EP53 Breaking Down Personal Finance

In this engaging conversation, Mike Scott and Troye  Wallett explore personal finance, wealth building, and effective strategies for financial independence. They discuss practical systems, mindset, and first principles to help listeners optimize their financial future.


 keywords

personal finance, wealth building, financial independence, investment strategies, automation, budgeting, personal wealth, financial planning, index funds, crypto


 key  topics

Personal wealth definition and emotional aspect
Automated financial systems and envelope method
Investment strategies: ETFs, crypto, and index funds
Importance of shared financial goals in partnerships
Adapting financial plans over different life stages


"Getting rich slowly is actually pretty easy."
"Finance is difficult, but it’s worth the effort."
"The hard things in life are the ones worth doing."

Chapters

00:00 Introduction to Personal Finance
05:19 Defining Personal Wealth
10:16 Creating a Personal Finance Plan
17:09 Communication in Financial Partnerships
20:09 Investing Principles and Strategies
21:55 The Importance of a Financial Plan
27:05 Understanding Investment Strategies
32:21 The Evolution of Financial Mindset
36:48 Establishing Financial Bare Minimums
42:16 Final Thoughts on Personal Finance

 resources

The Barefoot Investor - https://www.amazon.com.au/Barefoot-Investor-Scott-Pape/dp/0730385624
Profit First - https://www.amazon.com/Profit-First-Transform-Your-Binance/dp/0735214140
Morgan Housel - Psychology of Money - https://collabfund.com/blog/morgan-housel-the-psychology-of-money/
Scott Pape - The Barefoot Investor - https://barefootinvestor.com/
Warren Buffett Quote - https://www.investopedia.com/terms/w/warrenbuffett.asp

Find out more about  working with me or about applying to join the ILN.  mike@smbmastery.com.au

 https://www.linkedin.com/in/mikeadamscott/

https://theintentionalleaders.com/

Transcript

Troye S Wallett (00:01.614)
Hey everybody, it's a slightly different person, a slightly different voice, starting off this podcast today, because normally Mike does the intro, but I'm stepping out on a limb and I'm taking the reins. So let's see how we go today. Hey Mike, how are going?

Mike Scott (00:18.852)
Good, good. Frantic morning, frantic day, 22 in the afternoon. This is low energy time for me, so I'll try and bring it. I'll try and bring it.

Troye S Wallett (00:27.842)
Let's see if we can bring it. It'll be fine, because we're talking about your favorite thing, personal finance today. And I actually, like, I'm super keen to take ownership of this podcast, because Mike has taught me tons about this already on our long discussions and our chats over the years. And I'm bringing it, and I've just got lots of questions for you and lots of thoughts.

So I've been working on the new personal operating system through the ILN. And one of the changes is we are thinking about the nine areas of life and we rate our nine areas of life as part of it. And just to go through them quickly, it's body, mind, spiritual, personal wealth, business, legacy, family, social and community.

So one of those that are on there as you could tell is personal wealth. And I want to focus on that part today because we would...

we'd rank that. So you'd rank it as 10 out of 10, and you'd rank it as zero out of 10, and then you'd rank where you sit on at the moment. So I'm gonna throw this out to you, Mike, what would you say, and the idea with this is it's personal, so what you say is 10 out of 10 will be different from what I say is 10 out of 10. If you're thinking about personal wealth, which comes, into personal finance, what would you say 10 out of 10 looks like for you?

Mike Scott (01:58.298)
Yeah, I think about this too much. So, which means I ruminate on it lot in cycle. But I think the shortest version to express the emotion that I think of as 10 out of 10 is not needing to work. And to expand on that a little bit more, I like Navelle Rabican's sort of definition of wealth versus being rich. And it's like being able to do what I want, when I want, for as long as I want with who I want and not having to work to do that.

So I don't actually need yachts and Ferraris and mansions. When I think about 10 out of 10 from a personal wealth perspective is effectively a high degree of optionality and a high degree of freedom. There is so much to this because it expands as you earn more as we know, which we'll get into today, I'm sure. But that's my definition really like optionality and freedom, not having to work to live the life that I want to live with the people I want to live it with. What about you?

Troye S Wallett (02:52.792)
So does that.

Does that mean that you've got a net asset value of, and let's just make it really simple today. So we're not giving out, we can talk about it really clearly and really easily without having to put our own personal stuff out there all the time, although you're welcome to. Let's say that an asset value of $10 million is the goal. Is that what are you kind of looking at? Is that what you would look at? So when we talk about net asset value, we'll say $10 million. Is that what you look at from like 10 out of 10 when you win, when you've got an asset value of that amount?

.

Mike Scott (03:25.37)
Yes, but it's not so much about the net asset value. It's more about like under pretty bad conditions, what amount of invested value would generate returns such that

I could maintain my lifestyle, right? Without drawing down on capital. We're getting a bit into the technical stuff here, but it's I'm 43 years old. I'm not 60. So it's a different equation for me. I'm not looking at drawing down on my value. That's a different equation when you're 60, 70 in retirement, et cetera. So it is let's use round like this, just use random numbers. Like let's say my lifestyle costs me $250,000 a year of after tax, after super money. Then what's the reverse engineered number that needs to be in

invested to bring in passive income returns to be able to cover that $250,000 a year income. What I'm expressing here though is more like an emotional feeling, right? Because now I got to layer stuff in. Like if you're listening to this podcast, likely you are a business builder. You're an entrepreneur. So likely you're not going to retire. Like, let me be clear about this. Like it's not that I wanted to stop working. It's just that for me,

The feeling of not needing to generate income provides a massive amount of creative freedom and optional freedom. So points in my life, I've sort of gotten through different, like, guess, closeness to that point. And it's amazing what happens, I think, as a builder, as a business builder, when that pressure is off.

