9 lessons from Quit Like a Millionaire
Penned by Kristy Shen and Bryce Leung, Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required is definitely one of the most noteworthy books I’ve read on how to reach financial independence—particularly because Kristy, one of the writers, grew up in abject poverty in communist China, and still remarkably managed to reach financial independence in her early thirties.
As she went through this large spectrum of wealth, she collected a wide variety of experiences (from cherishing a can of Coke for weeks on end, to developing an obsession with designer purses, to retiring at 30 to travel the world with her husband), and she relays all of it in a very relatable and enjoyable narration.
Without further ado, here are 9 lessons I took from her story.
1) Getting rich isn’t fast or easy. It is, however, simple and reproducible.
It’s imperative to understand money to have an easier life, but this doesn’t require extraordinary intelligence or years of education. The basic financial education needed by most can be summarized on a single page.
You don’t really have to figure anything out on your own, or be a trailblazer. You just need to repeat the steps taken by many before you on the way to financial freedom.
As an example, one simple parable she uses in the book is: “Poor people buy stuff. The middle class buys houses. Rich people buy investments.”
She also talks about three types of wealth-builders, based on their approach to the three variables of personal finance: (1) income, (2) investments, and (3) expenses.
The first type, “The Hustler” is exceptional at generating income, but average in saving and investing. The second, “The Investor” is exceptional at investing, but average at saving and generating income. Finally, the third, “The Optimizer,” is exceptional at saving, but average at investing and generating income. She adds herself to this last category, which she argues to be where self-made millionaires most commonly belong, because being a good saver, she argues, is the most mathematically reproducible way to build wealth.
2) Time is far more valuable than money.
At the end of the day, the authors argue, personal finance is (or at least should be) more about freeing time than hoarding money. The best thing money ever does is give you choices about how to spend your time.
While some “hoarding” and a bit of scarcity mindset can be helpful while building wealth (as we’ll see in lesson #3), it’s crucial to move beyond it as soon as possible (after survival ceases to be an issue). Money is there to help you live your best life, not sit in a savings or brokerage account.
You can become work-optional at any age, as long as your yearly living expenses multiplied by 25 equals your portfolio size. (This is also called FIRE, an acronym for “Financial Independence Retire Early.”) However, even when complete financial independence may not be possible for you any time soon, there are other ways in which you could buy some of your time back using some of your current wealth.
Kristy and Bryce suggest considering alternatives to full FIRE, like SideFIRE, PartialFIRE, and geographic arbitrage.
SideFIRE entails a side hustle in retirement, something you can do part time to bring in an income that’ll supplement the income you get from investment portfolio, while PartialFIRE allows you to decrease the hours spent at your place of employment (if that’s available to you) while getting the rest of income from your investments. Finally, geographic arbitrage means moving, if you at all can, to another city/region/country where cost of living is considerably lower.
3) Some fear is useful to build wealth, especially in the beginning.
Kristy argues that her experience growing up in extreme poverty gave her something that has a bad reputation but can be useful while building wealth: scarcity mindset.
“When you don’t have enough of something,” she writes, “it becomes the most important thing in your life. Everything else is secondary.” She thoughtfully adds, “nobody is operating under a scarcity mindset because they want to. They are forced to, because at some point, they didn’t have enough resources, and the scarcity mindset helped them survive.”
(I can really attest to that. The two years I spent with zero income because I wasn’t allowed to work per U.S. immigration rules gave me such intense emotional pain that I became obsessed with the one thing I didn’t have: money. When I finally started earning some, I was as focused and determined as a cat chasing a laser pointer to build wealth quickly and efficiently. Coincidentally, this blog also is a direct result of my obsession with money.)
While there’s nothing pleasant about going through financial trauma, the resulting scarcity mindset can truly be the (somewhat unfortunate) silver lining in the beginning of your wealth building journey.
4) Be strategic about the career you choose.
Our jobs are the main source of income for most of us, which makes career choices central to our financial wealth down the road. That’s why “follow your passion” is advice that’s downright dangerous, as it is also somewhat hollow.
(I mean, who in the world really knows their “passion” at age 18? I am 41 and I still don’t really know if I have one. I have multiple interests and skills, but one passion? That strikes me as an unrealistic quest.)
Instead, the authors of Quit Like a Millionaire suggest what they called a POT (Pay-over-tuition) score to pick a career.
The POT score is calculated by dividing the median salary above minimum wage with the total cost of degree. Let’s say, for example, that you are between social work and pre-med, you can quickly look up what your post-graduation salary is likely to be for each: $80,000 for the first and $250,000 for the second, while tuition figures are roughly $45,000 for the first and $180,000 for the second. (Important note: These are very rough numbers and I only use them to demonstrate this calculation.)
Social work POT score = 80,000—40,000/45,000=0.88
Medicine POT score=250,000—40,000/180,000=1.16
As you can see, the calculation favors medicine over social work by almost 0.3 POT points.
I would add my personal opinion here that while this calculation can be very useful to a high schooler about to pick a major, it is fairly simplistic. For one thing, your major doesn’t directly determine your career outcome. For example, with a Psychology degree, you can become a licensed therapist, a college professor, or a UX researcher at a tech company, which means that your salary may fluctuate considerably depending on your post-graduation choices.
It’s also worth underlining how important it is to keep learning and remain flexible in a rapidly changing world. I thought I was going to spend most of my adult life as a tenured academic in a good university, only to see the job market disintegrate in front of my very eyes as I neared graduation with my Ph.D. It was a stressful and confusing time. Two things that helped me tremendously were my love for learning new things and my ability to sit with uncertainty without freaking out (too) much.
