In Episode 2, I discuss my 4×4 FIRE framework for methodically planning, building, and protecting financial wealth/independence. Centered around earning, saving, investing, and protecting, my framework is simple and manageable yet comprehensive.
What you’ll learn in this episode:
- Why an IKEA showroom illustrates how important it is to have a strong, clear FI framework
- My 4×4 framework for achieving and protecting financial independence
- Why my 4×4 framework is simple and manageable yet comprehensive in breadth
- How content I publish on HYW is connected to my 4×4 framework
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Links mentioned in this episode:
- Get my 4×4 FIRE framework as a 1-page cheat sheet
- Schedule a private 1:1 consultation with me
- HYW private Facebook community
Read this episode as a post:
Okay, thanks for tuning into Episode 2 of the podcast.
Today I’m going to cover my 4×4 framework that I use and evangelize for building and protecting wealth and for achieving FIRE. That’s financial independence, retiring early, for those who are unfamiliar with the lingo.
I’m going to give a very high level overview of my framework and each of these components but I’m not going to spend a ton of time in this episode deep diving on each component and tons of details. That’s what future episodes will be about.
But think of it as a roadmap or a checklist for how to methodically plan and optimize your personal finances in a structured way.
You could be optimizing the framework your whole life, so to make sure that it’s not overwhelming, I’ll offer some tips on how to prioritize and sequence things so that it’s manageable and you’re always working on the biggest bang for buck area.
Before we jump in, I want to just mention, there’s no need to write down anything or take notes if you’re listening on a commute or on a jog or you’re just not in front of your computer.
Head over to hackyourwealth.com/2 to grab my freebie one pager cheat sheet that I put together that spells out the framework in detail so that it’s easy for you to reference later, and so that way you don’t have to worry about writing things down or missing something just because you’re on a podcast.
Alright, finally, I wanted to mention, before we jump right in to the meat of today’s episode, I want to invite you to join the HYW Facebook group, you can get there at hackyourwealth.com/fb.
And it’s a way for us to connect to have a two way dialogue. I’m in there every single day and I try to respond to every single question and every single comment there.
And it’s a place to ask about financial independence and early retirement, get information about tax strategies and real estate investing, and side business income, online income, career transitions, and just ask for advice about things that you’re thinking about or things that you’re struggling with when it comes to personal finance.
I will certainly be there answering questions but there’s also a growing community there as well who have their own experiences that can also lend their thoughts and advice as well.
So definitely encourage you to check that out: hackyourwealth.com/fb
Okay, I want to just start today’s episode by telling a small story.
Soon after I graduated from school, I was about to start my new job, and like many new grads, I went to IKEA to buy furniture for my new apartment.
I needed a bed and I saw I walked into the showroom at IKEA and I saw a nice looking bed there. I thought looks good. Price seems good. Right size. Okay, I’ll buy it.
So I went to the pickup aisle to find it. And it in like in this long, slender box.
And I think I just irrationally thought that it would be assembled already. Although anybody who buys IKEA furniture knows that you have to put it together yourself.
And so I bought it, I took it home, I spilled out all the pieces. And immediately I felt a bit overwhelmed.
There were lots of little different boards and panels and just little pieces and slats and six different size screws.
And I was afraid what if I lose one, will that mess up my bed?
And I thought this looks like a lot of work, to turn it into what I saw in the show room earlier.
Maybe I should just hire someone to do it, so I don’t have to spend the time – like maybe I should just get a task rabbit or something like that.
But then I flipped open the manual.
And I saw that the time burden required to put together the bed was 30 to 45 minutes, that all the tools needed were included that was written in the manual, so I wouldn’t have to buy any new screwdrivers or anything, or dig something out from my small set of tools.
And there were picture based instructions with steps that were clearly numbered. So there was no text language that I had to read. And the pictures were like drawn in a cartoony way to make it seem simple and easy.
It wasn’t that easy, but it was straightforward. And the user friendliness of that assembly manual gave me the little boost of confidence I needed to just roll up my sleeves and dig in.
I remember feeling that little boost of confidence after I looked at and skimmed the manual for 10-15 seconds and thinking, that’s interesting. That a written paper instruction manual like that can flip an emotion so quickly, from looking over at all the bits and pieces and feeling like “Oh man, this is going to take a lot of work” to spending 10 seconds looking at the manual and then thinking, “yeah, I got this, I can do this.”
The IKEA manual writers should really get prizes for dumbing assembly instruction manuals down to my level.
But I remember reflecting why I felt that subtle shift in emotion that made the difference.
And it’s because the manual was straightforward and clear what I had to do, there was a step by step process laid out, it was simple to understand. They wrote the manual, just with pictures, no actual text. So you didn’t even need to speak any language to understand the steps. And it was time bounded, it explicitly said the time burden was 30 to 45 minutes.
So I had a reference point that if I was taking much longer than that, for instance, then something was probably off.
I felt I wouldn’t flail around for too long and that I would have my assembled product literally within an hour if I just followed the steps.
