Podcast 105: You Can Afford Anything, but Not Everything with Paula Pant

Steve Chen (00:00):

Hi folks. Welcome to Boldin Your Money, where we talk with bold thinkers who are reshaping how we live, work, and build financial independence. I’m your host Steve Chen, and today I’m excited to welcome back Paula Pant. She’s the founder of Afford Anything, a personal finance platform and podcast built around a simple but powerful idea that you can afford anything but not everything. So Paula has helped millions of people think about their money and their time and their attention, and how to design a more authentic life. So last time Paula was on our show, we talked a lot about financial independence, real estate, and how to build a safety net as an entrepreneur. And today we’re going to talk a little bit about kind of what’s happened since then, kind of where Paula is today, what’s changed with her life and business, and how her thinking has evolved around personal finance, how AI is affecting the world of influencers and personal finance. And so with that, Paula, welcome to our show. I appreciate your time.

Paula Pant (00:52):

Thank you. Thank you so much for inviting me on.

Steve Chen (00:54):

No, it’s great to have you back on. And I kind wanted to just open up with a little bit of what’s happened recently. I know that you’ve continued to build a pretty big media empire here and just how your life and work has evolved over the last few years.

Paula Pant (01:09):

Yeah, absolutely. So a couple of years ago, I took a sabbatical for a year to go to grad school and I got a degree in economic journalism, and that really helped round out, I’d been talking a lot about the personal element of personal finance, but doing a formal study in economics gave me some good background in how to tie in what’s happening in the broader economy into what I talk about. And so on the podcast, on the Afford Anything podcast, I’ve started integrating a lot more economic news into what we discuss. So I’m layering in inflation, I’m layering in unemployment, how do we manage our money in the context of the bigger picture.

Steve Chen (01:53):

Nice. And do you think your audience, I guess do they appreciate this?

Paula Pant (01:57):

They do. Yeah. So we dedicate one episode a month on the first Friday of every month. We have an episode that entirely focuses on purely economics. And I anecdotally, I hear from people that that’s their favorite episode of the month. I’ve heard that from a lot of people. Normally, our format on the Afford Anything podcast is that typically once a week, we air two episodes a week, and typically once a week we’ll interview a guest, but then once a week we answer questions that come directly from our listeners. And I have noticed paying attention to those questions, you get a good sense of what are people worried about right now? What are people thinking about? And lately a lot of the questions have been around the broader theme of how do I balance all of these conflicting priorities? There are a lot of people who, they have elderly parents and they also have young children, so they want to make sure mom and dad are okay for their retirement, but also want to make sure their kids have the money that they need to grow up and go to school and eventually go to college.

(03:07):

Maybe they’ve got a small house and they want to move to a different house, but they’ve already locked in a low interest rate during the low interest rate era, and they don’t want to get rid of that old interest rate. So what do they do there? Or maybe they’re a renter and they want to get into their first home, but they feel priced out. So there are a lot of people who just have a lot of different priorities that they’re juggling, and that’s always true, but I feel like I get more questions about that now than ever.

Steve Chen (03:35):

Yeah, I think it’s very real. I mean, for what it’s worth, I see this in our employees and in my own life where people are living much longer. We talk about this, but you can start to see it in people’s lives where people are into their nineties. It’s common to have relatives in your nineties, and I think people over a hundred of the fastest growing demographic, which is, I mean, it’s from a small number, from a small base, but so now you have these generations where you’ve got whatever great grandparents, so having a great grandparent is possible, but you’ve got four, easily four, but you could have more generations going. And I think that we’re also so much more self-aware about these, or there’s growing awareness about these obligations like, oh, I might have to be, before it was like, raise my kids, help ’em get through daycare, get into college, pay for college, and then they’re on their own. Now it’s like, well, you’re supporting these young adults and then maybe you’re supporting your aging parents at the same time, and it feels like the obligations never end. Do you see that in your audience then? They’re really,

Paula Pant (04:41):

Yeah. Yeah, yeah. I see a lot of that. I don’t see as much of supporting kids into their twenties. I think to the extent that I hear about that from my audience, it’s like, oh, our kids still lives with us. But it’s more about you’re providing housing and accommodation rather than actually paying money. So from a cashflow perspective, there’s no real cashflow impact.

Steve Chen (05:07):

Yeah, fair enough. But I still think, I have to imagine there’s little, I don’t know, when I graduated college, I went off and got a job and I had my own insurance, whatever, and paid for my own car and had an apartment and stuff like that. I feel like now a lot of young adults are, they’re on their parents’ health insurance that’s possible until they’re 26 and maybe cell phones are being picked up from the family plan, stuff like that. There’s kind of this persistent drag that’s still out there and it’s not nothing. So what are some of the things that your audience does to juggle these conflicting or these competitive needs?

Paula Pant (05:46):

So what are the things that I often tell my audience? We get audience members who call in to about half of our shows are these call in episodes. And a lot of times what we will do is sort of unpack the timeline, the amount of money that goal might require and the level of importance. Those are sort of the three vectors that we’re looking at. And so if you score everything along those three vectors, what is your timeline? How much do you think that this is going to cost, and how essential is it relative to all of these other priorities When you first map that out in a perfect world where you’re fulfilling all of these goals and you quickly realize that you’re not going to be able to reach the full goal by the intended timeline. And so at that point you’ve got a couple of options. You either extend out the timeline, you reduce the amount of money associated with the goal, or you eliminate a few of the goals entirely or defer a few of the goals entirely. So a lot of it is the practice of thinking through those three vectors.