When you don't have to do something, but rather you want to do something. For me, that shows up in much higher quality work, much higher quality coaching, much higher quality leadership. So it's a, yes, there are very specific numbers, sure, but it's actually to reach an emotional position. And we're not going to go down this next tangent, but like if you follow Joe Dispenza and what have you, I actually think there is interesting stuff to say. You don't necessarily have to reach that number before you can feel that feeling. You can actually cultivate that feeling before you reach that number.

Mike Scott (05:28.252)
there today because today's gonna be quite a practical podcast but I think there's a lot of merit in in actually accepting that that if you live your life with like when I get to that number I'll be fine you're sure to live a pretty miserable life

Troye S Wallett (05:42.191)
Yeah, I'm very tempted to go into the feelings or that's up, but let's not. So the idea is we've been talking about personal wealth, personal finance sort of discussion.

They're linked, but they're not the same. So I guess where I was heading or thinking about is that the personal wealth idea is the, where do you want to go to? Where does your personal finance situation need to sit to get you to your 10 out of 10 at personal wealth? So does that make sense from a personal finance point of view? I see that as actually like, I think we're actually talking about a personal finance plan. Let's talk about a personal finance plan, because that's really what it's all about.

Mike Scott (06:23.854)
I don't understand the question or the statement. Help me understand that better. it a different way.

Troye S Wallett (06:28.11)
So we've been talking about the, let's cut that out last bit out, Chad. Thanks, we'll go from here. So we've been talking about personal wealth in this discussion. What does personal wealth look like?

And I guess today's conversation to bring it more sort of to the day to day and the practical is it is a more about a personal finance plan. We're talking about personal finance, which I see it as kind of as a, as a plan of action. It's what you're doing now to get to you the point of where you're going to go to. So you've kind of got an idea of where this sits. How do you think about a personal finance plan? I guess let's talk about it in general, and then we can get down into the nitty gritty. So how do you think about a personal finance plan?

Thank

Mike Scott (07:19.768)
Yeah, I mean this is, you you say I've taught you a lot about this, you've taught me...

some pretty strong fundamental principles about this. And one of the principles that you said on one of our rides once stuck with me and stuck with you, which is we need a plan. And then once you have a plan, the plan doesn't care how you feel. And I've found that extremely difficult to create on a personal finance perspective. you know, this, this episode is not coincidentally time. I think I wanted to talk about this because I feel like for the first time in my life, I actually have a plan that I can trust. it the perfect plan? No.

But it's a plan that I can trust. And then the reason why that's so powerful is because the plan doesn't care how I feel. I just have to follow the plan. You didn't ask me that though. You asked me what the plan is. So from a personal finance perspective, I have to separate my business hat. In other words, I have to look at, it starts with the amount of money that comes in after tax to our family. That's the starting point. From that point, I have automated the hell out of everything.

So this has taken us a long time, very much inspired by originally Scott Pape's or Pope's, Pape, Pope, whatever his name is, the barefoot investor.

Troye S Wallett (08:29.806)
of the investigation.

Mike Scott (08:31.694)
Yeah, then Mike McCalluit who wrote Prophet First, he's just launched a book called Something About Money and then Morgan Hussle's Psychology of Money, like very inspired by these guys. What has worked for us in my family better than anything is putting a lot of work upfront. So this money arrives in the account, into one account and then it automatically goes into a lot of different accounts. Like there's a lot, it's probably more than 15. And this was actually a kicker for us because...

It wasn't working for us to just say, so in fact, I'll think about it a step. I tried the whole points game last year. I got like four different credit cards to optimize the hell out of getting as many miles as I can. I thought I was very smart. I thought I was, and I got all these miles and I also spent an extra $30,000 that I probably wouldn't have spent. In fact, I can tell you for sure I wouldn't have spent it otherwise. And you said this to me in the beginning, I've got to eat humble pie. You were like, Mike, I've tried this. I've done the maths. I've done the Excel spreadsheet. It doesn't work. And that's actually where I've landed.

Side note, I think it does work if you own a business and you do the credit card points through your business, but that's a whole different discussion. So the plan is the money comes in

There is no thought, there is no decision. It gets automatically disseminated into about 15 different accounts. And these accounts are pretty damn detailed. So it goes from groceries, toiletries, household expenses. Then it goes to kids extramurals. Then it goes to literally like date nights. Then it goes to what we call a fire extinguisher, which is like things that come up. Then it goes to like the money Mike can blow, the money Georgia can blow. Then it goes to what we blow on the kids. Then it goes to

It goes down to a pretty damn granular level and the point is each one of these accounts has got a card. So when I double click my Apple Pay, it's pretty ridiculous. I get like 20 cards that come up. It's a bit kind of crazy. But this really mimics the envelope system. It really does. And this is like James Clear stuff. It's like, for me anyway, I need a system.