And in fact, 40 minutes later, I was standing in front of my brand new bed.
So I tell this story because while it’s a small trivial example, it really emphasized to me this notion that frameworks are really important.
Having a clear framework and roadmap, that’s the IKEA instruction manual, really helps shift your mindset and confidence.
This is especially true for actual complicated topics like personal finance and portfolio management, which often have a lot of moving parts.
And a good framework helps give you the clarity to take actions with confidence and decisiveness.
So when it comes to managing your money, well, you need that clarity to know what to do and when to do it and how to get the results.
A good framework is going to give you confidence so that you don’t easily second guess yourself. And gossip and peer influence, chatter from your friends doesn’t get to your head.
And you can observe and learn from peers in an intentional way, cherry picking the advice and the tips that you believe are right without being unduly influenced by them.
And in that way, you’re more in control of your situation and your mindset.
And so a good framework lets your mind rest at ease because you know to trust in the process because you know it works.
And you know that even if there isn’t an immediate overnight transformation – which doesn’t happen by the way, when it comes to personal finance, personal finance is really about slow and steady wins the race and building up wealth and compounding over time – but having a good framework will help you internalize that if you just stick with following the steps you will move concretely toward the transformation that you want and it will come.
Finally, a good framework gives you a concrete timeline and deadlines and it time bounds things, just like the IKEA manual, so that you can both set time bounded goals and track your progress against it.
And that makes the process you’re working toward real and concrete.
Because, again, it’s time bounded, and you know what you can expect within a certain timeframe, if you just stick with the steps.
So if you walk away with nothing else from today’s episode, the main takeaway I want to kick things off with is: having a framework or a roadmap that is clear, straightforward, time bounded and lead you always with the end result in mind is the key to success in personal finance, as it is in many hard things in life.
And succeeding in personal finance to massively grow your wealth is one of those hard things.
It’s anything but easy, but a good framework can make it achievable by anyone who’s willing work hard and trust the steps and follow the framework.
Okay, so with that in mind, it’s probably no surprise that today I want to talk about frameworks and specifically my framework: the framework that I use and still use to this day to massively grow and manage my own wealth.
And I call it the 4×4 fire framework for creating and protecting wealth.
I say 4×4 because there are four main pillars to the framework and underneath each main pillar, there are four sub pillars, so 4×4.
The main pillars are earning, saving, investing and protecting: earn, save, invest, protect.
Earn is about increasing the inflows of money into your portfolio, mostly from your labor in the early years, but over time will also include things like real estate and portfolio investments and side hustles, etc.
Saving is really about reducing the outflows of money, focusing on biggest expense categories and ways to cut down expenses where it makes sense without having to be a hobo frugal college student all over again
Investing is about increasing inflows of money into your portfolio based on your assets. And so this is heavily about retirement accounts and specialty accounts, and making sure you choose the best account structures to fit your goals and get the lowest taxes and fees possible.
And finally, protect is about preserving your wealth through insurance, figuring out the right types of insurance and how much to buy, as well as legal protections in terms of estate planning.
Now, if you follow HYW, or follow this podcast, you’ll start to notice that everything I do on HYW fits under one of these main pillars.
They’re always about some topic under one of these major pillars.
Now let’s double click on each of the main pillars to get to the four sub pillars underneath each one.
Under the earning pillar, there are four main ways to increase inflows of money.
One, your job or your own business.
Two side hustles.
Three real estate and the associated complexities around mortgage debt, we’ll talk about that.
And four, investing or managing your own investment portfolio, so things like stocks and bonds.
By the way, again, don’t feel like you need to write any of this stuff down.
Just focus on listening for the big picture first, and then you can go to the show notes for this episode, hackyourwealth.com/2 to download a free cheat sheet I created that lists the framework out so that you can reference it later.
Okay, so that was earn.
Under the save pillar, we also have four sub pillars.
One: strategies for hacking your big expenses in life. For most people, that’s going to be housing, food and transportation.
Now, I generally don’t spend a ton of time here unless you’re lavish spender, I prefer to spend more energy on figuring out ways to increase your earnings.
And that’s because, you know, there is a limit to how much expense you can cut before you really start to feel a pinch.
But there’s no limit theoretically to how much you can earn.
Now that being said, it is worth looking at the biggest expense categories and seeing if they can be optimized, specifically housing, food and transportation, because that’s where you’re going to get the biggest bang for buck.
Second sub pillar is around strategies for lowering taxes. Typically, this is going to be your biggest expense, even more than housing, food and transportation. And there are lots of ways to optimize things so that you become a lot more tax efficient.
Third sub pillar under saving is strategies for saving a ton of money on travel. This is really about being methodical with credit card travel point hacking. As you’re spending money day to day anyway, you can actually turn that spend into travel loyalty points that make you money. A lot of it. And for doing nothing more than spending on expenses you were already going to spend.
And the last sub pillar under saving is around strategies for saving on education. This is aimed at families with college bound kids. Everybody knows that university education today is very expensive.