Steve Chen (06:53):

As we run our own business here and think about the growth, we do this annual planning where we’re like, Hey, what are the things that we want to do in the next coming year and what’s the expected value for each one? What’s the investment required? What’s the expected ROI? And then stack rank those things and then make trade-offs. I feel like there’s such a, it’s the same process essentially for personal financial planning. Do you find families having discussions like, Hey, we’re going to trade off state school versus private school versus caregiving for our parents? Are discussions like that happening?

Paula Pant (07:34):

I think it tends to happen if it happens at all, which I think is relatively rare in a lot of families because there’s a lot of communication breakdown around particularly money. Most of us are not taught to talk about money. In fact, most of us are taught that conversations about money are impolite. And so it’s rare that a family will be able to have healthy money conversations. And typically when I see that happen, it will happen between couples, but it won’t necessarily, people don’t necessarily loop the kids in and get them involved. So there’s a lot of training that needs to be done and a lot of unlearning, some of the things that we’ve been taught, lessons that we’ve been taught about, not talking about money, about it being a taboo subject. There’s a lot of unlearning that has to happen in order for these healthy money conversations to take place.

Steve Chen (08:30):

Yeah. Do you think this is changing across generations? So one thing we’ve seen with our employees is, and a change we made is younger generations we’re like, Hey, my expectation is that, and I think it’s the law now. Law salaries will be published on job requirements, and I know there’s also a much more open dialogue about employers and what they pay and what it’s like to work there. Do you see that happening in your audience too?

Paula Pant (09:02):

It’s state by state in terms of their requirements as to whether or not salaries need to be published. And there are certain, because salary ranges are published in job ads, but some job ads have ranges that are so insane. I actually took a couple of screenshots, this just came up the other day and I took a few screenshots of a job posting that I saw in which the salary range was it like 60,000 to 400,000? It was this wild range. That range is virtually meaningless. And granted, that’s rare. I screenshotted it because it was such an anomaly. And I do think it’s a very positive development that salary ranges are required to be published because it gives everyone a solid sense of what ballpark is this in? And for younger people who are thinking about what careers do they want to go into, you can easily look at some of the job availability and say, Hey, what would this pay if I were to go into it? That being said, jobs are changing so rapidly, especially now with the advent of AI that there’s also this uncertainty. These are the jobs available now and this is what they pay right now, but how true is that going to be five years from now? And so I think what a lot of people are feeling is not just uncertainty around present day salary, but there’s this level of uncertainty around how long is this going to last? How much security do I have? Am I one pink slip away from some type of a calamity?

Steve Chen (10:41):

Yeah. Do you feel like uncertainty is climbing in your audience?

Paula Pant (10:48):

I think the perception of uncertainty is certainly climbing. I mean, we can see this in the data. The University of Michigan tracks a consumer sentiment index, and right now the consumer sentiment index as of November of 2025 is the lowest that it’s been since July of 2022. We just went over this in our last one of our recent episodes, which is why I know the stats off the top of my head. But so we see that consumer sentiment is at a two and a half year low or three year low. We see that many people feel as though their wages have not kept up with inflation. We see that in the jobs market. We do have historically low unemployment, which is great, but we also have low job creation slash net job losses in many months, which means that people by and large are staying in their jobs.

(11:38):

There’s not a ton of turnover. So while unemployment is still low, a feeling of mobility is also quite low. And then when you stack lack of new job creation and the lack of mobility associated with that, when you layer that on top of a lot of people feeling existing, homeowners feeling the lock-in effect and feeling like they can’t move while people who are not yet homeowners feeling as though they’re priced out, I think when you put all of those factors together, you get a population that largely feels a lack of mobility, lack of geographic or housing mobility plus a lack of job mobility. And when you feel lack of mobility on multiple fronts, you feel stuck. That’s what lack of mobility is. And so I think there’s a lot of economic frustration coming from that.

Steve Chen (12:23):

I think that’s very real. It’s definitely tough. I mean, you’ve got folks that locked in to these 3% mortgages, they don’t want to give them up. That’s too expensive. And yeah, I don’t know how families are doing it in that kind of a six to 7% mortgage environment. I do know, I feel like it’s coming down a little bit, but I don’t know if it’s going to come back. I was actually talking to my wife about this, will we see 3% mortgages Again, I don’t know. The US debt is pretty high. We have to be competitive to get people to refinance our debt. We’ve got whatever trillions of dollars of debt rolling over.

Paula Pant (13:00):

And if the increase had been slower, if it had taken many, many years to very slowly rise from two to 3% mortgage interest rates up to six to 7%, we wouldn’t have such a severe lock-in effect. So much of the lock-in effect that we’re seeing comes from the fact that we had a period of many years in which people could lock in two to 3% mortgages, 4% mortgages at worst, and then there was a very sudden and very steep increase up to seven, and now it’s down to a six handle. But it’s still, as of the time that we’re taping this, it’s around 6.3%, 6.2 to 6.3% on a 30 year fixed. And it was the fact that that increase was not just so severe, but so rapid that created such a stark impact.

