Richard Wessman Kimi — Hawai’i Aloha Travel

Rich Dad Poor Dad – the personal finance book to end all personal finance books. With over 40 million copies sold across its lifetime there can be no denying this book’s influence both for the finance book-reading population and even further beyond.

What is Rich Dad Poor Dad About?

For those of you who haven’t read it, Rich Dad Poor Dad is a semi-autobiographical book written by an entreprenuer, Robert Kiyosaki, who grew up with two fathers. Poor Dad, his own father and Rich Dad, his best friend’s father. Poor Dad and Rich Dad held contrasting views on every personal finance topic. 

Poor Dad said, “the love of money is the root of all evil.” Rich Dad said, “the lack of money is the root of all evil.” Poor Dad said, “study hard so you can work for a good company.” Rich Dad said, “study hard so you can buy a good company.” Poor Dad said, “I’m not interested in money.” Rich Dad said, “money is power.”

Click here for a full review of Rich Dad Poor Dad.

Does Rich Dad Exist?

Over the years, many doubts and controversies were raised regarding Rich Dad Poor Dad. Chief among these concerns is a persistent question: Who is Rich Dad?

While Robert Kiyosaki was incredibly forthcoming of Poor Dad’s identity (one Ralph Kiyosaki), the identity of Rich Dad was kept carefully – perhaps suspiciously? – under wraps. Many influential figures in Robert’s life were proposed to be Rich Dad. Buckminister Fuller, Robert’s mentor who he mentioned once in a TedTalk. Marshall Thurber, Robert’s teacher at the start of his motivational speaking career in the Your Money and You series. Keith Cunningham, Robert’s long-time supporter and good friend. However, none of these men were a good match, they were in turn too young (Cunningham), too socialist (Fuller), or of a mismatched background (Thurber). As a result, speculators were left with two possible conclusions:

1 – Rich Dad was a combination of a number of different mentors. Closer to a fictional figure invented to convey a message than a real person.

2 – Rich Dad is someone else entirely, undiscovered and unknown to the public.

For a long time, just about everyone assumed that #1 must be true. The case was not helped by Robert Kiyosaki when he himself said in a 2002 interview with Smart Money Magazine, “Why don’t you treat Rich Dad like Harry Potter?”

Rich Dad is Fictional, Got It … Or is He?

The first time Richard Wessman Kimi was brought up as a potential candidate for Rich Dad was on February 2nd 2009 by honluluadvertiser.com. It was an article commemorating his life in the light of his passing on December 19th 2008. “Richard Kimi also enjoyed teaching and sharing his sales, marketing and business knowledge,” so said the article. “One of his students was Robert Kiyosaki, author of the “Rich Dad, Poor Dad” books, who based his original ‘rich dad’ on Kimi, Alan Kimi said.”

Years later on May 4th 2016, Alan Kimi appeared on the Rich Dad Radio Show. During this broadcast it was revealed that the Kiyosakis and the Kimis had a confidentiality agreement that ended with Richard Kimi’s passing. Alan Kimi, the son of the late Rich Dad and “Mike” from the Rich Dad Poor Dad book, stepped forward to explain the kind of man his father was and the impact he had on the two children.

Richard Wessman Kimi – the Man Behind Rich Dad

Richard Kimi was born on Febrary 3rd 1925 as the son of Territorial Senator William Kimi. Being an American of Japanese descent, he enlisted in the military following the attack on Pearl Harbour. Kimi was promoted to sergeant at 19, making him one of the youngest sergeants ever. After the war ended, Richard Kimi returned to help with the family business which sold surplus army supplies.

Noticing it’s downward trajectory, the young Richard Kimi pivoted from selling goods to construction. He and his brothers built Kimiville, a venture intended to provide affordable housing to those in need in Hilo. In the mid 1950’s, Richard Kimi spotted an opportunity.

There were many tourists coming Hawaii now that the war had ended. The more affluent ones arrived by plane and most of the existing hotels catered to them. Middle class tourists arrived as well by boat and were in need of a budget-friendly option.

“He always thought five to 10 years ahead,” Alan Kimi said of his father.

And so it was. Richard Kimi recognized the incoming post-war prosperity, and with it, a boom in the tourist industry. In 1956, amidst a crowd of naysayers who told him he was crazy, Richard Kimi scraped together all his savings and all his knowledge in construction to build his first ever hotel: the 30-room Hotel Hukilau.

Richard Kimi’s hotels quickly took off. The hotels were always full and Kimi was kept busy hauling luggage, cleaning, booking, and running the hotel as a one-man team. His hotel chain expanded in due time, from Kona, to Maui, to Kaui’i. His biggest purchase being the old Waikiki Baltimore hotel, today sold to Hyatt Regency.

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The post The Real Rich Dad appeared first on TheWeFIRE.

Photo by Tim Marshall/Unsplash

When it comes to financial independence and early retirement, there is no one-size-fits-all. For some people, their income simply isn’t high enough for traditional FIRE to be practical. For others, they enjoy working and don’t feel the need to scrimp and save in order to retire early.

If you feel traditional FIRE is too draconian or if you don’t mind retiring in your 60’s, coastFIRE is your ideal path to retirement.

What is CoastFIRE?

CoastFIRE treats saving for retirement as a task on a financial to-do list. Once you’ve reached your coastFIRE number, you no longer need to save for retirement; you just need to earn enough to cover your monthly living expenses. You can trust your nest egg to grow on its own so you have enough to retire just as you hit your desired retirement age.Your coast FIRE nest egg allows you to put all your focus into living well as you “coast” to retirement.

CoastFIRE in Practice

Just as with traditional FIRE, your coastFIRE number depends on your retirement age and your expected retirement income. Where it differs is in how your savings rate and current age impacts your coastFIRE number. The more aggressive and the younger you are when you start saving, the lower your coastFIRE number will be.

Why is this?

Since its inception, the US stock market has returned an annual average of 10%, or a real return of 7% adjusted for inflation. By investing in a broad-based index fund like Vanguard’s S&P 500, investors can capture the average return of the stock market without the risk of stock picking.

Coast FIRE leverages compounding to make retirement not just achievable, but downright easy.

