E3: How To Get Rich

Transcript

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0:00 Hello, my name is Frank and welcome to the Frankly Speaking podcast. Today I'll be talking about money, specifically how to make money and how to retire early. There's a common misconception about how much money you actually need to retire early. Some people think you need to be making millions of dollars or just insane amounts of money to retire early, but that is not true. Retiring early is all about how much you can save and invest and how much you actually spend. If you don't spend any money, you'll be able to retire today.

0:31 So say you spend no money at all for your daily living expenses, you'll basically be able to stop working immediately. On the opposite hand, say you make hundreds of millions of dollars a year, but you spend all of that money, you'll basically never be able to retire. Now, most people are between these two extremes. There's a really simple mathematical formula that will determine if you're able to retire right now. A lot of people ask me, how much money do you have and how did you know you were ready for retirement?

0:59 Right now, the value of our investments is $2 million. There's something called the 4% rule. Basically, you're able to take out 4% of your investments every single year and use that money to live off of. This is because your investments are expected to grow at a rate of 6-7% every single year. If you're only taking out 4% a year, your investments should theoretically last an entire lifetime. And this is because your investments are growing at a rate faster than which you withdraw at. So, for $2 million, we can live off of $80,000 per year.

1:31 Now, obviously, everyone's situation is different. If you live in a high cost of living area, you'll need more money. If you live in a low cost of living area, you'll need less. You want to reach the point at which your investments can cover your cost of living by taking out that safe withdrawal rate of 4%. The earlier you start investing, the better. To figure out what amount of money you actually need to retire, you have to first figure out how much money you're spending every single year. If you're only spending $40,000 a year, you'll only need $1 million to retire comfortably.

2:05 Now, I am not a financial advisor, and none of what I'm about to say is financial advice. I'm just telling you my story and sharing knowledge on how I was able to retire early and how anyone can achieve financial freedom at a young age. All right, so now we've talked about how much money you actually need to retire based on how much you spend. Now, how do you actually go about making money and investing that money? The easiest way to make money and most consistent way is to get a job, specifically in software engineering and specifically in the technology industry.

2:38 Technology gives companies an extreme amount of leverage, which is why they're willing to pay so much money for that position. It's because you're actually providing more value to the company than they're paying you. That might sound really obvious, but it doesn't click for a lot of people. Companies exist to make money. They would not pay you more than you're worth. There used to be a saying called software is eating the world. That saying is no longer true because it already happened. The salary and total compensation for software engineering roles in the past year have absolutely exploded.

3:10 That market is extremely hot for software engineers right now, and companies are fighting each other for talent. Amazon recently raised their salary bands across all pay levels by 10%. The top software engineering companies cannot hire fast enough. A lot of people also ask me, well, what about automation and AI? Like, won't software engineering be automated away eventually? Anyone who has worked in software engineering will let you know that this is absolutely not the case. Software engineering and coding will be the last job to be automated away.

3:44 A lot of people also ask, well, what about in like 5 to 10 years? Like, will it still be an in-demand profession? The answer again is yes, it will be in-demand. Barring some sort of economic recession or collapse, software engineering will always be a stable and high-paying career profession. The reason the demand might dip if there is a recession or depression is because the entire market will dip and the demand for all jobs will be lower. In the past, a lot of top tech companies also agreed to collude and not hire or poach software engineers from other companies, but they got caught and were fined for doing so.

4:22 Because software engineers are so in-demand, companies regularly poach top employees from each other's companies nowadays. Alright, Frank, so software engineering is amazing. Like, how do I get in? How do I start making this money? Now, there are three ways that you can get into software engineering, and I'll go through the pros and cons of each of them right now. The first way, and the most traditional, is to go get a four-year degree. This will take the longest amount of time, the most amount of money, but it will also be the easiest by far.

4:52 A lot of the course material you'll take in college is actually not that useful for the real world. You'll learn the majority of what you need to know actually on the job. However, college does have some benefits. You'll be able to make friendships and really be able to explore what you're interested in. You'll be able to take electives in other areas, make a lot of friends, and just generally do whatever you want for four years. Computer science, software engineering, and computer engineering are all majors you can take that will eventually lead to a career in coding.

5:22 You can take other majors as well, such as physics or mathematics, but those are less common, and I would recommend you stick with one of those three I mentioned before if you're serious about a career in software engineering. For people who have already taken their bachelor's, you can also do a master's degree, which typically takes around one to two years. So why wouldn't people want to take the first option if it's the easiest route? Well, it's because coding bootcamps exist. A coding bootcamp is typically four to six months, and then you'll need three months of self-study usually for the interviews afterwards.

5:52 It takes way less time than a traditional degree, and it costs a lot less money. The downside is that the pace is way more intense. So for college, a normal semester, you might take 12 to 15 credits, and at most, three technical courses. This gives you plenty of time to have fun, socialize, or just do nothing if you wanted to. Coding bootcamps are not this way. You'll be attending classes for eight hours every single day, and you'll most likely have homeworks and projects outside of that. This is simply because the amount of material you need to get through is condensed into a much shorter time frame.

