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How to Build Financial Independence Without Living on Instant Noodles · Making Cents

• 0:02
  Hey team, it's Frances.
• 0:03
  You know me.
• 0:04
  Any chance to talk financial independence, particularly if it's the ways that normal people can make it work.
• 0:10
  The lovely Jim Mora from RNZ Sunday Mornings is one of my favorite people to be interviewed by.
• 0:16
  And we talked whether financial independence is actually possible for us normal people and then the tactics to make it happen on our own terms.
• 0:25
  Then of course followed by a quick whip around the money world, including what on earth is going on with our economy, interest rates, short selling against AI and the property market.
• 0:36
  It is jam packed this week.
• 0:38
  They said I could put the interview here for you to listen to as well, so enjoy.
• 0:47
  Would you like to retire early if you're still working?
• 0:51
  It requires money, of course, but for some people that's not a problem.
• 0:56
  We're going to talk about fire, the Financial Independence Retire early movement.
• 1:03
  Business Insider has been reporting on the rise of fire and how it's no longer regarded as a fringe fad where people forsake any happiness in the present in order to have enough money in the future.
• 1:16
  We'll also have a bit of a chat about our money futures generally.
• 1:19
  Right now.
• 1:20
  Francis Cook is the best selling author of youf Money, you, Future Entails From a Financial Hot Mess and the host of the Making Sense podcast.
• 1:30
  Good morning, Frances.
• 1:31
  Thanks for joining us again on Sunday morning.
• 1:33
  Good morning.
• 1:34
  Always lovely to be here.
• 1:36
  In brief, what is the fire movement?
• 1:40
  Yeah, so financial independence retire early.
• 1:43
  It's basically the idea that while you are working, you live on as little money as you can.
• 1:49
  You live very frugally, you invest everything that you can, you usually into something like the share market, and then you build up financial independence so that you can do whatever you want?
• 2:02
  The idea behind fire seems more profound than just scrimping and saving.
• 2:09
  Would it be fair to say it reflects a kind of cold eyed view of the future of much of the employment market?
• 2:15
  You know, you won't be looked after.
• 2:16
  People now are cared about less.
• 2:18
  You shouldn't bestow your loyalty on work and the ways your parents did all that stuff.
• 2:22
  Yeah, I've got to say, I myself came across fyre a few years ago.
• 2:26
  God, even before COVID now actually.
• 2:29
  And it really struck a chord with me at that time as someone who'd been in the working world for 10, 15 years and was sort of starting to realize that you have to look after yourself in this world.
• 2:41
  And we've got plenty these days to reinforce that.
• 2:44
  I mean, we just had this last month, an OECD report that found New Zealand had the lowest Wage growth in the world, not just down the bottom, but the very bottom.
• 2:57
  And then, you know, different things in the employment contract these days, you know, and by that I mean the sort of employment social contract you used to see.
• 3:05
  More employers would invest into training and support for their workers.
• 3:10
  That's much less likely these days.
• 3:13
  Now it's really on you.
• 3:14
  If you want to progress in the working world.
• 3:17
  You might be studying in the evenings and doing that on your own time and your own money.
• 3:23
  To my mind, I think the financial independence movement is quite a rational response.
• 3:29
  You could see it as a bit of an indictment, but I think it's just where you say, right, if people aren't going to necessarily be proactively looking after me, who cares about me as much as I do?
• 3:41
  Really?
• 3:41
  Nobody.
• 3:42
  So let's make sure that that's sorted.
• 3:44
  It is survival of the fittest you're describing though, isn't it?
• 3:47
  Yeah, yeah, a little bit.
• 3:50
  Isn't there a flaw here?
• 3:51
  I mean, most people won't want to live on instant noodles and side hustles.
• 3:56
  Everyone talks about side hustles, but they're probably not achieved without depriving yourself of a lot of sleep.
• 4:02
  And I suspect an awful lot of people would still want to do the same job over and over and don't consider themselves, you know, nimble and agile enough to find that kind of, you know, those life balances they
• 4:14
  may be seeking that bring them in money at the same time.