As we can see from the chart from Walletburst, the sooner you start, the less you need to save.

These numbers are very conservative. This chart assumes…

• 8% growth rate — the average annual return you’ll get if you began at the height of the 1920’s stock bubble
• 3% inflation, which gives us 5% real investment return
• 3.5% safe withdrawal rate — 4% withdrawal rate is considered safe by finance professionals
• 67 desired retirement age. 

Let’s have a look at what you’ll need to save to retire with $50k in annual income, given these conservative values. In that case we’re looking at… 

$159k at 22

$193k at 26

$235k at 30

$383k at 40

Something to Note…

As you near retirement, it’s advisable to gradually shift your investment portfolio from 100% stocks, which the chart assumes, to a more conservative stock and bond split of perhaps 70% stocks 30% bonds. This protects your investment from short term market fluctuation, as your time horizon shortens. 

Aside from this element, there is also the matter of homeownership. In today’s housing market, many young coastFIRE enthusiasts may be forced to choose between a 20% downpayment on a home or their coastFIRE nestegg. Due to the benefit of compounding, we advise young people in this position to prioritize coastFIRE over homeownership.

Your Personal CoastFIRE Number

As mentioned, your CoastFIRE number depends on the following factors:

• Your Current Age
• Your Desired Retirement Age
• Monthly Contributions
• Annual Investment Growth Rate (5%-7% conservative market returns after accounting for inflation)
• Annual Post-Retirement Spending
• Safe Withdrawal Rate (generally set to 4% according to The Trinity Study and Bengen’s 1994 Paper)

There are a slew of coastFIRE calculators/calculation methods available online. We encourage you to explore and compare the ones from Walletburst, Marriage Kids and Money, and the compound interest calculator from Investor.gov (to find the “length of time in years” subtract your current age from your desired retirement age).

Your coastFIRE number is dynamic and personal so we also encourage you to revisit these calculators as you near retirement and your career progresses.

Who is CoastFIRE Suitable For?

By all accounts, coastFIRE is suitable for everyone. No matter your age or profession, coastFIRE is always a worthy goal to pursue. However, if you fall in one or more of the following categories, coastFIRE may just be your ideal path to retirement:

You are in your 20’s — As the chart makes very clear, CoastFIRE favors the young. If you’re willing to spend your 20’s (and perhaps 30’s) renting with roommates, driving second-hand, not eating out, and working full-time, you could very well have your retirement won and done before you find a spouse and have children.

You have frugal fatigue — CoastFIRE is also excellent for FIRE enthusiasts who are going through frugal fatigue. It’s oft repeated that the FIRE lifestyle isn’t for everyone. There’s no shame in realizing that five years into counting pennies and relying solely on public transportation that you don’t want another fifteen years of the same. People in this position are likely to find that while FIRE is still a while away, coastFIRE is much closer at hand (or even has already been achieved!).

You enjoy work — No matter how much we long to lounge by the beach without work or responsibility, keeping occupied and busy is vital for general health and wellbeing. Early retirees often report staying in their jobs with better hours, downsizing to a low paying but more enjoyable job, or leaving their position to start a business. There’s no reason why you can’t do the same after costFIRE.

CoastFIRE vs Traditional FIRE

Broadly speaking, the different degrees of financial freedom can be laid out accordingly:

1. Debt Free: 

The average American has $104,215 worth of debt across student loans, car loans, credit cards, and mortgages (business insider). However, not all debt is created equal.

Generally speaking, if you have debt with an interest rate of >7%, you should pay it off ASAP. This is because the US stock market has an average real return of 7%. If your debt interest is higher than that, then investing is at best HIGHLY risky and at worst getting yourself deeper in debt.

Once you’ve paid off all high interest rates and all non-productive debt (debt like your mortgage that increases your net worth), you can move on to the next tier.

2. Normal Retirement:

According to data from the Federal Reserve, in 2024 only 67% of Americans have retirement savings and of that number, 34% report feeling that they are “on track” for retirement. Getting on track for normal retirement can require a lot of work and sacrifice, especially as you near retirement age.

Being “on track” also means meeting a certain minimum in financial health, for instance having an emergency fund.

3. CoastFIRE:

This is the next rung up from “normal retirement,” that being, having enough savings to retire in your 60’s, given average stock market returns. While coastFIRE is achievable for the average American, it is more time sensitive than normal retirement and requires greater effort earlier on.

4. Traditional FIRE:

To achieve FIRE, you must be able to fully cover all your living expenses through passive income streams. This means stock investments, real estate income, bond yield, and more. Whatever the means, reaching FIRE means reaching a point where you no longer need to work to live.

Most people get a rough estimate of their FIRE number (how much money they need to be financially independent) using the 4% rule. If your annual expenses make up only 4% of your total investment (aka you’ve invested 25x your annual expense), you’ve achieved FIRE.

As you move up the scale, you become more financially free, but the effort and time it takes to reach the higher tiers also increase. CoastFIRE sits at the compromise between normal retirement and full FIRE.

Once you have reached coastFIRE, there’s no need to put more money aside for retirement any longer (but you definitely still can!), you have the good savings and financial habits of a FIRE enthusiast, and you overall have more flexibility and choice in how you spend your money. Saving for coastFIRE is better than saving for normal retirement in this way; you’ve spent so long putting so much of your money away for investment, once you no longer need to it’s like getting a massive raise!

Aside from CoastFIRE, other approaches to FIRE can also fall on the ladder.

Debt Free → Normal Retirement → CoastFIRE → BaristaFIRE → LeanFIRE → Traditional FIRE → FatFIRE

• BaristaFIRE — By supplementing the span of time between achieving baristaFIRE and full retirement with lower-stress part-time work, you can lower your FIRE number. This allows you to significantly reduce the amount you need to save and offer you greater flexibility in your work. Very similar to coastFIRE.
• LeanFIRE — This approach to FIRE is for those who enjoy saving money more than spending money. LeanFIRE is all about adopting lifestyles and spending habits that keeps post-retirement costs down so you won’t need to save so much to meet the FIRE benchmark. LeanFIRE also pairs well with baristaFIRE as having all your basic life necessities already covered means any disposal income you earn can go directly to hobby and entertainment.
• FatFIRE — This approach to FIRE is primarily for those who are both big savers and big earners. FatFIRE is for anyone with the means to save millions of dollars so they can retire in their 40’s or 50’s on a six figure retirement income. If this is the tier of FIRE you aspire to, we salute your ambition! Good luck and good speed!