Mike Scott (10:30.392)
If I rely on willpower, I just completely and utterly will overspend and I have. Since we've implemented this system, this automated system, we stayed within our budget for the first time ever. Right. But we've had to get really real about it. So it's, so the plan from a personal perspective is money comes in automatically. Immediately it gets disseminated into a whole bunch of separate accounts automatically schedule. don't touch it. And then when that money is done for that purpose, it's done.

Right? And the psychology behind this is every dollar has a job. These dollars, this group of dollars job is for Mike to buy sneakers and coffee. This amount of dollars is for things that we eat.

how we keep our home clean and toiletries. This pocket of money, its job is kids extramurals. And so it goes and so it goes and so it goes. So let me stop there because it's getting a bit boring actually. But that's the plan. Removing willpower, removing friction, automating the hell out of everything.

Troye S Wallett (11:30.767)
It's not getting boring. It's just crazy. I'm not going to do that. First of all, I see the merit in what you're doing here. Let's not throw the baby out with a bath water here because I've got five accounts and I do very similar things to you, but I don't have 20.

And I think that a lot of people that are listening to us are going to go like, yeah, that's cause you're the Jedi master at this stuff. I'm not opening 20 accounts because they're not going to remember where it goes. But basically for the people like me, I mean, I'm interested to hear what you say here for people like me. Okay. I'm not going to open up 20 accounts. Abby, my wife is certainly not going to be interested in trying to figure out which card goes for which thing. Like what's the principle here? Like where's the, where's the Padawan

apprentice, I'm just starting this game, starting thing that's going to pull a lever and make a different situation.

Mike Scott (12:28.346)
I'm going challenge you quite hard on that. The entire purpose of this is so that you don't have to remember and you don't have to think about it. That's the whole purpose. So if you're creating a system that relies on you having to remember stuff and think about where you haven't got the right system, the entire premise of me doing this is that I don't have to think. It's completely automated. There is no thought. So I think maybe I haven't explained it well, but...

If your system ends up with you having decision fatigue or memory, you haven't done it right.

Troye S Wallett (13:00.878)
It's more about the cards. When I press the Apple Pay, there's 20. I've got five at the moment and I find it hard to figure out which one I need to use for different things. It's more sort of the cards thing. But I've only got five accounts and I would suggest people definitely read The Barefoot Investor. because he talks about having five accounts and I think that works really, really well. And it's a starting point. But then feel free to add in more accounts as they come along.

Mike Scott (13:29.688)
I think as always like what's the principle here right like I can sit here and tell you hey these are the 15 accounts that we've got these are the names this is how much money goes into them like I can do that and I will do that if anyone well I they can't tell us but but that's not the point the point is the principle so what's the principle here the principle is that in my experience when I have a lump sum amount of money that doesn't have a clear job I spend more than I have

or that I'm budgeting. Like that's what happens. I have this as a data point. This is true in my life. The principle is every dollar needs to be pre-allocated. When it's pre-allocated, I don't overspend. It's very, very simple. Right? That's the principle here. It's not have lots of accounts. It's allocate a job to every dollar.

Troye S Wallett (14:20.356)
you

I think that's the key here. think that the takeaway out of all of this is if you've got one bank account and your salary, and again, I'm going to talk ridiculous numbers because it's amusing, $100,000 a month goes into your account at the beginning of the month, and then you just go willy-nilly. Let's make it 10,000 because it's actually probably even more, you just go willy-nilly and you're like, how do you know what you can spend, what you can't spend? How do you know what your budget is? How do you know anything? So the idea with this is,

All right.

Again, I agree, 100 % agree, don't spend from the money comes into an account that you can't spend from that account and have a certain number of cards. You can start off with two, see how it works, go for three and have all these principles of knowing exactly where you go. for me, we've got a household spend account that tops up every week. And it's good because when that runs out, you know you've run out, you've spent overspent that week. And so it does work really well. So the principle I

think is really good. I'm going to take a bit of a side step here, because I think with the financial plan, and I'll present it to you and then you can tell me what you think.

Troye S Wallett (15:33.679)
My financial plan has always been very simple. And this is not on a spending point of view. This is more of an allocation of things. I read books and you come up with hypotheses or ideas. For example, index funds will out beat the market. That's an hypothesis that I believe. Whether you believe it or not doesn't matter. So you end up with all these hypotheses that you base your plan on. We were talking about having a financial plan and this is how it starts.

and it starts off with these sort of hypotheses. So I guess this hypothesis that you've just presented here would be having a lump sum of money in your bank account is fraught with danger. Or alternatively, having multiple bank accounts to spend from.

allows you to keep on budget. And from there, it moves on to sort of more of the executing on the plan. Is that similar? Let's see how you work. And do you have any sort of hypotheses that you kind of hold strongly to?

Mike Scott (16:35.3)
Yeah, just make it difficult to do the wrong behavior and make it easy to do the right behavior, right? It's principles we come back to all the time. Create friction between you and the bad behavior and reduce friction between you and the good behavior. Most people are not prepared to put in the six hours of work to think about what those accounts are, to go to the bank and set up those accounts, to add them to Apple Pay. Most people won't do that. The other thing most people won't do in my experience is...

