DAVID MOLTZ: Cool, So let's start

with your blog and your podcast.

You call it \"Afford Anything.\"

Where did that name come from?

PAULA PANT: So the concept of \"Afford Anything\"

is really the concept of opportunity cost.

It's this notion that you can afford anything,

but not everything.

And every decision that you make is a trade-off

against something else.

And this concept doesn't just apply to your money,

even though the word afford conjures up images of money

immediately.

It also applies to your time, your focus, your energy,

your attention because we all have limited cognition, limited

mental bandwidth.

So really, it's this notion of recognizing

that most of the resources that you

deal with on a day-to-day basis are limited resources.

And we need to be extremely conscious--

I would say even ruthless--

about how we allocate them.

And that means, number one, allocating our resources with

more intention and, number two, deeply reflecting on how,

at a 30,000-foot level, what is actually a priority to us

in our lives to each individual, not what does society say ought

to be, or what are the default priorities that we've been

taught.

DAVID MOLTZ: Very nice.

And your best known, you know, kind of

in the personal finance community

for talking and writing a lot about financial independence.

So what is financial independence?

And how does it relate to your story?

PAULA PANT: OK, so financial independence

is an interesting concept, and it's

one that's gained a lot of popularity

in the past few years.

I define financial independence as the point

at which your passive income typically, but not always,

through investments is enough.

And when I say enough, I mean that it's enough

that it creates at least some type of a safety

net underneath you, some type of a floor

or a foundation such that you know that, in a worst case

scenario, in a black swan situation, you would be OK.

And so let's unpack that a little bit because there's

a lot going on in that concept.

Now, first of all, so financial independence

is the point at which your passive income, typically

through investment-- so what we mean by that?

So passive income is income that does not

come through exchanging time for money directly.

So for example, if you have access to a 401(k),

and you make contributions of income into your 401(k)

that money will, hopefully, grow.

Right?

That money will grow both through capital gains

and through dividends.

And then that growth will compound.

So that would be an example of passive income.

Regardless of whether or not you harness it,

right, it's income in the sense that it fuels your net worth,

and it makes your balance sheet bigger, your personal balance

sheet bigger, regardless of the fact

that you are not actively pulling money out

of your 401(k) on Tuesday in order

to pay for a pair of shoes.

It's still yours.

Right?

Same thing with if you make contributions to an IRA

or to a health savings account or if you

use that money to buy a personal residence or a rental property,

assuming that those appreciate or if the rental property does

well.

In all of those examples, you have a source

of passive income coming in that's

fueling your net worth, despite the fact

that you're not actively trading dollars for it.

Now when we talk about--

so the last portion of the definition

of financial independence is this concept of enough.

And that leads to a fairly big philosophical question,

which is how much is enough.

And this is a source of endless debate within the Financial

Independence community, which is abbreviated

as the FI community.

But at a bare bones, basic level, enough is, as I see it,

enough such that, in a worst case scenario,

you would at least be OK.

You could feed yourself.

You could keep the lights on.

You could have some type of a reasonable human shelter.

It might not be what you prefer, but you

know that you would be OK.

And the example that I often like to use is--

so a lot of people conflate financial independence

with extreme wealth or big other highfalutin,

pie in the sky ideas.

The example that I like to give to kind of bring it

down to Earth a little bit is let's

say that you had a brother or sister.

And today, in an hour from now, you get a phone call,

and you find out that your sibling just got diagnosed

with a terminal illness.

And they have one year left to live.

And you want nothing more than to take a one year

leave of absence, unpaid leave of absence

from work, so that you can spend that last year or that last six

months with your sibling.

And you can't do that locally because your sibling lives

on the other side of the country,

or they live in a different country.

All right, so you need that time.

Financial independence is the state

of having enough passive income so

that when you're doing that, when you drop everything

to be with your sibling for those critical moments,

you'll be OK.

You know, you're not going to be going to Disneyland.

You're not going to be having $400 steak dinners,

but you'll at least be OK.

And there's a lot of freedom that comes with that.

A lot of people who reach financial independence-- and I

reached it when I was 31.

We'll talk about that in a minute.

But a lot of people who reach financial independence often

find that nothing in their life necessarily changes.