Steve Chen (13:57):

Yeah, for sure. Yeah, it’s interesting. And also we’ve got a lot of boomers and older generations that have built a lot of home equity, but it’s locked up. I think it’s one of the opportunities in our economies if people can figure out a way to unlock this home equity. But people have been talking about it for a long time, and the common way is sell your house and move and downsize or whatever, but if it’ll cost you just as much to sell and move then to get a smaller house, are you going to do it? And most people will say, no, I’ll just stay where I’m, but then you’ve got, you’ve raised your family and then you’re living in this big house with no more kids, but you’re just sitting in it because it doesn’t cost, there’s no value to kind of getting out or there’s not as much value to getting out so you don’t do it

Paula Pant (14:42):

Right. And that challenges a lot of people’s retirement assumptions because so many people planned that, oh, in retirement I’m going to downsize. And then you get to where we are today and you say, wait a second, this assumption, which was a key part of my plan, now no longer plays out. So if I can’t downsize in retirement, then one of the foundational assumptions on which I built this whole plan is now shaky.

Steve Chen (15:08):

Yeah, for sure. It’s interesting. I think the whole remote work was a unlock for a while, but now it feels like the return to offices is coming back and there’s definitely value to being back in the office. But I think the geographic arbitrage moving, it was visiting someone in our family. They live in Colorado, I live in California, and their burn rate is a couple thousand dollars a month basically. And compared to California, that’s their spend right now. They have their house paid off. They’re very efficient in how they live. This is a retired couple. And relative to someone in my town, I was just out of CFP on in my town, and they’re like, the average person where we live is spending on the order of $15,000 a month, which is insane. I say that’s a negative that it costs so much money, but there’s still that wild disparity. Or if you went to Mexico or you moved to certain places in Europe or wherever, or southeast Asia, you can live. And I was actually talking to a YouTuber that went to Thailand. He was saying what it cost to live there and the same thing, it was like a couple thousand dollars a month, but to live in incredible lifestyle. So that’s all out there.

Paula Pant (16:28):

If you can be fully remote, there are incredible geo arbitrage opportunities. And with geo arbitraging in Asia, what I have found, because I’ve done that, I’ve done long stints overseas in the past in Asia, the big challenge is time zones. Because even if you are working remotely, you want to be working during hours when you can have Zoom calls and meetings and send Slack messages with people in the United States. And so the time zones, the time zone alignment can be really challenging. But there are plenty of opportunities to geo arbitrage from Latin America where you could be in a western hemisphere time zone and still have a very reduced cost of living.

Steve Chen (17:15):

Are you seeing people in your community do that or they’re moving to Mexico City or they’re moving to Buenos Aires or something like that?

Paula Pant (17:23):

I mean, but it’s quite niche because it requires a very specific type of person, type of personality, set of life circumstances. I mean, I think there are a lot of people who are a little interested in doing it, but they have elderly relatives, maybe they have the type of work, one spouse is fully remote, but the other spouse is hybrid and they have to come into the office one day a week. So it’s just enough that they can live out in the suburbs or even the exurbs, and they can do a mini geo arbitrage in that regard. They don’t have to live in Manhattan per se. They can live in central New Jersey and commute into Manhattan one day a week. So they can do sort of a mini G arbitrage in that regard. But if they still have to come in one day a week, then they can’t go as far as Mexico City.

Steve Chen (18:16):

Right. For sure. It does feel like it’s this great idea. And what I’ve seen is maybe people in their twenties, I mean when COVID was happening, this whole digital nomad thing was real. And if you’re in your twenties, yeah, that’s the window to do it. But then especially if you start having kids, then you’re like, okay, you have to make this real decision. Where do you want to raise your kids? And then your kids are getting older, and then suddenly you’re right up against elderly parents. And I think you’re window for doing that shrinks.

Paula Pant (18:47):

Yeah, I’d say that the elderly parents are in some ways an even a bigger consideration, like kids, at least you’ve got the flexibility of, I know plenty of people who have geo arbitraged with their kids, and the kids pick up languages so fast. So then the kids are correcting the parents. They’re like, mom, dad, why are you so slow at picking up this language? Kids pick up the languages super fast. They fit in with the new set of friends really fast. They learn how to play cricket, they learn how to play soccer, which over there is called football. And so they have this level of adaptability that is actually quite inspiring to the grownups. And so I’ve seen my sister do that with my niece, man. The way that my niece, she’s six years old, and the way that she has been able to adapt country to country to country is just incredible. The challenge though is that elderly parents and grandparents, they’re more rooted, right? They need medical care, they’ve got to see their doctors. It’s difficult for them to change. It’s difficult for them to travel, and it creates a lot of stress on the body.

Steve Chen (19:57):

Yeah, yeah, a hundred percent. What’s your sister been doing? Where is she going from place to place?

Paula Pant (20:02):

So she is a film producer based out of Cat Mandu, and so much of her work involves picking up and going to somewhere for five months, six months at a stretch, doing a film shoot there, coming back to Cat Mandu to process video, and then going elsewhere for four months and then coming back. So yeah.

Steve Chen (20:22):

How did she pick, I mean, was she living in Cat Mandu or She went there?