The underlying work, which in my case is making sure that my wife and I are aligned on this. That's probably the most important lever here. We share everything. Everything's transparent. Everyone has different relationships, but we share everything. So we've implemented what we call a weekly money meeting. And in that money meeting, it's a very simple agenda, but it's incredibly powerful. It's basically just, how are you feeling about money at the moment?

What's coming up in the next three months that we need to think about? Kids, birthdays, trips, unforeseen expenses. What is something that you want to spend money on but feel bad or guilty or ashamed or embarrassed talking about it? And then like what went well and what didn't go well? And that discipline has actually been the biggest.

lever in getting our personal finance plan right. I've got all sorts of anxious issues about money. don't know where it comes from. I've analyzed the hell out of it and I can't figure it out. My wife's got her issues about money. She knows where hers come from. They're very different issues to mine.

These things have to be factored in. They have to be factored in. And we speak about it all the time. Like the person you marry or spend your life with is probably the biggest strategic decision you'll ever make. And I don't think there's any more pointed manifestation of that in shared finances, especially in the context of being a business owner where you don't have this fixed kind of income. Sometimes, yeah, I mean, we won't get into that too much right now. We might get into it later, but...

Mike Scott (18:26.01)
This is the thing right is where we can and we will talk about the plan and the practical things

But as always, like I'm more interested in the first principles underneath them. And it's like, what are the first principles? If willpower is required to meet your budget, you're going to fail. If you are sharing your financial life with somebody and you're not communicating openly and honestly, you're going to create tension. Like these are just fundamental truths from my experience. can't say the truth for everyone, but like from my experience, no different in business, no different in marriages and life partnerships.

What's your experience of that?

Troye S Wallett (19:03.938)
Well, mean, it feels scary. I mean, how did you and I guess sitting down with we've done a bit of that. But if it sounds sort of scary to kind of do that, what happens when there's conflict in the way that you think about money or the way that you deal with these things? How do you deal with those?

Well, how do you start this whole process? let's say I'm not doing this. What would you suggest is the first step, assuming that I'm a bit worried about dealing with this?

Mike Scott (19:43.439)
Yeah, I mean, again, for me and my relationship with my wife and me and my temperament and her temperament, you start by saying, what do we want for our lives, for our children, for our future? That is an assumed answer with most people. You know, I don't want to retire ever.

I think it would be incredibly bad for my brain and my emotional and mental health to retire. So what do we want? Do we want to be able to travel once a year locally, overseas, twice a year, three times a year? Like what do we actually want? That's a conversation that we hadn't had in our marriage until quite recently, which is kind of weird because I think about this all the time. I was just making all sorts of assumptions, right? So that's where I would start. Hey, Georgia.

This is how I think about our five-year financial future, 10-year financial future, 20-year financial future. Because when I started talking to that about that, she's like, wow, I didn't think about our retirement ever. Yet I'm sitting here thinking that obviously she's optimizing for retirement because I am. It's a terrible assumption to make.

So for example, in Australia, you if you're optimizing for a time and I believe you want to max out your superannuation, which means every year you might have to put in $50,000 to top up your superannuation and get a bunch of it back. But there's an assumed thing that she agrees with me. She might go, no, I don't even know if we'll be alive when we retire because of what's going on in this crazy world. Let's use that money and go on an overseas holiday. have these conversations. That's where I would start.

Troye S Wallett (21:15.575)
Yeah.

I think Scott's paper in the Barefoot Investor has got a really cool structure for this as well. Like he has dinners and stuff. So I think that if you want to start, you just reminded me of that, so maybe that's where we need to go again. I need to pull that book out. It's probably there somewhere. Pull it out and have another look. But getting on the same page, I think, is important. You do that with your business partners and you do that in your business the whole time. You've got your vision and your mission and all of those things. You know where you're going. But when it comes down to this idea in your family,

Mike Scott (21:22.682)
They've not.

Troye S Wallett (21:46.749)
maybe you don't. But when you were kind of also mentioning about investing, because I think that's part of it as well. And super. It was interesting, I was having a chat with a friend of mine over during the week. And she was like, So how do you invest? And

And I was like, well, the first thing you've got to do is don't ask a doctor about investing. It's the worst thing in whole world. And I'm standing next to another guy who's like an accountant and financial advisor. And I'm like, I'm standing here next to the guru and I'm going to give you my two cents worth. So feel a little bit like the similar here. But what are your thoughts on investing? Now we're not going to have to do the whole legal thing. In fact, I'm not. I'm just going to say disclaimer, disclaimer, disclaimer.

not financial advice. So we're obviously not going to say invest in Bitcoin and Ethereum because they're going to be amazing and sell your Nvidia stocks. If you do that, just don't listen to me. But just in general principles, how do you think about you saw much super? How do you think about investing? Because that's another part of personal finance that I think is pretty important.

Mike Scott (22:48.259)
Thank

Mike Scott (22:59.138)
Firstly, just to divide the room quickly, I definitely don't speak to accountants and financial advisors about investing. That's the first thing. I spent a lot time with doctors. Well, no, actually, if I think about Dr. Friends, you, another one in South Africa, you're actually, yeah, anyway, mean, know you've been, in general, maybe you're right, but no, you have very solid investment principles.

Troye S Wallett (23:06.67)
Or doctors.