CoastFIRE and Tax Shelters?

As coastFIRE followers don’t intend to retire early, they don’t need to worry about early withdrawal penalties the way traditional FIRE enthusiasts have to. This means there’s no need for a complicated Roth IRA Conversion Ladder and no need to wait around for pension and social security.

With coastFIRE, you’re able to enjoy the freedom and peace of mind of FIRE while keeping your finances simple by following the path of normal retirement. This means:

• Maxing out your 401(k) for employee match
• Potentially opening a Traditional IRA or Roth IRA, as dependent on your present and expected future income
• Broad-based index funds and bonds

All FIRE Techniques Apply!

Of course, all the techniques FIRE enthusiasts use to accelerate their path to FIRE still definitely apply. These ideas include, but definitely aren’t limited to: 

• Picking up a side-hustle — If you’re someone with the drive and energy to do a little extra on the weekends, side hustles are the perfect opportunity for you to get ahead on your retirement savings. Consider dog walking for your neighbors, being a tutor grade schoolers, or heck, starting a YouTube channel. For more ideas, check out our article Side Hustles to Accelerate Your FIRE Journey — the possibilities are truly endless!
• Negotiating for higher wages — As the saying goes, if you never try then you’ll never know. The process of hiring and finding new employees can be expensive for a company, not to mention the work that’s not getting done while the position goes unfilled. If you make yourself valuable to the company you work for, then it’s only right to ask for proper compensation.
• Adopting a minimalist mindset — In order for frugality to be sustainable, it can’t feel like deprivation. Instead, think about how nice it is to live in a clean uncluttered home, how fulfilling it would be to cook food you grew in your own garden, and how much better it is for the environment to buy second-hand. For a more comprehensive breakdown on how you can save for FIRE, check out our article on Best Ways to Save Money for Early Retirement.
• Save on your car and home — Oftentimes the advice is to save money on small things like turning off the AC or switching to a more affordable mobile plan. However the truth is that the lionshare of your paycheck goes towards your mortgage or rent first, your car loan second, and then everything else. The real way to up your savings rate is to keep housing costs down and stay away from expensive cars.

To read more about FIRE and how to get there quickly, check out our articles, How to Retire on a Low Income, and How to Plan for Retirement in Your 20’s.

If you’re newer to FIRE or want a refresher to the FIRE basics, our articles on FIRE Tax Strategies, FIRE Budgeting 101, and FIRE Personal Finance Tips are also excellent resources.

The Pros and Cons of CoastFIRE

With all things, there are two sides to every coin.

Pros:

• CoastFIRE allows a lot of the freedoms and benefits of FIRE at only a fraction of the savings, people who have coastFIRE’d can chose to seek part-time work, take more vacations, or prioritize their hobbies, all in the knowledge that their retirement is secure
• CoastFIRE is a much more achievable goal than traditional FIRE, allowing people more options for family building, career paths, and living locations
• CoastFIRE is a natural by-product of pursuing traditional FIRE, therefore it’s easy to shift gears between the two as your career develops
• Similar to above — your coastFIRE number is dynamic and flexible, once you’ve achieved coastFIRE for a $20k retirement, you can continue on and “upgrade” to higher tiers, safe in the knowledge that your basic necessities are covered

Cons:

• CoastFIRE is a method of saving for retirement, it does not imply early retirement. For that reason, coastFIREdoesn’t offer the same degree of freedom and security as traditional FIRE — you will still need to work to cover your living expenses
• Although not to the extent of traditional FIRE, you need to adopt frugal habits to achieve coastFIRE. Depending on your income and cost of living, coastFIRE may demand a degree of sacrifice that traditional retirement does not. 
• CoastFIRE is heavily skewed in favor of younger people in the way that traditional FIRE is not

Conclusion

When FIRE enthusiasts say that FIRE is for everyone, it can be difficult to believe. How can it be possible for everyone, even the average to low income earner under a mound of debt, to achieve financial independence and retire early? However, with coastFIRE on the table, it’s much easier to envision how the average person might reach a sort of FIRE without resorting to living out of a car.

CoastFIRE may not be as flashy as FIRE, not quite as impressive as a headline like Josh retired at 38, here’s how he did it! but many of us don’t need to be flashy. Security and comfort is the name of the game and if that’s what you value, coastFIRE is just the retirement plan for you. 

The post Why CoastFIRE is Perfect for You appeared first on TheWeFIRE.

Many well-regarded personal finance and investing books, The Psychology of Money by Morgan Housel being a stand out example, have taken special care to address the matter of psychology in money management. For all its remarkable capacity for reason and logic, the human mind is riddled with irrationality. Daniel Kahneman, author of Thinking Fast and Slow, approaches psychology from a broader perspective, examining the psychology of decision making in all facets of life. Is Thinking Fast and Slow a genuinely enlightening read for those of us on the path to FIRE? Or should we set it aside in favor of more specialized books?

The long and short of it:

In Thinking Fast and Slow, Kahneman presents readers with an array of psychological concepts and theories about how and why we make the decisions that we do. Kahneman presents a set of foundational principles alongside a variety of more specific theories and experiments which serve as examples.

System 1 vs System 2

There are two modes of operation for the human brain. The first is System 1: our unconscious intuitive self, it’s fast, instinctive, and constantly active. The second is System 2: our conscious thinking self, it’s rational, deliberative, and only active when directly called upon. System 2 is slow and lazy, it leaves the decision making to System 1 at every possible opportunity. Meanwhile, System 1 is reckless and brash, making snap decisions based on rapid free-association as opposed to solid evidence and logic.

