Sahil Bloom: The “X Factor” for Financial Freedom and Why FIRE Won’t Make You Happy

Do we focus tooWe are so excited to have Sahil Bloom on the podcast today. To achieve PHI and actually retire early, you often need to have an X factor, increased income, starting a side business, a side hustle, a real estate portfolio, something that makes you stand out. Well, Sawhill not only started his own business, but also created several diversified income streams that were instrumental in allowing him to hit financial independence. But what’s most important, a healthy mindset along the way. After all, there is so much more to being wealthy than just the numbers. Hello, hello, hello and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen, and with me as always is my X-Factor co-host Scott Trench.Oh, thanks, Mindy. It’s great to be here. You always bring the Y BiggerPockets has a goal of creating 1 million millionaires. You’re in the right place if you want to get your financial house in order because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting or whether or not you found that X-Factor already. Sahil, thank you so much for joining the BiggerPockets Money podcast today. We’re so excited to have you. Thank you for having me. I’m thrilled to be here. Awesome. Could you start us off with where your financial journey, your journey with money begins?Oh man. I think the most important thing for me to get across is that I do not come from a family where financial independence or money was really a topic that we talked about. My dad is a professor. He’s been a professor his entire life was on the academic track, very safe, stable career track, but not one where he was doing a whole lot of entrepreneurial things or side hustles or talking about investing or compounding or any of these topics that you often talk about with your audience and with your families, I’m sure. And so I didn’t grow up with an entrepreneurial bone in my body. All of my friends now that have made a bunch of money in the world of entrepreneurship or with side hustles, when I asked them, what were you doing when you were a kid? They’re like, oh, well, when I was six, I founded my first business and then I scaled it up and I had this side hustle and then I was doing this along.
I was selling cards alongside my high school. I didn’t do any of that, and so if I have been able to create a journey around this, anyone can, because I spent my entire childhood and most of my young adult life basically screwing around playing sports. I played baseball my whole life. I ended up getting a scholarship to play in college and I ended up taking a job in the world of finance straight out of school. So I got done. I graduated from Stanford in 2014, did my undergrad and a master’s degree there, and then I basically wanted to take a job where I felt like I was going to both earn the most and learn the most straight out of school with the premise being I didn’t know anything about money. I had read about Warren Buffett and sort of learned a little bit about investing, but I really thought that, okay, if I can for the next three or five years, really create a foundation of financial wealth building and financial knowledge. I think because of the way compounding works, just with the ability to sort of coast off of a base that you create that I can set myself up really well for the rest of my life. And so that was really what I did. That was the start of my journey. I joined an investment fund in 2014. It was a private equity fund, so we were buying and selling businesses and I was an analyst there.Awesome. And what did that look like for you in terms of building that foundation? Were you spending as little as you possibly could and just stacking up cash? Were you trying to maximize income? Was there an investment approach or an X factor began to apply at that point?I am very much a simple person. I am not into fancy watches or fancy cars or fancy things in any particular way, and I’m also not someone that tries to sort of status flex on those kind of things, and so I really lived below my means during those years, but for one thing, which was I really have always valued investing in myself in the context of the place where I live. I have always found that if I spend a little bit more to have a primary residence where my mind sort of feels free and open, I generate better outcomes. And so my first job when I took it, I spent a little bit more to have my own place rather than rooming with three or four people. It would’ve saved me money in the short run to have fewer people, but I figured that if I invested in a slightly nicer place where I could have the headspace to think that I would actually generate more income on a more exponential basis over time, that was really the only area of my life where I think I spent more than on paper. I probably should have because I was betting on the longterm on the income creation that it was going to generate.What did the foundation look like? Were you saving 10%, 50%? Where were you putting these proceeds and how were you investing them?Yeah, I was very fortunate in the fact that I had taken a job that was quite lucrative in terms of what you can make straight out of school. So a typical role in the private equity world, straight out of school like either an analyst or associate level, you’re making somewhere between probably 150 to $250,000 a year. The flip side of that is that most of those jobs are in the highest cost of living areas in the world, so you’re talking about living in New York, San Francisco, London, you’re living in very, very high cost of living, so my savings rate was probably in the 20% range if I were to go back and look at the numbers. So it wasn’t extraordinarily high because I was spending a bunch of money on rent and on just general cost of living, but I wasn’t spending money on going out.