The day to day of their life might

look exactly the same post-FI, as it did pre-FI.

But the psychological relief that

comes from knowing that you've built your own safety net

is valuable.

And so sometimes, I joke that FI is an extremely elaborate

anxiety reduction measure.

[LAUGHTER]

So in my own life, so my own story is

I graduated from college when I was 21.

This was in 2005.

And I shortly after, a few months after that, I got

my first job at a newspaper.

And my starting salary was $21,000 a year.

And I worked at that job until 2008.

And at the time that I left, my salary was $31,000 a year.

By the way, I know it's unusual to like

to sit on stage with a microphone revealing

your salary, but I'm a blogger and podcaster.

And I've made this very, very public for years.

So I'm comfortable sharing all these numbers.

So at the time that I left my job, which was in 2008,

I was making $31 a year.

And I had a lot of anxiety at that time.

Like being in my early 20s, I could

live like a college student.

So it was fine, but I knew that later in my life

I was going to need something more, something

bigger, something better, especially if I ever wanted

to have a family or ever wanted to own

a home or anything like that.

And so I became really obsessed with saving

and obsessed with investing.

I started making money--

while I was still in newspaper, I

was making money on the side as a freelancer,

and I continue to grow that.

And I became just extremely aggressive

about saving and investing, largely fueled

by honestly fear, which, you know,

I wanted to make sure that I would be OK.

And so over the course of the next--

basically throughout the rest of my 20s

and into my early 30s, myself and also

my husband at the time, soon to be ex-husband,

Will, who shares my same like enthusiasm for saving

and investing, we lived on oftentimes

about 50% of our combined income and invested the rest of it.

And we invested in a combination of 401(k)--

I have a Roth Solo 401(k).

He has a simple IRA.

We both had Roth IRAs, which later turned back to Roth IRAs.

We had HSA accounts.

We had the whole alphabet soup going on.

And so we put a lot of money there.

And then we put a lot of money into rental properties as well.

We lived with roommates until we were 31.

And I mean, our net worth at the time that we stopped

living with roommates, our combined net worth

was over $1 million at the time.

So we were millionaires living with roommates

so that we could save 50% of our income

and just shovel that into investments.

And that was the level of our dedication towards investing.

So that was how I reached FI.

DAVID MOLTZ: Wow, over $1 million

and financially independent by 31,

which brings us to a very important question.

Please share with us your investing philosophy

and some tactics and strategies that you use.

PAULA PANT: Sure, at a high level,

my investing philosophy is one that

is very fond of passively managed investments.

So there is this thing called index funds

that was created by John Bogle who's the founder of Vanguard.

And an index fund is a fund that tracks a market, a broad market

index.

So for example, an index fund might track the S&P 500 index.

And when you invest in an index fund,

that fund attempts, to the best of its ability,

to mirror everything in that index.

And that means that it will do as well as or as poorly

as what it's tracking.

So if you invest in the total US stock market index,

you will do as well as or as poorly

as the total US stock market, no better and no worse.

And what they found is that, statistically speaking,

over the long term, over about a 15- to 30-year time span,

you are, statistically speaking, more

likely to do better trying to match the market

than you are trying to outperform the market.

You will sometimes, occasionally, in the short run,

have funds or fund managers that momentarily outperform.

But then they tend to, over time, revert to the mean.

So you're better off just taking the passive approach.

And similarly, with real estate investments,

I'm a big fan of rental properties.

And with rental properties as well,

I favor a passive approach of, you know,

don't try to constantly be flipping home in my view.

There are other people, of course,

who do it differently than me.

But I don't want to be spending all of my time

trying to flip homes or trying to go into extremely

sophisticated tactics because that's not what I do full time.

I have a different full-time job.

And I want to focus on that other full-time work

because that's my core competence.

And so I want to make my real estate investments

as passive as possible so that they take up as little

of my cognition as possible, again,

because you can do anything, but not everything.

DAVID MOLTZ: Right, and you write and talk

a lot about growing the gap.

So what do you mean by growing the gap?

PAULA PANT: So growing the gap is the result of a big--

an argument, a debate that is popular among people

in the personal finance community

and in the FI community, which people love to argue about