Due to the indolence of System 2 and the rapid-fire confidence of System 1, a whole host of psychological pitfalls result:

1. Anchoring

The anchoring effect is the tendency for a given number to affect people’s estimation of an unknown value, regardless of whether the given number resulted from a dice throw or in-depth calculation.
Kahneman and his research partner Amos Tversky rigged a wheel of fortune to only land on 10 or 65.

Then they invited university students in for an experiment. First, they spin the wheel, then had the student write down the number it landed on. Afterwards, Kahneman and Tversky asked the students “Is the percentage of African nations among UN members larger or smaller than the number you just wrote? What is your best guess of the percentage of African nations in the UN?” Students know that the number was produced by random, the written number should not have any influence on the students’ estimation of African nations in the UN. Yet on average, those students who got 10 estimated 25% while those who got 65 estimated 45%.

In the instance of estimating the intrinsic value of a stock, we are similarly persuaded. The given number (stock price) will inevitably influence our estimation of the stock’s true worth unless we’re exceedingly wary. It’s for this reason that overpriced stocks look attractive while underpriced stocks look risky. Despite the fact that we should not let the actual price of a stock influence our calculation of its intrinsic value, most of us can’t help but do so due to the anchoring effect. For example, imagine you have a normal plastic bag. If asked, we might say it’s worth a nickel at most. However, if the store priced the plastic bag at $1000 and hundreds of people purchased it for that price, we might be persuaded that the plastic bag is worth more when it’s not.

2. Overconfidence

System 1 is unconscious and therefore it isn’t able to second-guess and self-evaluate its judgements. Paired with a lazy System 2, it’s only too easy for people to form beliefs that lack evidence. Confidence, contrary to what our intuition says, is not an indication of correctness. In fact, the more confident we are, the more vigilant we should be. In the case of investing, it’s important not to be led astray by overconfidence, both your own and that of investing professionals.

Given the danger and prevalence of overconfidence, Kahneman offers us a thought experiment called the postmortem to help diminish the tendency. Postmortem is where you imagine that the project you’re about to embark upon or the business you’re about to invest in had failed 15 years down the line. You then take 5-10 minutes to brainstorm how this might have happened. In performing this exercise, you inoculate yourself against overconfidence and create opportunities to pre-empt future mistakes.

3. Base Rate Neglect

To illustrate this concept, Kahneman came up with the following thought experiment:

Tom W is a graduate student at the main university in your state. Please rank the following nine fields of graduate specialization in order of the likelihood that Tom W is currently studying in each field. Use 1 for the most likely, 9 for the least likely.

• • business administration
  • computer science
  • engineering
  • humanities and education
  • law
  • medicine
  • library science
  • physical and life sciences
  • social science and social work

Going by pure statistics, we would guess that Tom W is more likely to be a humanities and education student than a computer science or library science student. This is a base rate, because the sheer percentage of students who graduate with a humanities or education degree definitively outnumbers the number of students who graduate with a computer science or library science degree. However, consider how your judgment changes when you read the following:

The following is a personality sketch of Tom W written during Tom’s senior year in high school by a psychologist on the basis of psychological tests of uncertain validity:

Tom W is of high intelligence, although lacking in true creativity. He has a need for order and clarity, and for neat and tidy systems in which every detail finds its appropriate place. His writing is rather dull and mechanical, occasionally enlivened by somewhat corny puns and flashes of imagination of the sci-fi type. He has a strong drive for competence. He seems to have little feeling and little sympathy for other people, and does not enjoy interacting with others. Self-centered, he nonetheless has a deep moral compass.

Most people would at this point be persuaded to re-evaluate Tom W’s graduate specialization. Surely, he’s more likely to be a computer science student than a humanities and education student, if he liked sci-fi and disliked human interaction? Nevermind that this is a high school personality sketch of uncertain validity. System 1 likes narratives and stereotypes. The description of Tom W is overwhelmingly in line with computer science, enough for most people to entirely forget about the base rate and statistical likelihood that tells us he is very likely to be a humanities or education student even with the personality sketch.

Humans and Econs

One of the base assumptions of economics is that the economy is made up of rational agents, all making rational and internally consistent decisions based on all available information. Kahneman takes issue with this, asserting that a Human is far more prone to errors of logic and judgment than an Econ. The main differences between Humans and Econs can be observed in the following situations:

4. Loss Aversion

At the core of many of our poor money choices lie loss aversion. The idea is that most people feel the loss of something far more acutely than they feel the gain. Through his research, Kaneman found that the ratio of loss aversion measures out to 1:2 or 1:1.5 on average. This means you must earn $200-$150 to offset the psychological pain of losing $100.

Although it’s reasonable to protect wealth more fiercely than pursue gains, many people are loss averse to the point of irrationality. When faced with an offer of —

              pay $400 for 95% chance to win $1,000 

                        OR 

               pay $700 to win $1,000 for sure 

Most of us would go with the second option. Objectively speaking, 95% chance to win $600 is an excellent deal, yet we are willing to pay a hefty premium to eliminate the negligible chance of losing money.

To resolve this in-equivalency Kahneman recommends taking a broadview perspective when investing. Our stock performance is not determined by short-term dips. Waiting until we come upon an opportunity that offers 100% guarantee to make money means we’ll never invest at all. It may also mean we end up relying solely on bank deposits with returns that fail to keep up with inflation, an inevitable result of loss. Yes, it’s likely that some investments will come out at a loss, but as long as you make more good investments than bad, your net result will follow the trend of probability. Meanwhile, if you shy away from good deals, these missed opportunities will gradually accumulate into a big loss.

5. Attitude to Risk

In Kahneman and Tversky’s Nobel Prize-winning theory called Prospect Theory, they posited that just as there are diminishing returns for gains, there is a similarly diminishing impact for losses.

Kahneman offers two illustrative problems to explain prospect theory:
    Problem 1*: Which do you choose?*
    Get $900 for sure OR 90% chance to get $1,000
    Problem 2*: Which do you choose?*
    Lose $900 for sure OR 90% chance to lose $1,000

As mentioned in the previous point on Loss Aversion, most people would much prefer to get $900 for sure for Problem 1. What’s interesting is that this situation is entirely inverted in Problem 2. All of a sudden, people would prefer a 90% chance to lose $1,000 over a guaranteed loss of $900.