• 4:17
  It's not easy to do.
• 4:19
  Yeah, yeah, exactly.
• 4:21
  And I think you've only got one life to live, right?
• 4:22
  So there's a real risk where you can get overly focused on the money side of things and not live now.
• 4:30
  And that is something as well where I've seen in the financial independence community, where people often talk about know what you're aiming towards and have something to retire to, not to retire from.
• 4:42
  If you're just trying to run away from and escape things, then you can end up at the end goal eventually and feel very empty and not know what to do with yourself now.
• 4:52
  Whereas if you have a goal and a version of your life where you're like, these are the things that matter to me, whether it's family time or feeling really safe and secure and stable, or it's the idea of
• 5:04
  going traveling more, it's to start with that end goal and then work backwards from there and say, okay, now what version of that can I build with my money?
• 5:15
  And I think that's where something like seeing the financial independence movement as a strategy for Building that life that you want rather than an end goal in itself, you know, so you live frugally, you invest in the share
• 5:30
  market, you can build up this financial independence.
• 5:32
  Great.
• 5:33
  Why, what for?
• 5:35
  And how fast you want to get there as well.
• 5:37
  There's this really famous graph, Mr.
• 5:40
  Money Mustache, for anyone who has come across the financial independence movement.
• 5:44
  Sounds like a silly name, but he's a really big deal.
• 5:47
  Mr.
• 5:47
  Money Mustache.
• 5:48
  Mr.
• 5:48
  Money Mustache.
• 5:50
  We like to take things really seriously around here.
• 5:54
  And he put out this very famous chart of how much as a percentage of your income that you save and then how long that would take you to build amount that you could retire with.
• 6:10
  So if you save 5% of what you earn, then it's usually 66 years until you retire.
• 6:16
  If you manage to save 50%, then it's 17 years, maybe you could save 25%.
• 6:23
  That's 32 years.
• 6:25
  Is it basically for smart people though, who invest shrewdly?
• 6:30
  Well, you would need a certain amount of financial education for sure.
• 6:35
  But I mean, to be honest, when I say investing into the share market, and I talk about investing all the time and people always ask me for tips and tricks.
• 6:43
  Just putting money into something like a global index fund is very hard to mess up.
• 6:50
  And it gets better results for most people than a fancy fund manager person who's got a master's in finance, who puts all your money in somewhere and charges you a lot for it.
• 7:01
  You actually, most people get better results with a global index fund.
• 7:05
  So it does help to have some financial education, but you can do it very, very simply.
• 7:11
  I think there is a point in terms of do you have to be super rich?
• 7:15
  It definitely had a sort of tech bro atmosphere for a while, but then there are people who want to use it to go off grid and live a very simple life.
• 7:23
  So I think again, it starts with, what do you want?
• 7:26
  How are you going to do this?
• 7:27
  And then reverse engineering.
• 7:29
  What percentage would you get from one of those global index funds at the moment anyway?
• 7:34
  What do you reckon?
• 7:35
  Well, right now, probably quite good because it's heavily dominated by AI, which is having a boom.
• 7:44
  The idea of it is you can, from the standard share market fund that you can take out 4% per year.
• 7:52
  So you've got the average share market return over years and years and years, decades is about 10%.
• 7:57
  But then take out some money for inflation, for taxes, for fees, take that down to about 7% average return per year.
• 8:06
  And then you say, well, it doesn't go up every year.
• 8:08
  Some years it's up some years it's down.
• 8:10
  So for safety's sake, you can take out 4% per year without ever running out.
• 8:15
  And some much smarter people than me have run the numbers on that over decades.
• 8:21
  And most people can do that for the rest of their lives and not run out of money.
• 8:25
  Gee, we admire penny pinchers in a way because they don't waste money like we do.
• 8:33
  But that's an assumption I'm making on both of our behaviors.
• 8:37
  Oh, no, you're.