6:27 Even after completing a coding bootcamp, you'll most likely need to self-study data structures and algorithms in order to pass the interviews. However, this is the most efficient way to transition over to becoming a software engineer. The third way is to basically do self-study, and this is the most difficult path because there's no one there to hold your hand. You have to keep yourself accountable, and there's very little support in terms of having peers or mentors to help you along the way. Throughout my career, most people I met went through the traditional route, followed by bootcamp, and I've only met a handful of people who were self-taught.

7:03 So depending on your time frame, financial situation, and just how much willpower you have, you can choose any of the three different routes to transitioning into a software engineering career. Okay, so say you actually have the credentials to get interviews for software engineering. I'll talk a little bit more about the interviews and what you actually need to pass those interviews. Interviews can essentially be split up into two major categories, the technical portion and the behavioral portion. Earlier in your career, the technical portion will mostly be leak code style questions.

7:32 So these are like coding puzzles. These will focus mostly on data structures and algorithms. You'll be expected to know the most optimal solution, both in terms of runtime and also space complexity. There's plenty of free learning material online that will coach you through these problems, such as the tech interview handbook, leak code, and other online materials. As you become more experienced, you'll also be expected to know more about system design. System design is basically how you construct the architecture for a specific problem.

8:03 There's also a free online resource for this as well. It's called the system design primer. Behavioral questions are non-technical questions that basically ask how you would behave in certain scenarios. It might also ask what you've done in the past and kind of how you think about things in general when facing these social situations. Amazon has a really great framework for answering these types of questions called the STAR method, which can be summarized as situation, task, action, and result. If you're interested on more details about those study materials I just talked about, you can find them online through Google.

8:38 All right, so now you've gotten the interview, you passed the interview, there's actually one last step, which is negotiating your offer. You should always negotiate your offer. Typically, the worst thing that can happen is that they say no, in which case you end up with the same offer anyways. There is a very rare chance that they actually rescind your offer, but any company that actually does that probably isn't worth your time. All right, how do you actually negotiate job offers? There's tons of books and online materials written about this topic, but I'll go over some of them now and then also link you to further reading resources if you're interested.

9:15 The number one best negotiation tactic is FOMO. If you have offers with lots of different companies, that makes all of them compete for you. The basic reasoning is, well, if Frank got through the Google interview, he must be really good. If Google and Facebook both want him, I really want him now. So when you're interviewing for all these companies, you basically want to make it so that all the interviews happen at roughly around the same time, and then you pick a specific date where you tell the recruiters, hey, I'm going to decide on offer on this day.

9:45 Two, never give out the first number in a negotiation. Remember, this is a blind auction for your skills, and they have to come out first. Three, don't make it about the money. Both parties know it's about the money, but you don't want to make it seem like you're really money-grubbing or just purely doing it for the compensation, even though you probably are. So you can phrase it like, oh, well, I need this money to buy a house, or I need this money to support my family. It's a lot harder to say no to someone by telling them like, no, I don't want you to buy that house, or no, I don't want you to be able to support your family.

10:21 Four, you never want to be the key decision maker. So when they ask for your thoughts on an offer, you want to say, oh, well, I need to ask my wife about it. I need to ask my parents, my friends, whatever. And this basically gives you some more time to think about the offer and also not give an answer right away. Towards the end of a negotiation, you can say, okay, well, I really like your company, and if you'll be willing to offer this amount of money, I'll join right away. This is kind of a Hail Mary, and you need to know your worth before you actually use this technique.

10:51 You'll be able to find accurate salary information for your position, job role, and location when you search for it online. There are a few different sites that do this, like Glassdoor, Levels.fyi, and also Blind. Make sure you know how much you're worth before accepting an offer, or you might be underpaid. One other thing to remember about job negotiations is that the company spent a lot of time and resources to finally get you that offer. Keep in mind that you hold all of the power. You can always say no, you can always walk away.

11:24 The best book on negotiation that I've read is called Never Split the Difference. Some of the techniques I just talked about and many more are in that book. The guy who wrote that book did hostage negotiations as a career, and he has a ton more helpful advice about negotiations. I highly recommend it if you have the time. Okay, congratulations. You just got your first software engineering job role. You worked really hard to get to this point. Learning how to code, getting those interviews, passing those interviews, doing all the job negotiation, and now you've finally made it.

11:56 So once you have a job, how do you actually go about moving up through a corporation or making more money? The easiest way is to plan for your own promotion or plan for your next job. Studies have shown people who job hop every two years will out-earn their peers who stay at a single company. This is because the market rate for software engineers rises much more quickly than whatever you're able to get internally through a raise or promotion. I graduated in December of 2013 and started working full-time in 2014 at 22 years old.