The reason is because going from $900 to $1,000 is an insignificant increase in psychological value and the 10% risk of getting nothing at all is a huge loss. We are unwilling to put $900 on the line for a chance to gain an additional $100, even when the odds of success is 90%. When it comes to gains, we are risk averse.

Meanwhile, going from a sure loss of $900 to a potential loss of $1,000 is precisely the opposite. If we are guaranteed to lose $900, the loss of an additional $100 feels negligible. In exchange for the possibility of losing an additional $100, we gain a 10% chance to lose nothing at all, which has much greater psychological value. When it comes to losses, we are risk seeking.

Why is this important?

Consider we purchased a stock for $80 a share and it has gone down to $30. We know the company is performing poorly and the economy is entering a recession. The odds that the stock will drop to $20 and stay at that price is 90%. The smart decision is to sell the stock at $30 and reinvest in another stronger company, but because we are risk seeking when faced with loss, we hold on to the stock for that slim 10% chance that it will bounce back to $80 a share. This is the reason why we hold on to losing stocks and refuse to realize a loss. Selling now and losing $50 for sure feels much worse than a 90% chance to lose an additional $10 and a 10% chance to make it all back.

6. Statistical Blindness

To illustrate this, Kahneman provides a personal anecdote. Years ago, Kahneman worked with a team of educators to design a curriculum and write a textbook for a high school class on judgment and decision making. During an early brainstorming session, Kahneman and his team each shared their estimates for how long they think the project will take. Guesses ranged from 1.5 to 2.5 years. When the dean of the Hebrew University’s School of Education, warned that other teams working on the sae project took about 8-10 years and that 40% never finished, Kahneman dismissed this information. 

In truth, Kahneman now recalls, they should have quit right then and there. No one was prepared to devote so much of their time to a project with such a high chance of failure. Eventually, the textbook and curriculum was completed; the project took a total of 8 years.

The tendency of the individual is to assume that statistics do not apply to them. We may know intellectually that we are influenced by the bystander effect and therefore less likely to help someone in danger when we’re surrounded by others, but emotionally we’re convinced that we won’t be one of those bystanders. We may know that the new IPO stock we purchased is very, very unlikely to become the next google (or even turn a profit in the next quarter), but we can’t help but wonder what if…?

What makes Thinking Fast and Slow unique?

Seeing as it’s a book about the psychology of decision making written by the foremost expert in the field, you can imagine that Thinking Fast and Slow has powerful applications. Governments can (and do) implement policies in accordance with these principles. CEOs can (and do) apply these principles to maximize profits. You can (and should) incorporate these principles when making important decisions in your daily life.

While Daniel Kahneman’s book speaks for itself, there’s no ignoring his remarkable accomplishments. Kahneman is credited as one of the founders of behavioral economics, the recipient of the Nobel Prize in Economics in 2002 and Professor of Psychology and Public Affairs Emeritus at Princeton. Just as it would be wise to consider Warren Buffett’s philosophy before becoming a serious investor, it would be wise to account for Daniel Kahneman’s research before becoming a serious decision maker.

Final thoughts:

This review has examined only a fraction of the many psychological phenomena detailed in Thinking Fast and Slow. There was a deliberate prioritization of the psychological factors most relevant to personal finance and investing, but we must recall that FIRE is about more than personal finance, it’s a lifestyle. In order to achieve FIRE, it’s important to take a step back and return to the fundamentals of decision making. Why do we think about the things we do? And how can we change this so it better aligns with our values?

Should you read Thinking Fast and Slow?

Absolutely.

For some readers, I don’t doubt that the theories Kahneman begins with will seem pedestrian. The verbiage of System 1 and System 2, the concept of priming, availability heuristic, loss aversion — these are all relatively familiar. If you are among this group of less easily impressed, Kahneman offers a more complex and mathematical approach in later chapters, for example prospect theory, base rate neglect, and regression to the mean. Additionally, just because we’re aware of psychological pitfalls doesn’t mean we’re immune, so it does us good to get a refresher every now and then.

I should warn you though, that at 499 pages, Thinking Fast and Slow is not a short book. Not to mention it’s decently dense, especially later on. It’s all in all an enjoyable read, but there are a few moments, particularly in the later chapters, where the language becomes difficult to parse. My recommendation is to go slow and take it easy. Thinking Fast and Slow is a book to be digested, not consumed.

 

Recommended Reading:

6 Logical Fallacies from Thinking Fast and Slow

FIRE Book List

Reviewing The Psychology of Money – How Reasonable Are We With Money?

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There are many books about personal finance and it’s easy to see why. Many people want to become financially literate, to be rich. However, most personal finance books repeat the same basic beginner-friendly advice; Save your money! Make a budget! Live within your means! And while that’s helpful for beginners, it doesn’t do much good for those of us who already know the basics and want to learn more.

Here at WeFIRE, we have taken the liberty to comb through bestseller lists and several pages worth of book recommendations to bring you a variety of useful personal finance books, so you can find the one you need no matter where you are on your journey to FIRE. Don’t feel like reading a book? No problem! We know your time is precious so we’ve also prepared comprehensive reviews for each book on the list!

Take your pick, your journey to financial independence awaits!

Best books for general financial advice (for beginners):

For those of us who are complete beginners to money management, there are a wealth of options. Virtually any book you find in the personal finance section of your local library or bookstore will do the trick. Of the myriad of options, we landed on these four books as all-around good reads that will provide a strong start to your journey to financial independence.

Rich Dad Poor Dad by Robert Kiyosaki and Sharon Lechter

Main points:

• Invest in yourself! If you can learn and use your mind to generate enormous wealth
• Assets put money in your pocket, liabilities take money out. Know which is which
• Don’t say “I can’t afford it” instead ask “how can I afford it?”
• Start today! Overcome your fear of failure, you need to fail to learn, and learn to succeed

Read the full review: Reviewing Rich Dad Poor Dad – Is this Book Worth the Hype?

