Interview with a Savings Expert: Todd Tresidder

Todd Tresidder knows a thing or two about managing money. In fact, he was actually able to retire in his 30s and based his website, Financial Mentor, on his experiences in the investing world. This money expert thinks the entire wealth building process can be summed up in one sentence. Read on to find out how you can get out of debt and grow your wealth.

On your website, Financial Mentor, you’ve provided a forum for people who want to work towards financial freedom. What initially gave you the idea to create the site?

When I “retired” at age 35, many people wanted to know how I did it. They were asking questions, and I was somewhat “stand-offish,” providing flippant answers to get away from the subject because I really had no way to communicate the whole picture. The problem was, everyone wanted a sound-bite answer as if wealth building done right could be explained in a conversation over a cocktail. It’s not horribly complex, but it’s not that simple either, so I just avoided the conversation.

This was all happening back in the late 1990s when the stock market was raging and everyone wanted hot stock tips. Nobody wanted to hear about the necessary steps to form the financial foundation on which wealth is built brick-by-brick.

One day, my wife challenged me to do something with the specialized knowledge I had developed, since my approach was unique and contrary to popular belief. So Financial Mentor all began as an experiment to see if I could actually help people who wanted to improve their financial lives and achieve extraordinary financial results. Once I started getting feedback from people about how my ideas helped them, then it became addictive and I’ve been building the site ever since.

You write a lot about valuing happiness and fulfillment over having material things. Unlike some money experts, you don’t lead a lavish lifestyle with mansions or expensive cars. People who overspend often suffer from what you call “Mindless Consumerism.” How can people get out of this vicious cycle and work towards achieving personal satisfaction?

You have to become clear on what really brings you happiness. One of the happiest periods of my life was sharing a tiny one bedroom apartment in college with three really great buddies. We were dead broke and had a blast together. It was all about friends, experiences, growth, and learning.

Compare that to a subsequent period in my life where I had more money than I needed but was unhappy and the contrast was striking. The result is I learned firsthand that a life well-lived is about experiences – not stuff. You need enough money to take advantage of those experiences, but the scarcer commodity is having the time, health, and friends to enjoy those experiences with.

The academic research into money and happiness has come to similar conclusions to what I lived personally. It’s really common sense when you think about it. The more enamored you are with more/better/different stuff, the more difficult it will be to achieve wealth since you will always prefer consumption today over saving consumption for tomorrow (which is how wealth is built). In other words, it’s really a question of “What do you value more?” Do you value stuff or do you value the freedom to live your life as you choose? The choice is literally that simple.

You mention that all the advice you give comes from experience. Considering you were able to retire at 35 and are a self-made millionaire, you are definitely proof that your methods work. What is a piece of financial advice that you wish you had learned early in your career?

Actually, it’s funny because I got most of the principles right early in my career and then I managed to make a lot of mistakes later that forced me to relearn things over again at a much deeper level the second time. For example, the first principle of wealth is to spend less than you earn and invest the difference wisely. During my early career, I did that right by saving nearly 70% of a very sizable income and investing it with great discipline.

After “retiring,” I then proceeded to earn no income plus I got married and had kids which caused me to spend more than I earned at certain periods causing significant financial setbacks that weren’t necessary. Also, my investing was more disciplined in my early career, but I broke those disciplines on a couple of occasions later which also caused financial damage.

Besides those late career mistakes, the thing I wish I had better understood from the beginning was the different characteristics of the different asset classes - businesses, paper assets, and real estate – so I could have implemented them with greater wisdom earlier in my career. I think I would have invested differently early in my career had I better understood certain long-term investment income strategies.

Your article, “Gambling vs. Investing,” brings up a feeling that many people have about investing; sometimes it can feel like you’re blindly throwing your money into a system you don’t know much about. What are a few common ways in which people end up making bad investments?

To answer that question, we first have to make a distinction between asset classes. The process of investing in a business is completely different from buying real estate which is completely different from paper asset investing done right. For example, the gambling vs. investing article specifically focuses on paper asset investing which is properly implemented as an actuarial process. It is driven by numbers and statistical research into expectancy modelling. Most people think it is about “picking a good investment” to try and find the next Microsoft or Google in its infancy, but that doesn’t work and all the research proves it. Paper asset investing has nothing to do with common sense, business smarts, or intuition. It is mathematical in nature.

The opposite is true of real estate where common sense, business savvy, and intuitive insights can serve you well. In short, you have to understand the specific characteristics of the asset class and market you are investing in to understand the correct strategy so that you avoid the obvious mistakes.