• 8:38
  I literally had a budget conversation with my husband yesterday where we were like, oop, we need to spend less.
• 8:44
  But wasting money is necessary to be social.
• 8:46
  I mean, dressing nicely is social.
• 8:48
  Pubs and restaurants, meeting people, it's all social.
• 8:51
  So you don't want to be a hermit on fire, do you?
• 8:55
  That's the thing.
• 8:56
  No, exactly.
• 8:57
  And I think this is where it comes back again to knowing yourself.
• 9:01
  There's an old saying, it's overused, but it's overused for a reason.
• 9:05
  That money is only 20% numbers and it's 80% mindset.
• 9:09
  It is really, really true that in order to make the numbers work, you actually have to know yourself and you have to know what you want.
• 9:17
  So for me, when I first started my money journey a few years ago now, I started out by keeping a money diary and it was scoring things on how much did I need to spend that, but also how
• 9:31
  happy did it make me?
• 9:32
  And once I kept track of that, literally, if you just do that for a week, it's amazing how much you'll have a few revelations.
• 9:39
  Some of them might be uncomfortable, but you'll see how much you're spending.
• 9:43
  That actually doesn't bring any joy to your life.
• 9:45
  And that's easy.
• 9:46
  Then you can catch that.
• 9:48
  For a whole year, I did secondhand only clothes and I actually really enjoyed the challenge of it.
• 9:53
  And then once you've done that, it's basically the idea of values based spending where you can come back to, what do I enjoy, what do I have to do, but what do I also enjoy?
• 10:04
  And then what's the smartest way to do it?
• 10:06
  And then when you're being smart in 90% of your money life, you have a little bit of buffer room.
• 10:12
  And if you aren't as smart, if you do, just say stuff it.
• 10:16
  I'm going out to the pub tonight with my coworkers and we're getting a few beers and I'm having a good time because life is short.
• 10:21
  Great.
• 10:22
  You've now actually probably built the buffer into your budget where that works.
• 10:26
  And doesn't totally derail you before we leave the topic.
• 10:29
  And your thoughts are very interesting about it.
• 10:31
  It certainly is a reaction against increasing workplace anxiety, isn't it?
• 10:37
  People think I shouldn't have to be worried all the time and possibly they just don't treat me well anymore, that kind of thing.
• 10:45
  Yeah.
• 10:45
  And I do think it's a bit of a shame because I think we've seen possibly even sort of all the ructions Covid and post Covid as you were working from home and then lots of places had layoffs and
• 10:56
  then the return to office mandates and people just don't necessarily, necessarily feel is taken care of.
• 11:01
  And then here along comes AI and everyone's scared that their jobs are going to be under threat.
• 11:06
  Sorry to be, you know, rattling through everyone's anxieties there.
• 11:09
  That's probably just raised everyone's heart rates.
• 11:11
  They're just listing off all their problems.
• 11:13
  But it is, it's, it's really hard for people.
• 11:17
  And I think one of the things that financial independence does is it gives you the ability to walk away from situations even if you're not in that sort of true, quote, unquote, true financial independence.
• 11:29
  If you have a certain amount of buffer where you say, I can even walk away and then give myself two months to find a new job, well, that's more freedom than a lot of people have.
• 11:39
  And even just knowing that you could pull that trigger, you're going to approach negotiations slightly differently.
• 11:46
  You're going to have a bit more power on your side.
• 11:48
  It's just leveling the playing field a little bit.
• 11:52
  And let me tell you from my own experience, when you have that in your back pocket, you very rarely need to use it.
• 11:59
  It does just change how negotiations go.
• 12:02
  Yeah, that is very interesting.
• 12:05
  All right, speaking of how things are going, let me ask you a few questions about how the world's looking.
• 12:11
  Short sellers have placed record bets against the US stock market.
• 12:16
  What does this mean?
• 12:18
  Yes, it's very interesting and I think we really particularly saw a spike in this post.
• 12:24
  The whole SpaceX IPO float.