The Richest Man in Babylon by George Samuel Clason

Main points:

• Pay yourself first, save 10% (or more) of your paycheck every month
• Make sure you know the difference between needs and wants
• Take advantage of compounding – have patience and money will work for you
• Beware of scams, if something sounds too good to be true, it is
• Own your house and make it an investment
• Establish a future income so you can retire comfortably
• Increase your knowledge and skill so you have greater earning power

Read the full review: Reviewing The Richest Man in Babylon – Is This Book Truly Timeless?

The Millionaire Next Door by Thomas J. Stanley and William D. Danko

Main points:

• Millionaires don’t spend money the way non-millionaires think
• Millionaires devote time to planning their annual budgets
• Millionaires invest in what they know and they hold the same companies for years
• Millionaires live in middle-class neighborhoods
• Millionaires drive used cars

Read the full review: Reviewing The Millionaire Next Door – Do We Actually Have Millionaire Neighbors?

A Random Walk Down Wall Street by Burton G. Malkiel

Main points:

• What is the efficient market hypothesis and how to apply it
• Why retail investors have an edge over professional mutual and hedge fund managers
• Focus on stocks that are both a bargain and have potential for growth
• Consider investing in an index fund
• Diversify in companies with a negative covariance

Read the full review: Reviewing A Random Walk Down Wall Street – Is It Worth A Read?

Best books on investing (for more experienced FIRE chasers):

On the whole, personal finance have two levels of complexity. The first is “lower your expenses” and the second is “increase your earnings.” Lowering your expenses is fairly straight forward: sort out your needs and wants, make a budget, save your money, but increasing your earnings is complicated. There are only so many hours in a day and only so much money our boss can afford to pay us, no matter how experienced and educated we get.

That leaves two options: 1) start businesses, or 2) invest in businesses. We will focus on investing, because it’s far less work (and less risky) than starting a business. While easier than starting a business, investing is by no means easy. Fortunately, there are a number of investment books available to help you along. Unfortunately, some of them are scams. We selected for you the best and most influential investment books (that are not scams, we promise) to help you improve your return on investment.

The Intelligent Investor by Benjamin Graham

Main points:

• Decide whether you are a passive investor or active investor and stick with it
• Passive investors invest in index funds and/or large stable companies with dollar cost averaging
• Active investors can purchase smaller companies but only at a bargain
• Look for net-asset-stocks (cigar butts) where total asset is greater than liabilites + share price
• Don’t listen to the price quotations of “Mr. Market,” trust your own valuation
• Have a margin of safety

Read the full review: Reviewing The Intelligent Investor – Is It Still Relevant?

The Most Important Thing by Howard Marks

Main points:

• You must first understand what it means to be above average before you can achieve such a thing
• Know the relationship between price (where are we in the market cycle?) and value
• Be a contarian, be right, and practice mental fortitude
• The influence psychology on the market and yourself
• Know what you don’t know, don’t try and predict the market, it never works
• Understand, recognize, and control risk
• Earn more from the stock market than you give back to achieve alpha

Read the full review: Reviewing The Most Important Thing – How Do People Beat the Market?

Common Stocks and Uncommon Profits by Phil Fisher

Main points:

• The “scuttlebutt” technique – actually talk to people who know the company
• Make sure the company passes at least 13 of the 15 points listed by Fisher
  • won’t know if the company passes these points without first doing the scuttlebutt
• Don’t try to time the market, but don’t overpay for stocks
• Only sell a company if the fundamentals have deteriorated, growth is exhausted, or you have made a mistake

Read the full review: Reviewing Common Stocks and Uncommon Profits – The Lesser Known Foundation of Buffett’s Investment Philosophy

Best books on motivation and changing your mindset:

We all need some motivation from time to time, to remind us why we’re on this path and what we have to look forward to after achieving FIRE. Motivational books that can help change your mindset can be a powerful tool, because before we can accomplish anything, we must first understand why we are doing it and what value it will bring us. The issue is that motivational books can get repetitive, so we’ve selected a couple that have unique insights.

Your Money or Your Life by Joseph R. Dominguez and Vicki Robin

Main points:

• Money is life energy (the condensed value of your time, energy, and skill)
• Know when enough is enough (recognize that more money doesn’t mean more happy)
• Don’t overexaggerate the danger of inflation, being frugal is more important
• Money is the Earth’s life energy (the value of natural resources and energy)
• No shame no blame (money makes us emotional, take a deep breath and keep going)
• Work is not just paid employment (just because you’re not being paid doesn’t mean it’s not worth doing)
• The 9 Step Program to help you achieve self-fulfillment and financial independence

Read the full review: Reviewing Your Money or Your Life – Is It Possible to Have Both?

The Psychology of Money by Morgan Housel

Main points:

• No one’s crazy, we’re all driven by our unique experiences with money
• Luck and risk are two sides of the same coin, and both are heavily influenced by factors beyond our control
• A small percentage of investments are responsible for the majority of the gains
• True wealth is invisible
• Humans can’t be 100% rational so being reasonable is good enough
• We tend to be skeptical of optimistic and trusting of pessimism – try and adopt a more balanced perspective

Read the full review: Reviewing The Psychology of Money – How Reasonable Are We With Money?

Thinking Fast and Slow by David Kahneman

Main points:

• A book covering the influences on our decision making that are not logical
• System 1 vs System 2
  • Priming – how your subconscious influences your decisions
  • Availability heuristic – the path of least resistence
• Humans and Econs
  • Accounting for loss aversion in attitude to risk taking
  • The fear of regret
  • The importance of taking on an outside view over an inside view

Read the full review: Reviewing Thinking Fast and Slow – 7 Psychological Fallacies That Affect Our Relationship With Money (and everything else)

Best books on Warren Buffet:

To achieve FIRE, you need to be a competent investor, and to be a competent investor, you need to know about more than just money. The stock market operates as a complicated web of relationships, from other retail investors, to large hedge funds, to massive multi-national companies. Navigating this tulmutuous landscape is no easy task, but fortunately, there are experienced explorers whose paths we can follow. We have gathered for you a comprehensive list of the best books on Warren Buffett so you can learn from his investments.