Public in state 4 year university tuition, room, and board is going to run you about $21,000 a year. Private schools are almost $50,000 a year. And if you’re just having a kid today, in 18 years in state college is going to set you back $52,000 a year while private universities are going to set you back $117,000 a year based on projections.
So college is definitely very expensive, expensive and you have to prepare for that. And yet there are some key strategies for being efficient about reducing the cost of higher education for your kids and being tax efficient and getting more financial aid.
So a lot of this sub pillar is about understanding tax rules and benefits around saving for college, and rules and strategies around filling out the FAFSA application, which is the federal student aid application, and around applying for competitive scholarships, and some newer fairly unorthodox strategies we’ll get into later on on this topic.
Okay, third pillar is invest. This is really about how to be tax efficient with your investments. I’m not going to give you advice about what investments to pick, what’s going to give you the best return, I can’t give you stock picking advice. But instead, this pillar is really about how to do asset allocation, how to rebalance, how to tax loss harvest, and how to strategically utilize the different account vehicles available to you.
So the sub pillars here are: taxable accounts, tax deferred accounts like 401ks and IRAs, tax free accounts like Roths, and special purpose tax advantaged accounts. Like HSAs and 529s, etc.
So there’s a big component on account types here. Again, the four sub pillars are: taxable, tax deferred, tax free, and specialty.
And we’re also going to talk about strategies for how to to link these accounts in such a way that you can ladder over tax deferred money into your tax free account so that, over time, even your tax deferred savings just totally become tax free.
Now, if that sounds confusing now, do not worry, we will get to gory details on a future episode and it’ll become clear.
Finally, the last pillar is protect.
So this is really about insurance and legal.
And the major sub pillars are about:
One: life and disability insurance.
Two: picking the right health insurance options and becoming good at parsing health plans in an apples to apples way.
Three: picking up property insurance like homeowners insurance, auto insurance, maybe even umbrella coverage insurance. We’ll get into detail on what all these different types of insurance are and how they’re different.
And the last pillar is estate planning: setting up wills, trusts, even prenuptial agreements if you’re contemplating that.
Everything you need to know for strong, effective asset protection.
You’ve worked hard, right? So you probably want to make sure that your assets are shielded as much as possible, and that your estate planning legal documents reflect your intentions.
Okay, so to recap, the four main pillars: earn, save, invest, protect.
And the sub pillars underneath.
Under earning it’s: your job or small business, side hustles, real estate and portfolio investing.
Under save, the four sub pillars are: your three big expenses housing, food, transportation, then taxes, then travel hacking, saving on travel, and finally saving on education costs for your kids.
Under the invest pillar, the four sub pillars are: taxable accounts, tax deferred accounts, tax free accounts, and specialty accounts.
And finally, under protect, we’re talking: life and disability insurance. Second, health insurance. Third, property insurance. And finally, estate planning.
So if you’re feeling overwhelmed about the number of things on the list, don’t be.
The framework is meant to be comprehensive in its coverage over every aspect of your financial life. But it’s actually quite simple and manageable.
Because individual items in the framework are applicable at different moments or ages in your life.
They don’t all land at the same time.
So for example, you know, thinking about college education and setting up a 529 plan, those are only relevant once you have a family, setting up a will or a trust, and buying all kinds of insurance tend to be things that become important when you have family, maybe less so when you when you’re a bachelor.
Although there’s certainly no harm in setting up some of that stuff, even when you’re younger.
Things like building up your portfolio assets, maybe starting to do some real estate investing, those things can come earlier, maybe when you’re single.
And so you can tackle different things at different times.
Starting out, you’ll only have a couple of things in the earnings bucket, and maybe some early wiggles of activity in the investing bucket. And maybe that’s about it.
But as you earn more and get older, then new things will get added to the mix. So the point is, you can focus on the here and now and optimize for the things that you should be thinking about now, or that are coming in the near future.
And then just be thinking about and be strategic about the farther out aspects of the framework so that you’re aware of them and can plan for them when the time comes.
Finally, once a pillar or sub pillars in the framework become relevant in your life, then you should actually be looking at them and evaluating them regularly, say quarterly, or at least at a minimum, annually, to make sure you’re on track and you’re making progress against your goals.
So hopefully this gives you a good high level sense of the framework that I use for being methodical about growing and managing wealth. The content and knowledge I put out on HYW typically again falls under one of the pillars or sub pillars.
And so usually the topics I come up with relate in some way to one of the 16 sub pillars.
And so now you can look at the framework and see maybe which pillar I’m addressing when I come out with a new piece of content.
Again, be sure to grab my freebie for this episode, I created a free cheat sheet for summarizing this framework for you so you can download it and easily reference it on one page later, and you can grab that at hackyourwealth.com/2.
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All right, thanks for tuning in. Next week, I’m going to do a deep dive and talk about how 401ks work in detail.
It’s not going to be a beginners episode, we’re going to deep dive on some advanced topics, so you won’t want to miss that.
Be sure to tune in next time to get the lowdown and bye for now.
Be sure to check out my podcast episode on building wealth using a Roth ladder (save, invest pillars).