Finally, and crucially, this calculation doesn’t mean you need to renounce what you love in order to fill your pockets with cash, it’s just an invitation to consider being a bit more strategic when it comes to the financial side of things.
5) Avoid debt.
This is fairly common advice but let’s unpack what it actually means.
Debt does three things that are dangerous. First, as Kristy writes, “debt removes the link between time and money.” To explain this, she uses Luca Pacioli’s Rule of 72. This rules states that, if you know the return you’re earning on an investment, divide 72 by that number to find out the number of years it’ll take for your money to double.
Let’s say, for example, that you have some money in a High Yield Savings Account, currently growing at 5%. According to this rule, your money would double in 72/5=14.4 years, provided that the interest rate won’t change. When you are investing money, this rule is your friend, but when you are in debt, it is your enemy as it’ll make your debt bigger and bigger.
The second danger of debt is that it distorts the value of money, making you forget how valuable money is, precisely because it’s a stand-in for the most precious thing we have, time. “By disconnecting money and time,” authors write, “debt screws over your future self.”
The third and final danger is that you become much more vulnerable to systemic injustice and other people’s whims (cough—and stupidity—cough) in general.
6) Watch out for hedonic adaptation.
As your income increases and you feel financially safer, there’s another thing to watch out for: your own tendency to adapt to “having nicer things.”
This doesn’t mean you need to submit yourself to an ascetic lifestyle, renouncing every little purchase that gives you pleasure. It just means that it helps to keep indulgences as relatively rare occurrences in order keep the pleasure we take from them as high as it can be.
We get used to things that once gave us tremendous joy because human happiness is relative. Authors of this book explain that the nucleus accumbens, the part of our brain that plays a key role in reward and pleasure, reacts both to “the presence of a positive stimulus and the expectation of that stimulus.” In other words, the pleasure we feel is dependent on not just how great the treat is but also how low our expectations are.
As we inflate our lifestyles, we run the risk of mismanaging the change in our expectations, and end up with a bunch of things that not only don’t enrich our lives but also stress us out with the upkeep they require.
7) Owning your home is not necessarily an investment.
Home ownership is a central part of the American Dream, but that dream itself doesn’t really exist any more, so the importance of owning one’s home needs to be questioned. In fact, in almost all high cost-of-living areas, it makes no sense for most people to buy a house.
Inviting everyone to question their assumptions about home ownership, authors of this book remind us that owning a house costs way more than its purchase price. There are fees involved in the purchase, you have to buy insurance, a house requires a lot of money to maintain, and last but not least, selling a house can be costly as well.
“Something about housing makes people insane,” they write, “even rational people like my parents turn into debt-accumulating monsters.” In reality, however, it’s far from being a good investment for you—in fact, it’s a much better investment for everyone else involved in the process, such as brokers, insurance companies, and banks.
For those who look for a simple calculation, they suggest the rule of 150: if 150% of your mortgage is going to be higher than your rent, it makes sense to rent. Otherwise, it makes sense to buy.
8) Invest in index funds.
This also is common advice, particularly amongst Financial Independence communities, but let’s dig a bit into what it means.
To put it in simple terms, an index fund is a basket of stocks that tracks a certain part of the market. Most famously, for example, the S&P 500 fund tracks the value of 500 largest corporations in the United States. It has two main advantages: (1) low percentage fees that won’t eat into your profits and (2) lower risk because you’re investing in a bunch of corporations rather than just one.
An index fund typically charges 0.04 percent in fees—this is 25 times less than an actively managed mutual fund that charges 1 percent in fees. This means that you pay exorbitant amounts to people in Wall Street who do worse than the market 85 percent of the time. (Yes, an individual investor can beat the market only about 15 percent of the time. Plus, they don’t even explain to you how they manage your money. No, thank you.)
This is especially important because fees are sneaky and you don’t even feel like you’re paying, but you not only are very much paying, the fees you pay compound with your investments, eating into your wealth.
Re: risk management, an index fund takes care of some risk by definition because you’re betting on the overall performance of the market rather than of any particular company. In the analogy that authors make, index funds allow you to bet on the casino.
9) Use tax loopholes (legally).
Two useful concepts to start thinking about the impact of tax on your money are (1) tax shelter and (2) tax deferment. Tax sheltering means putting your money in a place where taxes no longer apply while tax deferment means that you are delaying paying taxes on your money until a later date.
As far as retirement accounts are concerned a 401(k) is a tax-deferred retirement account whereas a Roth IRA is a tax-sheltered one. All this means is that your contributions go into a 401(k) without being taxed, and you’ll pay taxes on that money (and any interest it accrued) when you choose to withdraw your money. For the Roth IRA, on the other hand, your contributions are already taxed but your money grows tax-free, so you don’t have to pay taxes on any interest you accrued when you withdraw. Both accounts provide tax advantages that you should take advantage of. Plus, 401(k) accounts provided by employers often come with a match up to a percentage point, which is essentially free money and should absolutely be taken advantage of first.
Beyond that, what account you choose depends on the tax brackets you’re in. If you currently are in a lower tax bracket, it doesn’t make too much sense to defer your taxes for later, so you can start with a Roth IRA. If you’re in the higher brackets, it makes sense to fund your tax-deferred accounts (like a 401(k)) first.
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Quit Like a Millionaire is as inspiring as it is educational. Highly recommended it if you want to hear a relatable story of someone who overcame the odds, reaching financial freedom despite the systemic issues stacking the cards against her.
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