The Snowball: Warren Buffett and the Business of Life by Alice Schroeder

Main points:

• Don’t undrestimate compounding, Warren Buffett started investing at 10 and is now 92
• Intangible assets like reputation and a loyal customer base are valuable
• Go for companies with a wide moat, they’re more stable and competitive
• It’s better to focus on strong companies than diversification for the sake of diversification
• Invest in what you know, stay in your circle of competence
• There’s no such thing as a new paradigm

Read the full review: Reviewing The Snowball: Warren Buffett and the Business of Life – What Can We Learn?

The Warren Buffett Way by Robert G. Hagstrom

Main points:

• Fisher and Graham as fundamental influences in Buffett’s philosophy
  • Fisher as the first growth investor, Graham as the classic value investor
• Buffett’s 12 tenets
  • The most important being: invest in people, not stocks
• Psychological pitfalls
  • Overconfidence – we don’t know what we don’t know
  • Loss aversion – don’t wait to sell weak stockpicks
  • Mental account – don’t give back your earnings to the stock market

Read the full review: Reviewing The Warren Buffett Way – Is This A Path Average Investor Can Follow?

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There are a lot of side hustles out there, how do we know which ones are worth a shot and which ones are a waste of our time? In this video, we’ll have a close look at all the side hustle suggestions that reddit has to offer so we know which ones have the best bang for their buck.

Click here for the Master List of Side Hustles

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Less so a personal finance book and much more a self-help book, Atomic Habits by James Clear is very much in line with the practices preached in many other self-help texts of this sort. Published in 2018, Atomic Habits encourages readers to make their bed in the morning, meditate, journal, and write to do lists. What sets Atomic Habits apart is Clear’s efforts to promote sustainable and long term improvement rather than offer up “good habits” that will inevitably fall by the wayside of life.

For those of us looking to achieve FIRE by a several decade long frugal lifestyle, sustainable habits is the foremost of our concerns. So are the techniques offered up in Atomic Habits truly the key to developing sustainable long term habits as claimed? Or should this book be written off as the latest of many self-help cash-grabs that will have you spinning your wheels without true progress?

The long and short of it:

Clear opens the book by explaining what habits are and why they matter. He describes an ancient Greek parable, the Sorites Paradox, which asks the question “can a single coin make a person rich?” Suppose you gave someone ten coins. Are they rich? Evidently not. What if you proceeded to give them another coin. Then another. And then another. What if you continued to give them coins, at some point would they not become rich? If so, then what coin was it that made them rich?

The same can be said of our habits. At what point do we become a violinist? A writer? A dancer? Only our natural inclination to do these activities on a consistent basis over the long term. In other words, our habits make up our identity. For people who have succeeded in something difficult, like running a marathon or writing a book, it was not due to their abnormal discipline or fortitude (at least, not for the majority) but the small daily rituals they perform on autopilot. Overnight successes only appear so from an outside perspective. To the person who actually succeeds, it is only the natural cumulation of years of consistent habitual effort.

The Science of Developing Habits

Scientists have discovered that habits are made up of 4 components. First the cue, something that makes us want to perform a habit (the phone buzzes). Next the craving, our minds become preoccupied with completing the habit (we want to check our phone). Then the response, we perform the habit (we check our phones). Finally the reward, we feel a sense of satisfaction at having performed the habit (our latest post got a Like). The relative ease or difficulty of habit formation is dependent on these four components. To effectively develop a habit:

The cue must be obvious

Let’s say you want to get into the habit of eating healthy but you have a bad habit of snacking on chips. The cue for eating healthy might be:

feeling unhealthy

stepping on a scale

seeing someone order a salad

seeing healthy food in the kitchen

The cue for snacking on chips might be:

feeling hungry

feeling bored

feeling stressed/upset

eating healthy food and not liking the way it tastes

seeing someone else eat chips

seeing chips in the supermarket

seeing chips in the cabinet

The cues that trigger the craving for chips are far more frequently occurring than the cues that trigger the craving for healthy food. You have to go out of your way to step on a scale but you can feel bored at any moment of the day. To solve this dilemma, the cues must be designed to promote the behavior you want. For example:

Stop by a salad bar for 1 minute every day after work

Throwing out all the chips in the house

Changing supermarkets so you don’t know where the chips are located in the store

Put all your fruits in a fruit basket on the kitchen table where it’s easy to see

Making friends with other people on a diet

Print out easy healthy recipes and put them on the fridge etc

This step is all about scattering reminders in your environment that will prompt you to follow through on a good habit you’re looking to develop. Simultaneously, you can try and reduce the cues that might lead you to bad habits.

The craving must be attractive

The true way make a good habit attractive is to genuinely enjoy it. Going back to the example of healthy eating, this means enjoying the taste of the food and challenge of preparing a healthy recipe. If it’s a matter of learning a language, this frequently means finding a piece of media in that language which you genuinely enjoy consuming. It can be difficult however, so until this stage has been achieved, the most effective methods are:

Habit stacking/temptation bundling– only allow yourself to indulge in a habit you want to do (check Facebook) after you’ve performed the habit you need to do (do ten burpees). This is also a good way to encourage improvement, where you allow yourself bigger rewards when you achieve certain checkpoints (for example, being able to do 20 pushups). Of course, make sure the habit you want to do will not undo the progress of the habit you’re looking to build (don’t allow yourself an ice cream sundae immediately after going to the gym for example).

Joining a culture where the habit you’re looking to build is the norm – as we know, humans are social animals. We mustn’t underestimate the influence our peers have on our behavior. A friend group of musicians will naturally lead you to practice your instrument more frequently, a friend group in which you are the only musician means you’ll have to put extra effort to maintain the habit. 

The response must be easy

One of the biggest differences between good habits and bad habits is that good habits are difficult while bad habits are easy. It’s easy to check our phone when it buzzes, to open a bag of chips when our stomach growls, to lay back on our sofa and do nothing all day. In contrast, it’s difficult to go to the gym before work, to cook a healthy meal every meal, to get up from the sofa and tidy our homes even when we’re tired after a long day’s work. The solution then, is to make good habits easy, and bad habits difficult.