• 12:28
  Elon Musk's latest company hitting the share market, had a big boom and was a very hotly hyped share market float.
• 12:38
  And then it has since cratered down.
• 12:40
  It's seen as a real sort of bellwether in terms of how people are feeling on AI and the tech sector in general.
• 12:46
  It's not looking great right now.
• 12:49
  I think what we're seeing is there are a lot of these quite high flying sectors.
• 12:53
  The artificial intelligence, the Tech and they have hit record highs in terms of what the market considers them to be worth.
• 13:03
  And yet people are looking at that and saying, well, so many of them aren't profitable yet or they're loaded in debt up to the eyeballs.
• 13:10
  We also just saw a report come out recently on a lot of these big tech companies not only having a lot of debt, but having a lot of hidden debt, which isn't great if you're feeling the need to
• 13:20
  hide it.
• 13:22
  And so we've seen a lot of these hedge funds and these retirement funds looking at that and saying, hmm, we think there might be.
• 13:31
  It's looking a little bubbly.
• 13:32
  It's going to have a correction at some point.
• 13:35
  But yeah, there's definitely a chill wind blowing.
• 13:38
  OpenAI is expanding its data centers.
• 13:42
  I think people know about the way things work.
• 13:46
  And CNBC says it's getting money backing from Nvidia.
• 13:51
  And CNBC says this kind of circular financing revives memories of the financial arrangements that preceded the dot com crash.
• 14:01
  You're all borrowing from each other.
• 14:03
  There's two ways you can take it.
• 14:05
  There's the argument that those are the big companies.
• 14:09
  Right now, 40% of the S&P 500, which is often taken as sort of a shorthand for the US economy, 40% of that is now dominated by just 10 companies, which are tech and AI.
• 14:25
  So who else is going to be rich enough to lend them the money, I guess is one argument.
• 14:30
  But the other thing is, you know, a lot of these companies, OpenAI not profitable, not even close to being, doesn't have an investment grade credit rating.
• 14:40
  So that's also worrying.
• 14:42
  So it can't really borrow cheaply elsewhere.
• 14:45
  But it is now.
• 14:47
  It makes all of these huge companies that are dominating the market, they're incredibly reliant on each other.
• 14:53
  And it looks a little bit like, well, if one domino goes, do they all go?
• 14:57
  We do.
• 14:57
  See, you know, equipment makers, even car companies can, can do this where they will lend to each other.
• 15:04
  They're in similar industries, they understand each other's business.
• 15:08
  What I think is unusual is the scale, the concentration, how big these companies are and how few of them they are and how tightly interlinked they are.
• 15:20
  So definitely one to watch.
• 15:21
  Yeah, Nvidia may be backing OpenAI to the tune of $250 billion, but we do remember Amazon didn't make a profit for year after year after year after year.
• 15:33
  And we thought people scoffed and said, oh, this is a company that never makes a profit.
• 15:36
  And look at it now.
• 15:38
  Oh, exactly.
• 15:38
  And Facebook, now known as Meta, didn't for ages.
• 15:43
  I think they did their very first ever dividend either this year or last year.
• 15:47
  I'd have to double check that.
• 15:48
  But they certainly didn't pay any dividends for years and years and years and then have.
• 15:55
  Because for a long time they're just these big high growth companies, they're just investing back into themselves and they're trying to build out and scale and create this enormous business that they then hope will dominate everything.
• 16:10
  But it means for a while there, you just reinvest everything back into it.
• 16:15
  Elon Musk says it just seems like all roads lead to acceleration of AI.
• 16:19
  And Francis AI is getting bad media.
• 16:22
  But have we passed the point of no return?
• 16:25
  I mean, scaling back the AI industry now is a bit like someone says, I think scaling back electricity in the 1920s.
• 16:34
  I do think the thing with AI is the genie is out of the bottle.
• 16:37
  I think AI is likely to pull back to being more in touch with reality.
• 16:42
  Do I think it's going away?
• 16:44
  No.