Mike Scott (23:23.258)
Yeah, I mean, I don't want to bash any kind of profession, but I have spent a long time trying to find someone that can level up my personal finance investment capability. And I just haven't found one in an investment manager or like a personal finance person. If you're out there and you're listening and you can teach me and level me up, and Troy both want you. But I've been through a lot.

Troye S Wallett (23:46.318)
You're going to get a thousand emails.

Mike Scott (23:49.433)
been through a lot and nice people often and good vibes, but just don't get the context I think that I live in. Sorry, that's not what you asked me. What did you actually ask me? How do I think about investing?

Troye S Wallett (24:01.004)
Yeah, well, I just want to say one thing about this.

It's interesting when people come to me about medical health, I find it very boring because it's actually just like exercise, sleep, good nutrition, mindfulness. And I feel like investing is the same. And when you go to some people, they try to make it a lot more complicated than that. This is my view on investing. So you go to personal finance people and they always will tell you the same things. It'll be, won't, duh, duh, duh, duh, duh, duh. And anything more than that is just

complicated and optimizing for marginal gains. So that's what I'm actually finding here is that I just hear the same information again and again and again. So I'm interested in your thoughts.

Mike Scott (24:44.89)
Yeah, I think so. I mean, I like Warren Buffett's quote. It's like, the problem is that nobody ever wants to get rich slowly.

but it's actually pretty easy to get rich slowly. The problem is if you're like me, you only realize this in your late 30s. If I'd realized this when I was 15, I'd be rich because it would have gotten there slowly, right? So I'm not gonna give you boring investment principles because everyone knows them, right? But if you want me to actually answer how I do it. So I try to automate everything because as I learned from a wise Dr. Troy Wallet, the plan doesn't care how you feel. So what is my plan? I have a business, I have a small business.

that has no staff and very low overheads and I generate quite large ratios of profit. And I don't, so I take out what I need to live. And then basically there is a set percentage, every single time I get paid an invoice, I take a set percentage and I put it into a profit account. That profit account accumulates and then I buy.

my investment assets. So again, this is definitely not investment advice, but a very small percentage of that goes to dollar cost averaging into crypto, literally Bitcoin and Ethereum. And a bigger percentage goes into ETFs, very broad based, Vanguard, almost no fee, very boring stocks. But the point is it's automated. So every single week, a percentage of profit from the business is going into that asset, that asset, that asset, dollar cost averaging. Dollar cost averaging just means

you have a set amount that you are buying and you don't even look at the price. There's a lot of data that shows that when you take this approach over time, you generally come up top. This is basically the opposite of trying to time the market. So if it's expensive, you buy it. If it's cheap, you buy it. That's how I do it. And this is just fully automated, Like completely automated. And this is the point is it negates the whole like, I've had an amazing month or quarter or year. Let me go and buy a whole lot of, I don't know, Nvidia stock.

Mike Scott (26:37.756)
do that. Like I just buy ETFs.

because the market will pretty much always win. And I do like to have some very high risk things, but in very, very, very small percentages. This is called a barbell strategy. So it's like most of your stuff is super boring, very predictable, decent yields. And then there's a small part that tickles my ADD brain and I don't know, wanting to play in this. So I will buy a very small percentage of very high risk assets because they're fun, but the percentage is tiny, right?

So again, for me, it's all about, don't even think about it. It just happens. Get an email every week going, recurring by order. You've just done that. Like, that's cool. I remember that. And that's great. I use my business to sort of drive this because I can, because it's very simple. It's not going to be the right thing for everybody.

Troye S Wallett (27:29.698)
So this comes back down to the idea of the plan. And I'm going to try and express it really simply.

The way that I see this is that we talk about it. There's those almost on my spreadsheet. It's almost numbered. Number one, Mike says dollar cost averaging is awesome. So my own so on Mike's one, it would be on yours. It would be dollar cost averaging is the shit is awesome. And then it would be to I invest in ETFs because I believe they beat the market. Number three will be cryptocurrency is one of the things that I enjoy and it's my high risk investment.

And this is what I was talking about with the plan. And the whole idea with this is, and then you go, when I have $10,000 to invest, the next part of the plan is to go, I'm going to be putting a little bit into this much, or in fact, I'm gonna make a DCA. So now you're dollar cost averaging $1,000 a week.

80 % of that will go into your ETF because you believe in ETFs and 5 % will go into cryptocurrency because you like to play with that game. I've got a friend who's much more into picking stocks and so for him he might say 50 % goes into ETFs and then I'm going to put this into another place and I'm going to pick stocks with this once a month and play that game.

The concept of the plan doesn't care how you feel is if you now come up with a new thing, there's oil prices are going crazy and I want to now invest in, and I believe that the world is going into this sort of area, I want to invest in oil. The question is, do I want to invest in oil? And you say to me, what does the plan say? I need to go back to those principles at the top and I either need to change one of those to be able to change the plan

Troye S Wallett (29:25.168)
or add one in to change the plan and then let everything flow from there. I remember us, we were on a bike ride and I was like, dude, I want to buy this, Ethereum. And I was wanting to start a whole big conversation and you were so boring, it was terrible. Cause you were just like, what is the plan saying? I'm like, oh, it says I can't buy anything at the moment. So when we talk about what does the plan say, the plan is your hypotheses.

which could be what we talked about. If you were somebody else, it might be like you want to invest in much more property than we do. Maybe property is your thing. Who knows? But you have it as your plan. Then you have your allocation and your execution of that plan as the second part of the plan so that you don't get driven by this emotion. And by the way, part of the plan is how do you deal with your emotions?

