The Thing We Never Talk About

Timothy Iseler: Hi.

Hey there.

Hello.

Welcome to The Thing We Never
Talk About, a podcast about

personal finance for weirdos.

My name is Tim Iseler.

I'm a certified financial planner, and I
run my own independent financial advisory

business right here in Durham, NC.

And I help artists, musicians, and
other people with weird jobs take

control of their financial lives.

You can learn more about that
business at iselerfinancial.com,

and if you have a question about
money or personal finance, I

would love to hear from you.

Please head over to
iselerfinancial.com/podcast

to submit a question and I'll
answer it on a future episode.

A few years ago, I wrote a blog post that
somewhat surprisingly, is consistently

the top visited post on said blog.

The title of that post is actually how
to turn $6,000 per year into a million

dollars because six K was the maximum
IRA contribution allowed when I wrote it.

So since the topic is clearly
popular and the IRA Max contribution

has been bumped up to seven k,
I thought I'd revisit this idea.

I'll link to that older
post in the show notes.

But if you listen to this
episode, you'll get the gist.

The reason this seven K into 1 million
conversation is important is because

regardless of how old you are or what
stage your career is at, I want you to

be thinking about financial independence.

That term gets thrown around as a
modern substitute for retirement,

especially in the context of the
so-called FIRE movement, which stands

for financial independence, retire early.

Now as Yogi Berra once said, A nickel
ain't worth a dime anymore, and

inflation being what it is, a million
bucks ain't what it used to be.

But a million bucks is still a heck
of a lot of money and certainly a

heck of a lot better than nothing.

So for this conversation, we're gonna
think of financial independence,

not in the context of getting rich
and retiring early, but instead in

terms of increasing your ability
to choose when and how you work.

Sometimes that's a matter of
keeping your expenses low.

If you only need to spend $2,000
per month to live a happy life, your

obligation to work is pretty manageable.

But another way to increase your ability
to choose when and how to work is having

enough money that you know you'll be fine
if you decide to work a little bit less.

Of course, that doesn't mean
you have to stop working.

Some people like authors, musicians,
filmmakers, et cetera, might wanna keep

working forever, that's totally fine.

Not everyone needs to plan
for a conventional retirement.

But what I do want everyone to
plan for is to save and invest

in order to build some meaningful
degree of financial independence.

If that means you still have to
work, but you get to be more choosy

about your hours or the people you
work with, I consider that a win.

Okay, so onto the topic of the
day, how can you turn seven

K per year into a million?

By the way, if you wanna try some of these
calculations on your own, I'll link to a

super helpful calculator from investor.gov

that does exactly this kind of math.

I'm actually gonna start with an
option for saving a million dollars

that wasn't in the original blog post,
and that's just saving money in cash.

Interest rates were a joke back
when I wrote that piece, so I

didn't even give it a second glance.

But there are currently FDIC insured
banks out there that will pay you in the

ballpark of 4% annual percentage yield
or APY for cash in a savings account.

So rather than poo poo the idea,
I thought I'd run it up the

flagpole and see what I found.

If you save $7,000 per year in
an FDIC insured account with a 4%

interest rate, it would take you 49
years to get to a million dollars.

That actually surprised me.

I kind of thought it would
take you a lifetime or more

to save that much in cash.

So it's not totally out of the
question that if you can get a 4%

APY or better in a cash account, you
could save a million bucks that way.

however, I don't know about you, but
the jury's out on whether I actually

have another 49 years ahead of me.

And even if I do make it to my mid
nineties, I don't really wanna wait

that long to have a high degree of
financial stability or independence.

But I wanted to throw it
out there for reference.

And who knows, maybe some enterprising
teenager hears this and decides to

save lots of money the safe way.

In contrast, if you're
only getting the 0.02%

APY quoted by a big bank whose name rhymes
with JP Morgan Chase for their so-called

premier savings account, you're just
never gonna get there by saving cash.

It would take about 142 years to get
to a million dollars by saving seven

K per year in that kind of account.

So for everyone who hopes to move
things along at a faster clip, we

need to look at investing your money.

If you want your money to grow
significantly faster than inflation, you

just have to suck it up and accept the
extra risk associated with investing in

favor of your long-term financial health.