Paula Pant (20:25):

Yeah. Yeah, so we were both born in Cat Mandu. Okay,

Steve Chen (20:29):

That’s very cool. Alright, well I guess the last thing just on this topic, in terms of AI and your audience, you talked about how people feel like they have less visibility. Any particular stories that jump out or anecdotes from you in terms of how people are, I guess adapting and thinking about how it could affect their careers?

Paula Pant (20:49):

Yeah, I think the biggest one is that human. If you think about what is uniquely human, most of our technical skills can be automated, but the things that cannot be automated are relationships. And so I think as we enter this new era, the soft skills become increasingly important. Empathy, listening, responsiveness, just everything involved in maintaining strong relationships becomes increasingly important. And here actually is sort of a plug for face-to-face work because one of the things you really lose when you have fully remote work is some of that relationship building, having FaceTime with somebody, sharing a meal with them, having drinks with them, that is really essential to relationship building. And you can do that with frequent business travel, but those are sort of annual, something very different about forming these face-to-face relationships with a set of colleagues or a set of clients that are in your actual hometown. I think that as we move towards ai, I think in-person work becomes even more important than before.

Steve Chen (22:05):

Yeah, I was talking with our CTO about this today. He was saying, we were just talking about how there’s more AI generated to everything, content, music, videos, and as that becomes more prevalent, it’s potentially going to get less valued. Although the counterpoint would be that if it gets more personalized, maybe it gets more valued. So I think TBD, but then either way, yeah, the scarcer thing is going to be humans and their attention and the relationships you build there. So that will become more valuable. So I think that makes a lot of sense.

Paula Pant (22:40):

Yeah,

Steve Chen (22:40):

It’ll be interesting to see if we can do it. I mean, we have an all remote company

(22:44):

And so we interact a lot like this over Zoom. It’s not the same as being, we’ve also seen the value of bring everyone together and get in person, which is fantastic. But anyway, the way we’ve come up is just to do it in a distributed way. So we’re going to see how it goes as we work to scale the company. Okay, cool. Well look, I wanted to just chat a little bit about how things have evolved for you as you’ve built your YouTube channel and built your podcast. I think your podcasts have 40 million downloads, you’ve got 64,000 people on YouTube and obviously got a pretty big operation here. Any big lessons that you’ve learned? And I know you started with blogging originally, so you’re one of the winners and evolving here. Any huge insights, anything you look forward to? Do you see more changes on the horizon?

Paula Pant (23:40):

Yeah, so if you think about how you are connecting with an audience and how you’re, the goal is to educate and entertain, be entertaining enough that you can put forth this financial education. And there are a few key things that stand out to me. One is that you need something that makes you unique or different or special, and it doesn’t have to be the same thing for every creator. I think that part of my value is that I bring depth and nuance and intellectual rigor to a lot of subjects. So I don’t stick with the tactical or the surface level or the cookie cutter. I really unpack a lot of things. I don’t like to be prescriptive. I like to instead take an issue and look through a prism and say, alright, here is the issue. How do we look through this from multiple lenses?

(24:33):

How do we think about how to think that metacognition so that we can become better thinkers and better decision makers? And I think that has been a big part for me of how I’ve set afford anything apart. But it doesn’t have to be, not everybody has to follow that same playbook. I know other people who their skillset is that they’re just really funny. They’re natural comedians and that’s what they’re great at. I know other people who are just, they’re wit at one-liners, so everyone’s got their thing, but you have to have your thing that makes you stand out. Some people are abrasive, but it’s like that’s their personality and it plays well on video. So yeah, everyone’s got their thing. So that’s part of it. I would say also that there is a distinction between what is short form that you short form and scrollable that what a short form content that people find when they’re scrolling versus what is more long form in-depth content that people actually search for.

(25:47):

And where I have always, where afford anything has always stood out is in long form searchable content content. We have actually never been very good at the short form scroll behavior. Our bread and butter, our unique skillset has always been long form loyalty. And that’s why we excel in audio podcasting, which is that’s a platform that is not a platform where anybody scrolls, nobody opens up Apple Podcasts and absent mindedly scrolls through podcasts. If you are going to Apple Podcasts, it’s because you are searching for a particular type of podcast. And if you’re the type of person who’s searching for a personal finance podcast, then you’re likely to find us. But what that means is the audio podcasting is for people who are searching out this information. It’s not people who are absent mindedly in the waiting room of their doctor’s office scrolling through Instagram and then they stumble across something.

Steve Chen (26:54):

Right. Do you feel mean? So blogging is kind of the most, I mean it’s in depth, but you have less of a sense of somebody, and a podcast is much more personal. It’s also in depth, but it is super long form. And then with video, you can see them how they behave. You get all these other cues. Do you feel like you’re building stronger relationships with YouTube or does it not matter?

Paula Pant (27:22):

I do think that YouTube and video in general has the potential for building very strong relationships because of the fact that now you see what they look like. Now you have a whole visual in your head. What I don’t know is how that’s going to change as more AI created video becomes ubiquitous. I think one of the big question marks is what happens when it becomes difficult to tell what’s real and what’s AI generated right now? Videos that are AI generated, they don’t quite pass the turig test. You still get a sense that this is AI generated, that’s the current condition of video as of the time that we’re recording this. But a year from now, that likely will have improved by some exponential factor.