If you are an excited person that goes gold is crashing now at the moment, I want to buy gold, you've got to lock everything away. So you can't do stuff because that's part of your emotion. For me, I know that I get excited and I'll dabble with my money and I'll do a couple of things and then I'll forget about it for three months. That's part of my plan. I cannot have a plan that says once a week, I have to go and move my money around. It's not going to work because I don't do that.

Mike Scott (30:44.698)
So I think this is the thing, right? it's, I think about all that stuff you just said is like, you know, picking stocks, real estate, Bitcoin, gold, priming the market, oil, like, And it is, like, if you have an unfair advantage in any of those things, by all means, go for it. I don't.

Troye S Wallett (30:57.974)
NFTs, don't forget NFTs, they're hot right now.

Mike Scott (31:07.002)
I don't have an unfair advantage because I don't understand property better than the average person. I don't understand gold in the markets better than the average person. I sure as shit cannot pick individual stocks better than an ETF. None of these things do I have an unfair advantage. None. It's taken me a long time to learn this. I've made a lot of very, very bad investment decisions over my time, like way more than good ones. But in my ripe old age of 43, I now know

that my unfair advantage is not in making investments. So what do I do? I just allow things like Vanguard, very broad-based index funds to just do their work and pick those stocks.

I take a very small amount of money to play with, to do silly things. I'm about to put a bit of money into a gold trading bot that does like 100 times leverage, but it's a tiny amount of money. And to be honest, it's just super fun, right? I certainly would not recommend this to anybody, but it's fun. It's part of the plan because there's a tiny percentage that's reserved for playing because I get a lot of fun and satisfaction. It's really fun doing that kind of stuff, but I don't have an unfair advantage. So what is my unfair advantage?

advantage is I'm pretty good at building businesses. I'm pretty good at helping other people build businesses. So that's where I will generate more income from. I think this is the unique context in a business builder is you've got your like individual, how do I allocate capital? How do I invest? And I'm not that smart at that stuff. But what I can do is go, wait, that's a zone of genius. Well, this is where I do have an unfair advantage. So how do I accumulate or leverage in that area? So we almost have to.

think about.

Mike Scott (32:46.926)
Personal finance in one bucket, investing in a totally different bucket, and then like business building in a third bucket. And something that I see pretty often, which is dangerous, is that there's a very blurred line between all these things. Quite often entrepreneurs that I've worked with, we call it asset rich cash poor, but really that's a very nice way of saying like they have all of their wealth tied up in their business, like everything. And that's really scary. It's like a really scary reality where it's like, I've got this big business, but it's not liquid. can't draw anything out of it. It's worth good.

I don't have any cash, I have no assets, but it's fine because one day I'll sell my business. I've been there, that was me, and it's not a nice place to be. So we need to try to think about these three things quite separately, which is very difficult when you're the throes of building a business. I don't know if this is that.

Troye S Wallett (33:39.981)
Yeah, as soon as you've got all your money in one area, in one thing, you're not diversified, that's terrifying. so even, and so putting it all in your business is one of those things. It's a terrifying prospect. So it just keeps like, I've got this thing in this buzzing plan, this financial plan in my mind. Because what I'm seeing here is you've just mentioned.

two or three things that sit on your financial plan. One of them is make sure I've got a competitive advantage in my investment portfolio.

So, or only invest in things where I have a competitive advantage. That's on the plan. Don't have all your money locked up in or diversify your asset value. So, it's on the plan. And then you can build from, and then you build the actual actions from there. So, I think this is why I love these talks is because I just keep on building into that first part of it. And then I can change the other parts of it as I wish to make it work.

for me.

Mike Scott (34:45.666)
Yeah, like we want this stuff to be boring. Like I know it sounds crazy, but like when you're in your 40s or 50s, like you want this stuff to be boring and low friction, right? Like when I was 20 or if I was 20, this would be a very different conversation. Because if I were 20, I would be looking for way higher risk opportunities. Why? Because there is more time to recover and more time to compound.

But at 43, I've got 20 less years than 23 to compound or recover. And that changes my risk profile dramatically. You there was a time where 80 % of 90 % of my net worth was actually in crypto a long time ago. It was crazy. It was wild. I wasn't sleeping, but it kind of made sense at the time because it was a completely and utterly different risk profile and the timing was different. And I did have an unfair advantage at that time because of exposure and network, et cetera. I do that again? God, Like it's not the right context and there's no unfair advantage anymore.

Like I'm ludicrously disadvantaged in that area now versus where I was. And I think this is a big part of this as well is that the financial plan for your 20s versus your 30s versus your 40s versus it's not the same season. And it's a very different type of thinking. What you're optimizing for is very, very different.

Well, it can be very different. You and I always ask this question of people, what are you optimizing for? Which is a similar question to what we were speaking earlier, like what are you and your partner, your husband or your wife, what do you want from your financial reality future, et cetera? And I think we've got to get clear on these questions first.

Troye S Wallett (36:19.532)
Yeah, there's lots of thoughts. lots of thoughts, some random thoughts as well. Because I'm not so sure that everyone says when you're 20, you should be super high risk and all that. What I regret in my 20s is not going super low risk and just DCAing into ETFs. But I want to, what I'd like to do is when I think about health or fitness, I came to thinking about this idea of bare minimum.