The Two-Minute Rule – if the new habit will take more than two minutes to complete, then it’s likely too much for you to maintain long term. Instead, try to simplify it to a routine you can complete in two minutes. You want to make your own meals? Just take out all the ingredients for how. You’re not making anything, you’re just taking things out of the fridge. You want to go for a run? Just put on your running shoes for now. Make the task small then slowly work your way up and remember to always stay below the point where it would feel like work.

Use a Commitment Device – motivation doesn’t last forever so we should make the most of it while it’s here. Do something now that will police the behavior of your future self and make bad habits difficult. This might mean writing up a contract that you and someone you trust sign, saying something like “If I don’t lose 10 lbs this month, I will give my spouse $500 to spend as s/he wishes” or perhaps buying an outlet timer that shuts off the wifi from 10pm-5am every day for a healthier sleep schedule.

The reward must be satisfying

Cue, craving, and response are the forces that carry us through a habit, but the final component, reward, is what keeps us coming back. Bad habits are bad because they bring immediate short term rewards but carry long term consequences. Meanwhile, good habits (especially those that people struggle to maintain) are frequently the opposite, with no short term reward and only long term benefit. Intellectually we are aware of the importance of long term benefit, but our animal minds have difficulty grasping this. Therefore, rather than fighting against this, we should do our best to soothe our less logical impulses with these techniques:

Reward habits of avoidance – many good habits require us to turn down instant gratification. Instead of buying coffee, we should save money for our future retirement, we tell ourselves. This behavior is logical, but unsustainable. Instead of sacrificing for a nebulous future goal, we should set up a way to make visible our current progress. For instance, labeling a savings account “5k to take a day off work and watch a movie” and transferring $5 over every time you decide not to buy a coffee.

The Paper Clip Strategy – another method of keeping track of progress is to have two containers, one filled with paper clips (or hair pins, or marbles), the other empty. Then every time you finish writing a page of your book, or move $50 into your savings account, or make a sales call at work, you move a paper clip over. The number of paper clips and time it takes to move them can be whatever you set it as. Having a visual metric for your progress can be incredibly motivating for maintaining a difficult habit.

Maintaining Habits in the Long Run

After a certain number of repetitions, habits generally become automatic. Beware however, that the length of the road that must be traversed before reaching this stage is not to be underestimated. Clear offers some additional nuggets of wisdom to help us stay on track for financial independence.

Adopt an Identity

The more we repeat an action, the more we subconsciously adopt it as a part of our identity. It would not feel right to call yourself a writer if you never wrote anything aside from emails and to-do lists. However, just as actions influence identity, identity drives action. People who believe themselves to be writers are more likely to write. People who identify as frugal are more likely to save. In order to consistently perform an action, you should strive to identify as the kind of person who would perform that action.

Develop Systems, Not Goals

Goals are important to have, but they are not sustainable in the long term. The issue with goals is they frequently result in an all-or-nothing endpoint. If your goal is to lose 50 lbs, then you’ll have either achieved your goal or failed with no in between. Additionally, unless a new goal is set after the previous has been achieved, you are liable to return to your old habits now that the motivation is gone. Finally, by constantly setting goals, we deny ourselves the right to feel happy with our achievements. There is complacency, and then there is placing undue stress on ourselves by constantly shifting the goalpost.

Clear offers systems as a better alternative than goals. Systems is a series of guidelines we have implemented ahead of time that naturally guides us to better habits. In the case of FIRE, this may look like setting up automatic transfers between your bank account and brokerage account to automatically purchase shares of SPY, choosing to live somewhere closer to public transport over the suburbs, and learning how to meal prep so cooking is easy and you’re less tempted to eat out. Of course goals still have their use, our FIRE number offers us a finish line to cross and a dream to strive for, but as a long term strategy, systems are far more effective and make for a far less stressful way to live.

What makes Atomic Habits unique?

As far as providing an articulated series of practical advice for general self improvement went, Atomic Habits is excellent. James Clear offers a number of highly generalizable and helpful ways for a person to better themselves and reach their goals, whatever those goals may be. I especially enjoyed the way Clear structured the book overall. He began by offering an anecdote and by extension his own credentials as a speaker on the topic of habits, then proceeded to explain the value of good habits, before finally going through each individual cog in the wheel of habit building so that we may begin to tailor our own habits in accordance with what we want out of life. The ideas found in this book aren’t groundbreaking, nor is Clear the foremost expert in this field, but what he’s provided us with is a wonderfully in-depth and generalizable inside look at why successful people are able to do what the rest of us cannot. This book goes beyond platitudes like “you have to work hard and you have to really want it.”

Final thoughts:

It should come as no surprise at this point that I hold Atomic Habits in high regard and definitely recommend for you to read it should you get the opportunity. Before you head off to do so, however, there are some warnings I would like to impart because for as much as I enjoyed this book, it is still flawed in a few notable ways.

Firstly, although the book isn’t very long (just under 200 pages if we discount the appendix), it manages to go on some unnecessary tangents. As interesting as it was to learn about how the shape of continents influence the development of farming and rate of population expansion, it’s only vaguely related to the topic at hand, that being “energy is precious so less effortful habits are easier to develop.” I came away from this book with the perhaps not incorrect impression that James Clear is much more accustomed to writing shorter pieces, perhaps to the tune of 2k-5k works rather than full length novels.

The last critique I have is Clear’s underlying assumption that everyone should strive to maximize their time always. The idea that every single one of my unthinking life rituals should be plotted according to what’s best and healthiest makes my head spin. The additional insistence that I should review my past habits annually and always look to improve myself if even by 1% is headache-inducing. I do not feel that it’s wrong for me to be satisfied with my present state without a perpetual insistence for improvement. It’s not wrong to strive for self-improvement or self-betterment, in truth I find it commendable that Clear does so. What’s wrong is the demand for everyone to behave this way all the time, with the implication that to do otherwise is to waste your time.

Overall, I very much appreciate the various techniques and ideas found in Atomic Habits. I like it well enough to immediately implement the recommended techniques in my own life, which is more than I can say for every other self-help book I’ve read. I like how accessible and useful this book is and how easy it is to try out Clear’s suggestions. Despite my criticisms, Atomic Habits is a good read and I highly recommend that you give it an afternoon of your time.

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