Steve Chen (28:16):

Could you ever, you said you’re doing call in shows and I know that AI voice is pretty good now there’s very little latency. You can have conversations with these voice agents that will answer phones and do things like that and do sport. Would you ever see training up a AI poly pant that could take call-ins and just answer like you?

Paula Pant (28:41):

Geez, I dunno. We had a listener once who went into chat GPT and asked chat GPT. She had, I forget what her question was, but she had some sort of a personal question that she wanted to ask. So she asked chat GPT to answer in the Paula Pants style, and I frequently answer questions with a recurring guest co-host, Joe Shai. So she said, Hey, give me the answer that you think Paula and Joe would give and chat. GPT predicted what our answer would be. And then she called into the podcast, she asked us the same question, but she didn’t tell us what chat GPT had predicted. We would say so that she could test whether or not our answer was aligned with what chat GPT thought our answer would be. So this is a long answer to your question, but I wouldn’t want to be the person doing that. I would want people in my audience, my listeners, I’d want other people to organically create a gen Paolo GPT, but then come to me, ask me the question and then you’re AB split testing. What did I say? What did Paula GPT say and how closely aligned are the two and which one’s better?

Steve Chen (30:14):

How close was the answer?

Paula Pant (30:16):

Yeah, exactly, exactly. So she, did she call back? I’m trying to remember if she called back. I’d have to look back again at the episode. I don’t remember the details of if she called back to tell us.

Steve Chen (30:29):

Yeah, that’s pretty interesting. I mean, we definitely see people doing this with our software. They are taking plans and then dumping the, you can create a PDF version of your plan. You can get the data out of it, pushing the data into different LLMs like chat, GPT, and then asking questions. So we’re actually going to be rolling this out as a feature in our platform. Just let people do this. And what’s interesting is just the underlying models are getting better, but I was listening to Hard Fork the other day and they were talking about how Claude Opus 4.5 just came out and for the first time, one of the hosts was saying, this thing generated written content that I felt was very close to what I would’ve written myself so stylistically, because I did this before too, I said, Hey, write an article in the style of Bolden and go read a bunch of articles and make an article about this topic. And I thought it was decent, but every day these things are getting better. And so that’s the interesting part.

Paula Pant (31:35):

Yeah, yeah, exactly. Exactly. We are very quickly about to create agents that are more intelligent than us, and it’s going to be such an interesting turning point in human history to not be the smartest creatures on the planet anymore.

Steve Chen (31:51):

I think it’s a question, are they going to be, they’re going to have better memories and they’re going to be able to produce stuff way faster. That’s already true. These things can bring the internet to you and answer your question in a way that searching never could. Are they going to be more innovative? I don’t know. Let’s see, because if they are, then whatever, then game over, right? The next evolution. But we’ll see. I don’t know. I guess do you believe that? Do you think that they will be smarter than we’re in every way? I guess? Guess there’s lots of ways to be intelligent.

Paula Pant (32:24):

I think the delineating line between them and us will start to blur as there are more ai, human integrations until eventually the line between what is human and what is AI is what is organic matter versus what is algorithmic matter. That line is going to get fuzzier and fuzzier.

Steve Chen (32:47):

Yeah, I think an analogy is I talk to people that run businesses. They might get an assistant and they get a smart assistant, an executive assistant, and they train that person to level one is just kind of pre-process stuff and tell me what I need to pay attention to. Then they learn about you and then it start to take action and be an agent, right? You would know what I would do in this scenario, right? You’ve seen me do this a lot, so go do that. I feel like this is exact same thing that’s happening. I mean, I’ve got in Gmail, 40,000 emails or something, I don’t know, some ungodly amount that’s sitting there. So it knows a lot about what I think, how I write, how I’ve responded before to different kinds of people in organizations. It does feel plausible that it could be like, all right, Steve, you got a hundred emails today. This is how I applied to them. You can scan, did you approve, you disapprove, whatever. And then it would start actually doing stuff.

Paula Pant (33:48):

Exactly. Yeah. But I imagine the next evolution or the next iteration of this is going to be human AI integration in which AI becomes part of our bodies. It becomes integrated in with us, so that where do we end? And does the AI begin, I guess really where maybe it’s not a anymore. Maybe it’s just I, right. Maybe it is no longer artificial if it becomes incorporated into us.

Steve Chen (34:22):

So you’re long Neuralink.

Paula Pant (34:23):

Yeah, exactly. Exactly.

Steve Chen (34:26):

Yeah. I mean, it’s crazy that we even are having these conversations that that could be a plausible idea. But my son’s girlfriend works at this company in San Francisco that they basically put skull caps on people and they’re going to try to use external energy to change your, I think it’s to address things like anxiety and depression and stuff like that basically affect your brain remotely. So it’s not going to be wired in like Neuralink, but people are pursuing these things in a very real way. So all this stuff that we felt like was science fiction a few years ago was fully funded things that people are working on.

Paula Pant (35:13):

Yeah, that’s incredible. It’s a really interesting time to be alive. The next 10 years are going to be

Steve Chen (35:21):

Incredible. I agree with that. I definitely have the sense that it is an incredible time to be alive and don’t die, because, hang on. Because who knows what’s going to happen, right? One, it’ll be interesting to see, and two, maybe we’ll live longer if we start figuring out a lot of the healthcare stuff,

Paula Pant (35:38):

Right? Yeah, exactly. Exactly, exactly. It’s entirely possible that the first person who’s going to live to be 150 has already been born. And think about the social security implications. I mean, what are the retirement planning implications of living to 150?