So for example, and I'm not even sure what the numbers are because I've got to sort of think about it for lots of different people from the whole population. So it's really hard. But I'd say the bare minimum is that you should be able to run 5Ks. You should be able to do 10 pushups. And obviously it changes for men and women, but you should be able to do a pull-up.

or two pull ups. Like these are just little things that I kind of feel are bare minimums. Some people might be like, it's crazy. I can't even run, let alone running 5Ks. However, what I what I like to do is flip this into a finance point of view. And I'll kick it off because what I'd love to know from you is understanding

what bare minimum looks like. Realizing that some people for the running example might go, I still think five case is bare minimum. And if you can't run injuries aside, you should be trying to get to bare minimum. Like that's step number one. So I would say for bare minimum would be stuff like.

invest, have some money that you're saving every single month. 10%, 5%, 2%, whatever it is of your paycheck should be going into investing or saving or building your wealth every month. I'll say that's a bare minimum. And I would say that probably in some regard, you should be saving at least 10 % of your income. But I'd be interested to hear what you think about

Troye S Wallett (38:19.992)
A couple of bare minimums as we close in sort of an action as people think about it from an action point of view.

Mike Scott (38:25.882)
I'm giving very generous. I don't think that's even close to where most people's reality are and realities, realities are.

I think bare minimum is having a real picture of what you've actually spent on an average month. I don't think most people have that. So I'll give you an example. This is a real story. I was talking to someone the other day. This person wants me to coach them and I don't know how this situation came up. And I was like, what's your monthly burn rate? Like what are your monthly expenses in your household? And this person said, I'm going to throw out a random figure, like $1,000 a week. And this is a person with like multiple kids at private schools.

aid I was like no chance zero it's got to be considerably higher than that no it is and they basically listed off like I think I don't know like school fees and groceries and mortgage I think when I said what is it comprised of

And then I was like, what about unforeseen expenses? What's your average expenses that you've spent? no, no, that's not included. What about life insurance and total disability insurance? no, that's not included. What about electricity? no, that's not included. What about water? Not included. And it just went down and on and on on. I don't think most people have a picture of what their actual complete monthly expenses are annualized over a year. And I think it'll scare most people when they do it. That's their minimum, in my opinion.

Right? It's like, actually know what you are really spending every month. Start there. That's where you begin bare minimum. Once you actually have that picture, I think then bare minimum becomes like, what is the first step to begin to feel like you're moving forward? I would agree with you. I would say it's like five to 10 % over those expenses, actual real, real invested.

Mike Scott (40:18.394)
Just to give you context, I have a target in my personal capacity that 35 % of my net after-tax income is invested at any given time. And I track that really, really closely. So I overpay my mortgage considerably. I overpay everything considerably, but that's just because of my anxiety, to be completely honest. I need to feel like I could drop my income by like 40 % and still be fine.

And that allows me to make clearer decisions, that allows me to show up better for my clients, for the people that depend on me, because that's what's good for my brain. But bare minimum doesn't have to be 35%. And bear in mind, if you're sitting here rolling your eyes and going, you're a cool story, Mike, this took me a long time to get. It doesn't happen overnight, at all. So, yeah, bare minimum, like...

It's like there's a pre-bare minimum step, which is actually get very real about what you're spending like real talk every month and it'll scare the shit out of you to be honest. It did for me.

Troye S Wallett (41:15.8)
So what I'm hearing is bare minimum is understand your finances.

So I use an accounting software for my business and for my personal life as well. So I can get a PNL for my personal life going back as long as you like. So I think that's key. Is there getting that? And then the profit, there's a book called Profit First, which is really based on business, but the concept from that is pretty cool. It's like you don't have to start off with 35 % like Mike, how crazy Mike does.

But perhaps it's the idea is going, okay, well, I'm not spending anything. I'm not saving anything. Start off with 1%. If you need to run 5Ks, the first step is one minute run, one minute walk. And so maybe that's the idea is sort of that start.

Mike Scott (42:01.179)
Sorry, this is just like a tangent thought that I just had while we were talking, which is, know, Brian Johnson has got this thing into my head. Brian Johnson is the guy who wants to live forever and what have you. And I thought he was nuts. And then I heard him talk and I'm like, I think the guy's a genius because what he's actually trying to do is he's trying to change what we consider high status. And I've just had this thought in this conversation. It's like, I've never articulated this before, but like,

One of my favorite things is when I go to pay for something and I get out my card, have free, like I have like fee free cards. I don't have a credit card. I don't have a shiny black Amix. I've got literally a bank's free set of cards with no credit. And I love that feeling. I love it when people look at my yellow free, like a student card because it's free and they go, look at like, where's your, where's your platinum card? Where's your Amix black card? And I love it because it's, it's, it's changing.

my status for me. I love the fact that I buy the vehicle that I drive cash and it's not a hundred and forty thousand dollar Audi. It's a seventy thousand dollar car that is fun to drive and I have no debt on it and I love that feeling of pulling up next to a double the value car knowing that it's financing causing stress. In other words, it's the shifting of status. I love the feeling of

saying, hey, can this last a month longer? Do I need to replace it now? And then not doing that and feeling like I'm getting more value in life out of things. Because what that does for me is it accumulates optionality. So for example, since we put in this new system, I allocate myself a certain amount of money to blow on coffees and sneakers, like whatever the hell I want.