But that doesn't mean you need to be
some kind of investing genius or even

invest all that much money each year.

Again, we're talking about seven
K per year, and while that's

certainly a lot to some people,
it's not an insane amount of money.

And because I think simplicity is the
key to sticking with any long-term plan,

I also wanna share the simplest possible
way to turn $7,000 per year into a million

dollars, which is by investing in low
cost index funds in a retirement account.

A low cost index fund lets you
buy hundreds or even thousands

of publicly traded companies in
one super convenient package.

A company called Vanguard
Pioneered Index Funds, but I'm

generally sort of brand agnostic.

But some things you wanna look
for when you're choosing an index

fund are a, what does it track,
like the s and p 500 for example.

B, what's the reputation
of the fund issuer?

Have they been around a long time?

What do people say on Reddit or whatever?

And C, look for funds
with low expense ratios.

The expense ratio is what the mutual fund
company charges for managing the fund.

And lower fees mean that more of
the money stays in your account.

The US stock market historically
has an average annualized return

of somewhere between nine and 11%,
depending on which sources you like.

Let's split the difference and
call it 10% average annual return.

Now, that doesn't mean that the actual
return is going to be 10% each year.

There are zero guarantees in
investing, and truthfully, the

actual returns in any given year are
almost never the same as the average.

Some years it's up, some years it's
down, but statistics being what they

are, the longer your time horizon,
the more things approach the average.

If you invest $7,000 per year in a
low cost US stock market index fund in

your IRA and we assume a 10% average
annual rate of return, you should have

a million dollars after around 29 years.

That's still a long
time, but it's not crazy.

I'm reasonably confident that
I'll still be alive and kicking

in 29 years to enjoy that money.

And if you happen to be younger
than me, all the better.

And one thing to consider is that the
calculations I'm using are based on the

assumption that you're starting from zero.

If you already have some amount
of money invested, even if it's a

small amount, you should do better
than that 29 year prediction.

The thing I like best about this scenario
is that it's really fucking simple.

Put your money in the IRA, use
that money to buy a low cost

index fund, rinse and repeat.

That's it.

You can let time do the heavy lifting
for you, and that's due to the power of

compounding growth, which starts off slow,
but then begins to take off exponentially

if you can stick with it for a long time.

You can't really beat it in terms
of results relative to effort.

Now, i'm not saying that if you
max out your IRA every year, then

you'll retire to a life of luxury.

Like I said, a million bucks
ain't what it used to be.

And of course it bears repeating that
there are no guarantees in investing.

But I've never had a million dollars
before and certain parts of my life sure

would be a heck of a lot easier if I did.

So, while you might not sail away on
your brand new yacht, you should at

least be able to increase your financial
independence in a meaningful way.

And I think that's worth doing even if
you don't have a huge income, even if

you have a weird job, even if you're
excited about the idea of working forever.

More financial independence
is a good goal to aim for.

Okay, that's it for today.

If you have any questions about
today's episode, shoot me an email

at podcast@Iselerfinancial.com.

And if you're thinking to yourself,
sure, Tim, a million dollars sounds

great, but how could somebody
like me save $7,000 a year?

Well, that's exactly what I'm gonna
address on the podcast in two weeks.

Next week I'll be talking with
my old band mate, Lara Hermanson.

Lara just happens to own the largest urban
farming company in the US and I had a

great time catching up with her, learning
about how she got into the farming game

in the first place, and how she learned
about investing while working as a maid.

Okay.

It's time for disclosures.

The Thing We Never Talk
About is for educational and

entertainment purposes only.

It's not legal investment or tax advice.

But everyone knows that, right?

People on the show, including the host,
may have interests for or against any

investments discussed, so do yourself a
favor and don't make any decisions based

on what you hear on this, or any podcast.

If you have a money or finance question
you'd like answered in a future episode,

please visit Iselerfinancial.com/podcast.

Again, that's Iselerfinancial.com/podcast,

and Iseler is spelled I-S-E-L-E-R.

And if you like what you hear,
please like and subscribe to this

show wherever you get your podcasts.

And you can get my insights on money and
more delivered directly to your inbox by

subscribing to my Keep It Easy newsletter
at Iselerfinancial.com/newsletter.

Thanks for listening.

I appreciate you.