12:30 I was able to retire this past year at 30 years old, and this was only possible because I switched jobs so often. I saved and invested over half of my income at each of these jobs. You need to invest your money if you ever hope to retire early. It's really easy to fall into a trap of upgrading your lifestyle each time you make more money. This is how you see families who are making hundreds of thousands of dollars per year but still feel poor. It's because their lifestyle has grown to match their salaries.

13:00 Luxury cars, a big mortgage, fancy vacations, fashion designer clothing. Most of these things you do not need. Always try to live below your means and invest your money. A dollar saved is actually more than a dollar earned because of taxes. So say you're paying 20% in taxes. Every dollar you make, you're actually only making 80 cents. Compared to every dollar you save, you're saving 100%, which is a full dollar. Also, long-term capital gains tax are also much less than income tax. Long-term capital gains tax in the United States is 15%, whereas income tax is typically 20% or more depending on how much you make.

13:43 In order to take advantage of long-term capital gains tax, you basically have to hold an asset for longer than one year. A lot of people ask me specifically on what crypto, what NFT, or what stocks to invest in. The best investment for most people in stocks is the S&P 500 ETF. The S&P 500 ETF has consistently outperformed hedge funds. Warren Buffett famously made a bet of $1 million that the S&P 500 would outperform any hedge fund. After about 10 years, the hedge funds admitted defeat and he won that bet.

14:19 The reason the S&P 500 performs so well and is so highly recommended by so many different sources is because it on average grows at a rate of about 6-7% every single year. You can think of it as a blend of 500 of the top companies in the U.S. stock market. One of the advantages that this ETF has is that it prunes companies that are underperforming and adds companies that are doing well. Trying to pick individual stocks is a losing game. 99% of traders lose money. Remember that investing is for the long term.

14:53 Trading is similar to gambling. You might be a part of the top 1% of traders, but in all likelihood, you're not and you're going to lose all of your money. Again, to reiterate, if you think you are the best trader ever or best investor ever, you might be able to outperform it. But in all likelihood, you are not and that's what you should be investing in. For cryptocurrencies, the easiest way is to dollar cost average into Bitcoin and Ethereum. Sure, you might get lucky with some random meme coin like Dogecoin or Shiba Inu, but in all likelihood, you're going to lose most of your money trading those coins.

15:29 Keep in mind again, these are investments. This means that it's long term, 5 years plus at a minimum. For those who don't know what dollar cost averaging is, it basically means that you put in the same amount of money every week or every month or whatever cadence, regardless of what price it's at. This is because humans are terrible traders. We are incredibly emotional and we typically time it at the worst possible times. We'll sell at the lows and buy during the highs. In general, I don't recommend NFTs as an investment class.

16:00 It's purely speculative right now. There are a lot of real world use cases for the blockchain and NFTs in particular, but most of that has not materialized in actual value yet. Marketing and hype are what's driving the NFT market right now. If you're willing to lose all of the money you invest in NFTs, I do recommend it as a way to gamble, but please do not treat it as a long term investment. It's something that's made to be flipped or traded. It's highly unlikely that most of these projects will last 5 years from now.

16:34 It's similar to the dot-com bubble in the 1990s. So yeah, you might get lucky with an NFT project that eventually becomes the next Amazon of NFTs, but in most likelihood, you'll be investing in things like pets.com. A lot of investment advice is really just don't do stupid things. So this could be investing in penny stocks, investing in options, or investing in meme coins. Most of the paths to get rich quick are not real. You'll see a lot of influencers selling you their course, trying to sell you the secrets on how to become rich overnight.

17:09 There are very few overnight millionaires. Most people get rich the boring, slow way of making money and then investing that money over the period of a very long time. If you have high conviction in yourself and knowledge in a specific area, you can potentially pick investments that other people are not aware of. So for example, I worked in technology. I knew a lot about computers. I knew a lot about graphics cards and AI in general. When people asked what were my favorite stocks, I would always reply with AMD and NVIDIA.

17:40 They had a huge technological moat in terms of their graphics processors and other players are not able to easily enter that space. AI and machine learning are the future and will only continue to grow. AMD and NVIDIA were poised to dominate that market. I bought AMD at $4 per share and NVIDIA at $20 a share. I sold both of them way too early, which leads to my next lesson on investing, which is to never sell your assets. I've made many more investments in technology companies that I sold way too early.

18:13 Trying to trade is a loser's game. There are probably more people who make money off of selling trading courses than actually trading themselves. Do not sign up for anyone's private discord, do not buy anyone's course, and do not pay for private coaching lessons on how to trade. None of that is worth your money. Some people are good at making money. Others are good at investing money. You want to be good at both. Technology is a great field to get into if you're interested in making a lot of money, especially when you're young.

18:43 And then investing is the other half of the coin where you need to learn how to keep your money and grow it. Nowadays, there's plenty of informational resources for both of these topics. I learned about both of them the hard way through trial and error and a lot of personal learnings, but hopefully you don't have to. I'll be making a lot more content on finance, investing, cryptocurrency. So if you're interested, follow along for more. Thanks for watching the Frankly Speaking podcast and good luck on your financial journey.