Steve Chen (35:56):

Well, hey, I think if you’re doing Neuralink, or do you think you’re going to upload your brain into a computer and then live there forever? Well, look, let’s shift back from the realm of what is possible to how this is affecting personal finance and how people should think about their future. I think it really is interesting that it’s both a world where it’s incredible things could happen, and it’s really uncertain. Our jobs could get replaced, and people are worried about defending against that, and then they’re like, oh, is there this abundant future? How do you think about that? How does your community think about this and address it or hedge it?

Paula Pant (36:32):

Yeah, so there are a couple of things. So when I talk to my community, I emphasize what I call the five pillars, financial psychology, which is getting your money mindset, increasing your income, because earning more is the single most effective lever to increasing that delta between what you earn and what you spend. Because when we talk about savings, the word savings has a connotation of frugality, but we’re not chasing frugality for its own sake. We’re chasing the delta between income and expense. And sure, you can pick the low hanging fruit, but at a certain point you can’t shrink your way to greatness. So increasing that delta, your most powerful lever is increasing your income. So the five pillars, pillar number one is financial psychology. Pillar number two is increasing your income. Pillar number three is investing. Pillar four is real estate. And I mean that in the context of buy and hold, real estate investing, whether or not it’s worth it to buy a primary residence is going to depend largely on where you live.

(37:36):

But I do think there’s value for everyone to buy and hold some rental real estate. So that’s pillar number four. And then pillar number five is entrepreneurship of some form or other. And for some people who are happy having a W2 job, it might be some side hustle, something fun that you do that brings in a little bit of extra money. Maybe it boosts your income by an extra 5%. It doesn’t even have to be a big thing. It can be sort of an income producing hobby. But I think everyone should have some type of entrepreneurial venture, whether large or small, because you have autonomy, you diversify your income sources, and if you do lose your job, if the worst were to happen, then if you’ve already taken the time in a low stakes manner to test, drive a handful of ideas and see what works, and then build a little bit of momentum in this fun little side quest that’s working, then in the event you do get laid off, okay, now you already have that side quest that you can lean further into. So those are the five pillars. The acronym is the word fire with two is double I fire.

Steve Chen (38:46):

So financial psychology, increasing income investing, real estate and entrepreneurship.

Paula Pant (38:53):

Yes,

Steve Chen (38:53):

Double

Paula Pant (38:53):

I fire,

Steve Chen (38:55):

Double I fire. Makes sense. Yeah, and I agree with all that stuff. I think it’s all core. I guess I’d be curious about real estate and also by the way, entrepreneurship, I completely agree with. I feel like that is something that everybody has to learn now. In fact, I mean, just one color commentary. A lot of my friends have kids that are graduating college now, or the oldest ones are starting to graduate college, and it’s a tough job market for new college grads. For many of them. They’re finding jobs, but maybe not the perfect job they want. And I think the ones that’ll be more successful, we’ll have a more entrepreneurial perspective and say, look, I’m probably going to have to, I think many more people are going to have to create their own careers going forward, because more at traditional stuff will get automated. The stuff that takes lots of people is going to get automated first.

Paula Pant (39:44):

So

Steve Chen (39:44):

That’s where the cost savings are for companies. So then you have to create new things. But on the real estate side, it feels like it’s a lift. It feels cool, and it’d be great to own a bunch of real estate, but it also feels like you got to learn about buying it, managing it, renting it out, maintaining it, all that stuff. And it feels like there’s a whole, it feels like a nichey thing that a lot of traditional fire people fi people got into. But I don’t know about a lot of other people, but I’m curious what you see,

Paula Pant (40:13):

Whether or not it’s worth it to own your primary residence is going to depend largely on where you live. So if you live in a location where owning a primary residence doesn’t make sense, then I think there’s a lot of value in buying a rental property that’s out of state so that you can still have real estate as a diversified portion of your portfolio, particularly in an instance in which you yourself are a renter. So I’ll use myself as an example. I live in Manhattan. In Manhattan, the average price to rent ratio is 55 0 in a place like that. So price to rent ratio is the price of the home divided by the annualized rent. And so if you are in an environment where the price to rent ratio is 15 to one five or under, then absolutely that’s a great place to buy a home, to buy a primary residence. But if you are in a place where the price to rent ratio is over 30, then it doesn’t make sense to buy. And a lot of high cost cities, you’ll have these extraordinarily high priced rent ratios where owning a primary residence just you could do so much better renting and then putting the differential into a broad market index fund.

Steve Chen (41:28):

Is there a good public resource for where they publish all the price to rent ratios across?

Paula Pant (41:33):

What I would do is just start with wherever you yourself are living, look up the fair market value of your current home. And then if you’re a renter, obviously you know what the rent is because it’s what you pay. And so the value of your home divided by the annual 12 month rent, that is the price rent ratio of the place where you live. So you can calculate that for your own home. You can calculate it for your ideal home, or if you want to get a sample of what’s around your city, you can calculate it for a variety of neighborhoods across your city. But yeah, just do a handful of case study samples and see how it shakes out.

