“Quit like a Millionaire: No gimmicks, Luck or Trust Fund Required” is a fantastic book written by self-made millionaire Kristy Shen and partner Bryce Leung. What I love about this book is how relatable the story is to a large portion of society.
Kristy describes her story from rags to riches and shows you the exact path she took to reach financial freedom with actionable information so that readers can do the same. One of my favourite quotes from the book is:
If you understand money, life is incredibly easy. If you don’t understand money life is incredibly hard.Kristy Shen
The purpose of this book is to make money easy to understand and show you the simple steps you need to take on the path to wealth.
Being Poor and the Scarcity Mindset
At the start of the book, Kristy talks about her childhood. She grew up in the bottom 1%, living on just $0.44 a day. While some may find her story sad or confronting, she openly talks about this time of her life and is proud of herself and all the life lessons it taught her.
Growing up in rural China with very little, this taught Kristy the true value of money and how to value and save it.
After emigrating to Canada, through hard work and determination, Kirsty was able to choose a path in life. Upon finishing high school with good grades, she was deciding what path to take in her life. She introduces us to a somewhat interesting but also non traditional teaching.
Don’t follow your passion straight after high school but instead follow the math. Really? Is she saying to pick a job you might hate to chase the coin? Well somewhat, but not entirely.
Kristy introduces us to something she calls the POT score. The POT score is the median salary above minimum wage divided by the total cost of a degree. Essentially, the ROI of your degree. How much does the course costs vs how much you can earn after completing it. Kristy then uses this to evaluate her career options and eventually chooses to become a Computer Engineer over becoming a writer (her true passion).
Following your passion is a bad way to pick your career. Instead, follow the POT score she says. While I did enjoy this math, it does have some flaws.
It doesn’t account for outliers, scholarships, obtaining a higher than average salary and many other variables. Picking a career based solely on the POT score is not the only factor to consider. However, if you use it to consider multiple career options that you might enjoy, it can help to focus on the one with the best ROI.
Einstein proposed that compound interest was the 8th wonder of the world.
Kristy shows us while compound interest is earning you money in investments it is the bee’s knees. However, when you are in debt it has a much more negative effect. There is a whole chapter dedicated to debt, how to reduce it and where to start but is nothing ground-breaking.
An interesting point on housing debt she talked about was that if interest rates are less than 4%, then pay the minimum amount and invest the rest. If interest rates are over 4%, then pay off the mortgage first or refinance to below 4%. This is a point of discussion that comes up a lot as approximately 35% of Australians that own a home have a mortgage.
Spend money on experiences not possessions
From the early chapters in the book you quickly realise that Kirsty is a lover of travelling. Kristy and Bryce spend money on experiences instead of things.
Kristy talks about neurochemistry in the brain and the diminishing effect of happiness when buying possessions. Essentially when you buy something, let’s say a nice car part, this releases endorphins and makes you happy. After you buy the item and get that little shot of happiness it then declines and your brain acclimatizes.
The studies show there is a diminishing level of happiness when buying possessions, but not if you buy experiences. You are getting more “bang” for your buck.
The lesson here: don’t buy too much stuff and instead go on holidays or have enriching life experiences to make you happy.
There is an entire chapter dedicated to housing. Like many others on the path to FIRE, Kristy did not follow the traditional goal of buying a house and explains in detail why, using math and some common sense.
She suggests doing the math on renting vs buying using the Rule of 150. Multiply your monthly mortgage payment by 150. If this number is higher than the cost to rent, then rent. If it is lower, then buy.
Poor people buy stuff, the middle class buy houses and the rich buy investments.Robert Kiyosaki
The Freedom Mindset and Retirement
The freedom mindset is all about shifting from the consumerism mindset of spending money and buying stuff to investing wisely and realising that money can buy you time. Freedom and time are more important than stuff.
Kristy talks about her big life changing lightbulb moment, when she discovered the 4% and 25x Rules.
Another important aspect of FIRE she talks about is that your retirement doesn’t depend on how much you make, but how much you save. Two people saving the exact same percentage of their salary can retire at the same age.
Kristy is a pessimist and even though the Trinity study shows a 95% success rate with a 4% withdrawal there is still a chance of failure.
To solve this, Bryce and Kristy came up with two systems that work together called the Cash Cushion and the Yield Shield. This was something I haven’t heard of before and will definitely consider implementing in my retirement planning.
The Cash Cushion is basically a pile of cash in a high-interest savings account or similar and in the event of a stock market downturn, you can use this cash instead of drawing from your portfolio. It’s essentially a safety net or backup fund.
To calculate how much you would need Kristy looked at the worst share market recessions in history and the average time of market recovery. This average number was around 2 years with the worst being the Great Depression, taking 5 years. So, if you take the worst-case scenario being 5 years and if your living expenses are $30,000 a year then multiplying by 5 gives you a $150,000 cash cushion. This is a lot of money to save and in comes the Yield Shield.
All portfolios will generally have a yield (earnings on investments). If you have stocks or ETFs this will be in the form of dividends and for bonds, this is interest. If you withdraw the yield from your portfolio and not the principal then you can weather the storm. This is the Yield Shield.
Kristy’s formula for calculating the Cash Cushion, using the Yield Shield is:
Cash Cushion = (Annual Spending – Annual Yield) x Number of Years
Annual Spending = $30,000
Annual Yield = 3%
Portfolio = $750,000
Cash Cushion = $30,000 – ($750,000 * 3%) * 5 Years
Cash Cushion = $37,500
The Cash Cushion and the Yield Shield are the main two ways of dealing with a market crash and ensuring your portfolio survives market downturns.
There were many great takeaways from Quit like a Millionaire, but these are the key lessons:
- In most cases debt is bad.
- Buy experiences instead of stuff.
- The 4% and 25x Rule are important and great to use for retirement planning
- Index investing is awesome and easy.
- Do the math to help with money making decisions
- Side hustles and part-time work are a good thing in retirement.
- Use the Cash Cushion and Yield Shield to protect your portfolio in retirement.
What I didn’t like?
For some, the frugality that Kristy talks about can be hard to follow, especially if you are not born into the Scarcity mindset as she was. The book is tailored toward the traditional Lean FIRE movement.
Kristy and Bryce are DINKS (Dual Income No Kids) with a high combined salary and although she does dedicate a chapter to reaching financial independence and retiring with kids, I think to properly write about this topic you need to experience it first hand.
Some parts of the book have a strong focus on North America, talking about 401(k), Roth IRA’s and other comments and statistics. I did breeze over some of these parts as they weren’t particularly relevant in Australia.
Should you buy it?
If you are new to the FIRE movement and/or enjoy reading personal finance books then this if for you. It is an easy read and at 300 pages you can devour it in a week with some simple and easy to implement ideas that can change your life.
If you like what Kristy and Bryce have to say and want to do some further research then I highly recommend reading their blog, Millennial Revolution.