buying an ETF or Index Fund is the way to go. Keep some money liquid for a rainy day and just save and invest like mad in you 401k, IRA and after tax savings accounts. You'll be amazed by how much you will accumulate with disciplined savings after 10 years. Here's how much I think people should have saved in their 401k by age. There is a Low column and a High column. Unfortunately, I think the average American falls way short.

When did you decide you wanted to retire early? How did you set yourself up to reach financial independence?

I decided I wanted to retire starting around age 32 after 10 consecutive years of work. I had originally thought I would work until age 40 (2017) and then call it quits, but the financial crisis really made me want to get out of the rat race sooner because it was no longer fun working in finance.

The financial crisis to a rank-and-file-financial-services employee felt like being force-fed Big Macs even though you're a vegan. With each point of recovery in the markets, I was a little less depressed. I continued to write three articles a week on Financial Samurai as a hobby until one day I realized while relaxing at a bar on the top of Santorini, Greece after a three-hour hike that maybe, just maybe, I had found another way out.

I was drinking an overpriced 6 Euro Mykonos beer when I received an e-mail from an advertising client in London. He asked if I'd be willing to put a banner ad up for $1,200 and I told him, "Of course!" He sent the code over e-mail, I copied and pasted the code onto my site, and within 35 minutes he Paypaled over the funds. "One more Mykonos beer, sir!" I waved toward the waiter as spending $10 for a beer didn't feel so bad anymore. (Note: Any revenue that came in never went to me, as I wanted to avoid any conflict while working. FS was just a hobby that just happened to grow.)

My Santorini moment happened in October 2011, and six months later I negotiated a severance package and was gone. It's been two years since flying solo; and I have to say that, despite making much less money, it's been absolutely worth it. Freedom truly is priceless.

What do you think would surprise people about how you spend/save/invest money?

A lot of people think I'm very conservative in my money approach for some reason. Perhaps it's because of my savings habits and frugal ways compared with the income I make. The reality is I take a very dumbbell approach to money. I'm very conservative on the one end with my CDs, and very risk loving on the other end. For example, I've bet my entire IRA portfolio that's valued in the multiple six figures on one stock before. I also decided to leave a high six-figure job after just 13 years to be a starving writer. Those are not actions of a conservative person.

I've had my same 14-year-old car for the past nine years now and love it. I hope everydiv can follow the 1/10th rule for car buying to not blow up their financial future. I don't spend on much of anything except for travel and the things I couldn't afford as a kid e.g. Air Jordan sneakers and some electronics.

One of my big mantras is to practice Stealth Wealth. The idea is to be rich, but act poor and blend in. It's more fun when you can live your life in peace.

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