Steve Chen (42:12):

So you think, is it like 20? Is there a cutoff point where it’s like, what’s the ratio? So

Paula Pant (42:20):

If it’s 15 or under buy, that’s a great place to buy. It’s a great place to own. If it’s 25 or over, then rent, you’re in a place where you should rent. And if it’s between 15 to 25, you’re in a gray zone. I’d say even between 15 to 20, you’re light gray leaning by and between 20 to 25 you’re dark gray leaning rent. But between 15 to 25 is a gray zone. And that’s where factors, how long do you plan to live there? Factors like that, those more personalized data points come into effect.

Steve Chen (42:59):

And do you counsel people on the other side if they’re owners that, oh, if you’re in a really high price to rent ratio, you should sell and start renting.

Paula Pant (43:08):

I mean, a lot of people are reluctant sunk cost fallacy. Once people are owners, they’re reluctant to sell unless they get into some type of a financial hardship that precludes them from being able to continue making their mortgage payments or they have aspirations of early retirement and they realize that selling will unlock a lot of equity, that can fuel some alternate goal.

Steve Chen (43:31):

Yeah, I think one of the plays people out here in California, if they have a lot of home equity do is they’ll try to make their property a commercial real estate thing. They’ll basically start renting it, and then they’ll 10 31 it, they’ll sell it and then try to put it in other rental properties and maybe even divide that up across the kids, especially if they have a ton of home equity. And then use that as a way to get around taxes and stuff like that, move assets into their kids.

Paula Pant (44:01):

Right. But if it’s a primary residence, there’s a capital gains exemption. If

Steve Chen (44:07):

You right, 500 grand

Paula Pant (44:08):

To 500,000.

Steve Chen (44:09):

Yeah. You see people out here, and it depends where you live, but they’ll be walking around with millions of dollars of

Paula Pant (44:14):

Wow, of capital gains. Wow.

Steve Chen (44:17):

Yeah, it’s a different,

Paula Pant (44:18):

It’s champagne problems. Champagne problems.

Steve Chen (44:22):

Hundred percent. Yeah. Okay. Interesting. So basically it’s like, hey, think about your price to rent ratio rent if it’s more efficient, but buy real estate where it’s more efficient essentially, and rent it out.

Paula Pant (44:34):

Exactly. Buy real estate, because I think it’s useful to have some real estate in your portfolio. I would be very reluctant to have a portfolio that was entirely indexed funds and nothing else. And so I think that that diversification into some tangible real estate, it provides good portfolio diversification. Tangible assets tend to be great inflation hedges. Rental income tends to bias towards the dividend or the income stream. And so even if the total, the unleveraged total returns are comparable to index funds, let’s say you’ve got an s and p 500 index fund and a piece of rental real estate, and the unleveraged total return on both over the long-term aggregate average is maybe eight or 9%. You still are in a situation where those unleveraged returns on that broad market index fund are largely capital appreciation and only a small sliver of that is the dividend.

(45:35):

Whereas with that rental property, if you’re thinking about unleveraged returns, the bulk, even if it’s the same total return, the bulk of that return biases towards that dividend. And so even if the total return is similar, the characteristic of how that return is produced is different. And so when you have the differentiation of with rental real estate, you’ve got a tangible asset which gives you a different level of inflation protection, then something like an index fund. So you’ve got the inflation protection component, you’ve got the different return characteristics component. I think for all of those reasons that diversification is very valuable.

Steve Chen (46:17):

That makes sense. Are there other ways to get this REITs and stuff like that that are efficient or is it REITs are out there and I think they produce higher dividends, but I also feel like some of the fees on them and stuff like that, there’s a drag on the returns that aren’t necessarily that great.

Paula Pant (46:33):

The reason that I’m not in love with REITs is if you think about this fire, this double I fire framework, right? The letter R, the reason part of the beauty of it falling in between that letter I and the letter E is I is investing, E is entrepreneurship, and R is kind of the meeting ground between the two. Real estate that you directly own is a bit of a hybrid between an investment in the index fund sense of the word and an entrepreneurial venture. It’s a smidge of both because when you directly own real estate, you can directly influence the returns that it gets for good, for better or worse, your own mismanagement can create suboptimal returns or your own great management can create highly optimal returns. And so you have this, that’s another kind of unique characteristic about directly owned real estate is that it isn’t with a share of Coca-Cola stock, there is nothing that you can do unless you are an executive at Coca-Cola. There is nothing that you can do to improve the returns of that share of stock. Coca-Cola and Nike and Nvidia and Tesla. They’re going to do how they do, and there’s nothing that you as an individual can do about it. Whereas with real estate, you do have that direct control.

Steve Chen (48:01):

What do you think a good portfolio to shoot for as in terms of real estate index, also asset location? Well, so I guess fixed income equities, real estate, cash as the portfolio across the whole household, and then where you locate those assets to qualified versus taxable, all that stuff. Yeah.