• 16:44
  The New Zealand economy, it would be fair to say, keeps being prevented from recovering and yet the Reserve bank will keep hiking the ocr.
• 16:56
  Basically, it all comes back to oil and the global situation overseas.
• 17:02
  2026 has really been the year of uncertainty.
• 17:05
  When we look at inflation and how much that's gone up by, it is mostly being driven by petrol, by energy.
• 17:13
  So it all comes back to that.
• 17:15
  But it's also here in New Zealand we have an election coming up and so people tend to hit pause to wait and see what happens there.
• 17:25
  So even if there were things that businesses could do or people could do to try and navigate some of this and change some of the impacts, we all tend to just play possum and wait to see what happens
• 17:38
  next.
• 17:39
  Is the return to 2% inflation likely or will it keep being thwarted?
• 17:45
  And are we globally firmly in an era of rising rates, seeing as there are rising risks?
• 17:54
  Yeah, well, I think it comes back to we are an exporting country, right?
• 17:58
  So these global events and the oil prices, they really hurt us.
• 18:03
  But I think the thing is, as this continues, the more people innovate and will figure out solutions.
• 18:09
  You know, we do hit pause, we do have these election impacts where people tend to wait and see.
• 18:14
  But at the same time we've got people who are saying, well, I have to work a way around this tariff, I have to work away around this oil price.
• 18:23
  So I guess we just, we move, we figure it out and we get on with it.
• 18:27
  When, when uncertainty sticks around for this long, then that becomes the new certainty that you're just going to have to figure something else around it.
• 18:36
  And I think look at things like the boom in solar power.
• 18:39
  If anyone listening has been trying to get solar installed on their home recently, it's something like a four month wait.
• 18:47
  The last time I talked to someone in the industry, huge wait times because people are responding to energy prices being so high and saying like, well, I'm just going to figure something out and do something a bit differently.
• 19:00
  So you never know, maybe Trump will be the one that turns us all into greenies.
• 19:06
  Life is full of paradox.
• 19:08
  You're right, though.
• 19:09
  It's the spur, the creative spur.
• 19:12
  One last question.
• 19:13
  Demand is low in housing.
• 19:15
  I was reading successful auctions are at their lowest point in three years.
• 19:19
  Are things likely to be better with housing when spring arrives?
• 19:23
  What's your crystal ball saying?
• 19:26
  Yeah, I'm finding the housing market fascinating right now because it's doing kind of weird things.
• 19:30
  So Realestate Co NZ had some figures out.
• 19:33
  This is from June.
• 19:35
  We just had our busiest June for new listings since 2020.
• 19:40
  But the national average asking price has stayed just about the same.
• 19:46
  Now, you would have thought that such a big rush of properties onto the market would push prices down or at least have some sort of price impact.
• 19:53
  So anyone who's been holding on through the last few years of prices falling has kind of hit a point where they often will say, well, I do need to sell this house, I do need to move on.
• 20:07
  I guess we just go and we see what we can get.
• 20:09
  But a lot of people also aren't necessarily in a rush, so they're somewhat holding out to try and get the best price that they can for it.
• 20:18
  So some really interesting conflicts happening there in terms of spring arrival.
• 20:23
  I think that always, you know, the warmer weather, more people get out there looking for houses, more people are thinking, my house looks really good right now and put their listing on.
• 20:31
  So I do think that will have an impact.
• 20:33
  But I think the biggest impact will be once the election is over and people feel like they're on somewhat more certain ground, at least nationally.
• 20:41
  I think that's going to be when we're going to see things really start to move.
• 20:44
  Okay.
• 20:45
  Always good to talk with you, Francis.
• 20:47
  Always good to have your time as well.
• 20:49
  Thank you for being with us.
• 20:51
  Lovely to chat.
• 20:52
  This podcast can only give you general information about how things work in most situations.
• 20:58
  It's not individual financial advice.
• 21:00
  If you're after that.
• 21:01
  A financial advisor is always the best bet.