You have a whole series of books where you’ve covered financial topics like hiring a financial coach and working with variable annuities. In your book, “How Much Money Do I Need to Retire?”, you write about how people struggle to calculate the exact figure they need in order to retire comfortably. What are some common mistakes people make when preparing for retirement?

Procrastination is the biggest mistake most people make. In a nutshell, you have two primary resources to work with when building wealth for retirement – money and time. When you delay saving for retirement you literally throw away the “time” asset. The problem is, time is the easiest path to retirement because you can just compound your way to your goals on auto-pilot. But a small amount of procrastination like starting just 7-10 years later can literally halve your total savings. It’s a big deal.

Another huge mistake is not understanding how the retirement planning process works. People believe what I call the “magic number” myth as if there is a mythical, magic number that represents how much money you need. Most people don’t understand how that number is nothing more than a mathematical projection of a bunch of assumptions that have almost no likelihood of being true in the future.

In fact, there are actually two numbers that are so important to the projection that if they are incorrect by just 1-2 percentage points they can cut your estimate in half or quadruple it making the whole process meaningless. There are solutions, but you have to understand how it works at a fairly deep level so you know how to work with it constructively. That is what the book explains.

A great feature on your site are the Financial Calculators. It’s pretty helpful to have these tools to figure out savings, budgeting, and how to pay off debts. It seems that some of these tools could be taught in schools, and yet, few educations contain any kind of financial lessons. Are there aspects of financial management that you think should be taught in schools?

Absolutely! Knowing how credit works and what it means to spend your future earnings today (thus increasing debt for tomorrow) should be required learning. Anyone who can fog a mirror must know that stuff in their bones to make proper spending decisions. I also think the time value of money is a principle that must be understood, and how this connects to retirement planning and real estate is essential as well. I could go on and on, but credit and time value of money would be a good foundation to start with for anyone coming out of school.

Financial coaching is just one of the ways you help people work towards their goals. Have your coaching clients ever given you a great money-saving tip that you’ve gone on to use in your own life?

One popular strategy now is to buy used cars because vehicle quality has improved so much in the past decade - many cars now last 200K – 300K miles. I like to find a car in essentially new condition that is 4-5 years old, has very low mileage (30K miles or less), and all maintenance records. They aren’t easy to find, but with a little patience you can locate one for about 30 cents on the dollar of a comparable new car. You get essentially the same driving experience for about one third the price because you avoid all that depreciation plus you also save on insurance and annual registration as well. If you repeat this process through three cars you can pretty much drive for free for the rest of your life compared to buying new.  

Congrats on being featured in popular publications like “The Wall Street Journal,” “MSN Money,” and “Fox Business.” Are there specific media sources that you turn to for financial advice?

Actually no, I don’t pay attention to any of the popular media. Financial media is essentially in the entertainment business. The content they provide is generally not actionable and lacks sufficient depth and detail to be of any practical use. You’re not going to be able to invest with consistent profitability by following the news of the day, so it is actually just a big time waster. If you want to be entertained then go ahead, but my sources of information are academic research and other in-depth, detailed resources. I haven’t watched CNBC in years, and I don’t subscribe to any conventional financial publications. If I want to be entertained, I just rent a movie.

You often stress the importance of being debt-free. Unfortunately, many Americans face the challenge of paying off huge school or home loans. What is the number one thing people should do to work on paying off their debt?

Raise their income without ever raising their spending. Use all income increases to pay down debt. Yes, you can also focus on saving by reducing current spending, but the problem with that strategy is it forces discipline and reduced lifestyle. Some people can pull this off, but most people have trouble with it. When you increase income and keep expenses constant, it is mathematically the same thing as reducing spending but it doesn’t require as much personal discipline. It is much easier for most people to succeed with.

The other thing is to pull all the money out for debt reduction automatically right at the beginning of the month and force yourself to live on what remains. Never expect to pay down debt with what is left over at the end of the month because you’ll never have anything left over. When you pull the money first then you will always figure out how to get by on what remains – simply because you have to.  

You’ve certainly been a financial inspiration to many people. Thanks for participating in this interview! Any last advice for the CouponPal readers?

Wealth building is remarkably easy. Just spend less than you earn and invest the difference wisely. Rinse and repeat for many years and you’ll end up wealthy. Of course, there is endless detail about how to accomplish these three objectives which is what the educational content on my site explains. It’s just nice to know the overall plan can be summarized in just this one simple sentence. As long as you follow this one sentence you will do well. The rest is details.

Like this interview? Check out the rest of our Interview with a Savings Expert series. Have a question for an expert or someone you want to see interviewed? Tweet your suggestions with #SavingsExperts to @CouponPal!

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