Paula Pant (48:26):

Yeah. I mean cash you’d put in just a high yield savings account. I don’t consider that as part of the portfolio. That’s going to be your cash reserves. It’s going to be your emergency savings in Roth accounts or tax exempt accounts. You want to put anything that you think is going to be a runaway winner. So more speculative assets, more volatile assets. Anything that you think short if you invest in small cap, right? Small cap I think is a great Roth. Accounts for small cap is a great location because small cap does have over the long term, the potential to be a bit more of a runaway winner. That isn’t what we’ve seen in the past couple of years. But that is if you expand that view out to a 40 or 50 year view. So I would put small caps or volatile assets or anything that you expect might be the superstars of the portfolio into your tax exempt accounts. I would put as much as possible into tax deferred accounts. And as far as taxable brokerage goes, remember that you yourself are going to be paying for, you’re going to be directly paying taxes on a yearly basis for any dividend or interest income, even if you reinvest that dividend or interest income. So I would put the types of investments that do not kick off a whole lot of dividend or interest income into your taxable brokerage accounts.

Steve Chen (49:47):

Yep. That makes sense. And then how about in terms of the percentages? I mean, when you think about this like, oh, 25% in real estate, 10% fixed income, I don’t know. It depends on how old you’re and your needs and stuff like that, right?

Paula Pant (50:03):

Yeah, it differ for people depending on their age, their goals, their timeline, their risk tolerance. I mean, for myself, I’m about 50 50 real estate versus index funds. That’s pretty extreme. I would not recommend that for the average person. So I will fully, my 50 50 split is, I think it reflects just a certain risk profile that just doesn’t fit a whole lot of people well. And I say, you know what? And I say that it’s 50 50, but I’m not counting the value of the business that I directly

Steve Chen (50:35):

Own. No, I was going to ask you that.

Paula Pant (50:38):

And I’m not counting that in my portfolio at all.

Steve Chen (50:41):

And why not? Why do you not? I mean, it produces income for you. I mean, it’s more like a real estate. I mean, well, it’s got both. It has. You can control it, it spits off income and it might have a high equity value.

Paula Pant (50:53):

Yeah. Yeah. I think because it is so illiquid in every sense of the word, not only it’s illiquid in that it difficult to sell, it’s difficult to borrow against, it’s difficult to even know the valuation. What is the valuation of my business? I have no idea. So given lack of liquidity and ambiguity in valuation, the easiest thing is to just kind of mentally ignore it when I’m calculating the value of my portfolio.

Steve Chen (51:23):

Okay. Got it. Yeah,

(51:25):

I mostly do the same things, although in my own financial plan, I started thinking about it a little bit more. Okay. Well look, we’re kind of coming to the end of this. So I guess a couple things. So one question and then one follow-up. So one is, do you see individuals getting more empowered now with the age of influencers like yourself and education, but also ai? Do you think that power is shifting from, because when I look at it, I feel like historically in financial services and money, the power has been with the companies and less with the people. I’m curious if you think that is changing.

Paula Pant (51:59):

I absolutely do. And I actually think that this trend started all the way back in the nineties. I mean, think about just the advent of index funds. It used to be that most people who wanted to diversify their investments had to buy actively managed mutual funds. If you look at the history of index funds and how they’ve grown in popularity over the past several decades, I think that by itself really highlights how the story of people saying, we don’t want gatekeepers and we don’t want decision makers. We want what is an index fund? An index fund is functionally in a sense, it’s a direct access to the market. It’s removing the decision-making middleman so that you can just mirror an underlying index. And that by itself, I think is really an act of taking power back from this class of financial managers who said, to trust us to make the decisions. You’re saying, no, we don’t want to trust you to make the decisions. We trust ourselves and we trust the market and we’re just going to, we ourselves are going to trust the market. We are choosing to trust the market and not have your thumb on the scale. And so, yeah, I think that the empowerment goes all the way back to then.

Steve Chen (53:23):

Yeah, no, I agree. It’s a key starting point. I mean, Vanguard, Jack Bogle with index funds and aligning individuals with Vanguard and driving fees down changed the industry. Schwab changed it with, you can trade. Robinhood changed it with free trade. It’s not totally free. But

Paula Pant (53:43):

So

Steve Chen (53:44):

Yeah, things changed. I think AI is going to be material for people. I think it’s going to really empower them. Alright, well look, as we wrap up here, Paula, anything you want to share with our audiences in terms of good resources they can go to and kind of things they should look into as they try to further their own personal finance journey?

Paula Pant (54:00):

Oh, I have a free handout for anyone who’s interested. It’s afford anything.com/f I-R-E-F-I-R-E. It walks through the five pillars of financial, the double I fire, and there are kind of boxes where there’s sort of prompts that invite reflection and boxes where you can reflect on some of the ideas that are in there, reflect on how you want to apply it to your own life.

Steve Chen (54:27):

Awesome. So let’s forward anything.com/ FI, ie.

Paula Pant (54:32):

Yes, they

Steve Chen (54:32):

Can find it.

Paula Pant (54:33):

Yes.

Steve Chen (54:33):

Okay, cool. Well, look, Paula, thanks for joining us. This has been really good conversation. I love hearing about how you’ve evolved from blogging to podcasts to YouTube. And I also love diving into AI and how it’s affecting personal finance and the economy overall. So for everyone listening, thanks for listening. All reviews are welcome. Hopefully you check us out at Bolden and also check out what Paul’s doing at Ford, anything. So with that, thank you and Paula, and thanks for taking the time.

Paula Pant (55:02):

Oh, thank you so much.

The post Podcast 105: You Can Afford Anything, but Not Everything with Paula Pant appeared first on Boldin.

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