And I've seen like, can I go for two months with like spending just 20 % of that? And it was really fun to just constantly say, do I really need this? Do I really need this? But the consequence of this is I've now built up a three month buffer, which means there's a few, like there's thousands of dollars in there now. And now there's optionality. And I find this whole process really quite fun and comes back to the thing that I'm always trying to optimize for, which is effectively freedom and optionality, but it doesn't come without sacrifice and intention and front loading all of this.

Mike Scott (44:16.304)
So it is a little crazy, maybe, but it works. It works for me. And as with everything I ever do, it's not an original thought. It's stolen from smarter people than me, like Scott Pape, like Mike McKellar, it's like Morgan Hansel. Like these are smart, very considerate people. And that's all I have to say about that.

Troye S Wallett (44:34.222)
Cool, to wrap it up, three things, so in fact I'm going to ask, you can talk to me here, three things, you know me quite well, so I'm not actually asking for particular personal things, but it's nice if you were giving me advice. If you were saying to me three things from a financial point of view that you think...

I should implement, I could implement that would make life really awesome. Just I'm not, it's trying to be, it's for everybody, but make it for me. So Mike, what three things should I do that'll shift the needle in my financial situation that I can implement in the next week?

Mike Scott (45:13.476)
Schedule a date night with your beautiful wife and get on the same page and get aligned. That is going to be the biggest lever. Second one. I really want to think about this. I think that's that's clearly number the first one for me.

Troye S Wallett (45:27.042)
Well, I'll say one. Your credit card credit cards like just paid four thousand four hundred dollars a year for my Amex for them to charge me fees to spend money that I don't have to make me feel like I'm richer than I am and give me points that are worthless. And there's some flying business class to London that I have to buy the ticket for anyway, which I can't afford. Anyway, that's my rant.

Mike Scott (45:49.218)
Yeah, totally. Cut up your credit cards. But I'm about this for you specifically.

Troye S Wallett (45:53.251)
no, no, I wanted for everybody, but use me in as an example.

Mike Scott (45:55.675)
Ah, okay. Okay, well if it's for everyone it's easier, but for you specifically, you know, get aligned with your wife 100 % everyone. Your wife, your partner, your life partner, the person that you share, like get on the same page. That's gonna make it lot easier. your credit cards, unless you have some very, very good reason, which I've never seen, to have a credit card. And...

I think the third one is this is for Australians, but if you have any kind of option to salary sacrifice to put into an investment vehicle, do it because it's basically free money. So like where I draw a salary, obviously I'm a business owner, so I have various ways that I earn money, dividends, salaries, et cetera, but where there's a salary component, I max out the absolute maximum that I can to contribute to superannuation because it's incredibly efficient.

tax vehicle, but also it's like forced savings. And then I think the last thing is just do the scary thing.

and take your bank statements and throw it into ChachiPT or Claude or whatever LLM you use and have a look at what you're actually spending, not what you think your budget is and get the real picture before you start trying to get to a bare minimum. This stuff is hard, everybody. This stuff is emotional. This stuff is very triggering. It's really, really difficult stuff. But the weird thing about this is...

Like I have a very bad relationship with money. causes huge amounts of anxiety for me, but the more I can lean into understanding it, I change my relationship to it. And as I've changed my relationship to it, it's almost like this, this is getting a bit weird and esoteric, but it's almost like it just flows better when I change my relationship with it and the communication around it. We didn't even get to something today, which we won't now because we're out of time, but like there's a whole nother discussion to talk about this in the context of a business builder, which we'll get

Mike Scott (47:42.564)
another time.

Troye S Wallett (47:44.086)
Yeah. And for those that are not in Australia, DCA into ETFs instead of going to super. Not financial advice. I mean, I don't know. Dollar cost averaging into ETFs. I think it's just a good idea. Mike, any final words? Not final paragraphs, final words.

Mike Scott (47:49.402)
Not financial advice there. There we go.

Mike Scott (48:03.258)
Final words, this is not financial advice. Don't DCA into anything based on our advice, do your own research. But final words, I have had four coaching sessions this week, one on one. And during each one of those coaching sessions, the words, this stuff is really hard, has come out of each client totally unrelated. It's like.

Troye S Wallett (48:08.782)
I'm

Mike Scott (48:27.96)
This stuff is hard. Personal finance is difficult. Like it's not an easy thing. If you're failing at it, but you're good at other stuff and you're like, why can't I get this right? Like I think that's the standard. I don't know anyone who's amazing at this stuff, which is what I'm desperate to meet. I want to meet the person that's like, Mike, I will level you up on this stuff. So my final words are like, if you're that person, teach me. That's it.

Troye S Wallett (48:51.63)
Great.

Well, thank you very much. think that is excellent. I agree, awesomeness comes on the other side of hard things. This is an area of life that doesn't just happen. The default state is overweight, poor, and lonely. And if you want to be wealthy, you actually need to put the work in. And so that's one of the things that's with this thing. And it is hard, but who the hell stays

away from hard. If it was easy everyone would do it. So have fun. See you later.

Mike Scott (49:26.67)
That's it.

Mike Scott (49:30.139)
Adios, see you guys. Bye.