I wasn’t spending money on sort of vacations. I didn’t take a vacation for the first several years of working, I was very much heads down. I was working 80 to a hundred hour weeks, really focused on learning and on creating as much value for the people around me as I could. On your question, on the investment side, all I really focused on was two things. So my role, because I was working at this private equity fund, gave me the right to invest in our fund on a fee free and carry free basis, meaning I was not going to pay the fees that a normal investor would have to pay to access this vehicle that we invested out of. That was a huge advantage because it meant that these funds, which were at the time returning a 20 to 25% annual IRRI was going to have access to that as an investment vehicle, which most people will not. And so what I said was, I’m going to maximize my, what I’m allowed to invest in that we had a limit on how much we were allowed to invest. I’m going to maximize that and then every other dollar I invest is going to go into the safest, most boring asset classes. So I was really going to invest on the other side of the spectrum and just low cost mutual funds type stuff or index funds.I want to go back to that 20% savings rate right out of college, living in a high cost of living area. You said, oh, it wasn’t extraordinarily high. You’re wrong. That’s extraordinarily high. For somebody who is just out of college who doesn’t really know what they’re doing, even though you’re working for this financial firm, would you say that you were well-versed in personal finance?I think because I was surrounded by people who were talking about finance every single day, a bit of that sort of just by osmosis, I was learning on the fly as I went, and I was very fortunate in that the people in my sort of immediate cohort, my mentors within the firm who were more junior people who are still some of my best friends to this day, none of them were the high flying, flashy, big spending finance folks that you read about in books or see on tv. All of them were living very boring lives. Part of that was because we were just working really hard there. We were a small firm. We were just on the come up, and so there was not really a moment where you would’ve said like, oh, I’m going to go blow $50,000 on a watch. It wasn’t a thing. It wasn’t part of the culture and frankly, we weren’t in New York, and so there wasn’t the status flexing that I think happens when you’re in this hyper, hyper competitive cultural environment.So that again is another, I don’t want to say flex or superpower, but that was a benefit. That was a huge boost that you might not even realize or didn’t realize at the time that you’re not surrounded by these people that you’re trying to keep up with who have the BMWs and the Mercedes and the Rolex watches and the fancy suits, and you’re not trying to keep up with them. That itself is going to help you even though you aren’t, that’s not your thing to show everybody how much money you’re making. It’s really difficult for somebody, especially somebody young, especially somebody new to the firm who’s trying to get their footing in and fit in with everybody to not fall into that trap too.Can I go back to the overall story here for a second on this and just kind of pick up how long were you in this private equity role? I was at theFirm full time for seven years.Hello, my dear listeners, I have a quick request for you. We would like to hit 100,000 subscribers on YouTube and we’re doing really well. We’re already up a lot, but we need your help while we take a quick ad break. You can hop on over to youtube.com/biggerpockets money all spelled out and make sure that you’re subscribed to this channel. Stay tuned after a quick break for more from Sawhill.All right, welcome back to the show. We’re joined by sawhill. So to extrapolate a little bit, these roles started a high compensation and they scale very nicely and private equity returns were phenomenal from 2014 to 2021 during that seven year stretch. So is it safe to say that your income exploded over that time and that you were able to invest a good chunk of that in these very high return funds for that time period and that was a major factor in your wealth journey orYes. I mean your income exploding explosion is probably an overstatement. The way the career track typically works in the world of private equity or even hedge funds or venture funds would be your income would sort of steadily rise, but two very high levels on an objective basis. By the time your fine a five or six years in, you’re probably making from a base compensation standpoint somewhere in the half a million dollars range, plus or minus, depending on how big the fund is. We weren’t a particularly large fund, so it was kind of in that ballpark. And then the real driver of long-term wealth is your ability to invest in the funds with your own capital and then also your carried interest in the funds, which is your percent of the profit share of the funds. So these funds make money via a percent of a UM management fee, and then on top of that, they make money by taking 20 ish percent of the profits they generate from investing the money.
And that can be really large because if you just do the math, if you take a billion dollar fund and you say, okay, I’m going to double the value of that fund and I take 20% of that, that’s 20% of a billion dollars. So you make 200 million in profit share at the fund level that gets split up among all the people at the fund. Obviously the founding partners take the most of that and it trickles down to the little folks like I was at the firm, but it’s still a tiny percentage of $200 million is still a lot of money, and so that is the real wealth driver at these firms, but you have to stay for a long, long time to see those returns because it takes seven to 10 years for it to all vest and for you to be actually given when you sell.
The companies get these compensation measures. The last thing I’ll say is some firms have a really attractive thing, which is that you are allowed to invest your retirement plan into the fund on a tax-free basis. That is an enormous wealth creator for a lot of people that stay in those career tracks for a long time because it means that you’re rolling over gains into a 20% vehicle tax free over long periods of time. So when you look at people like Peter Thiel who has this famous Roth IRA, like the back, the loophole around that, rolling things over tax-free at a high rate of return is an extraordinary wealth creation measureTwo and 20 is the famous phrase, right? 2% if you have a billion fired equity firm raises a billion dollars, they’ll charge 2% of that or 20 million to pay the salaries of the team and they’ll pay 20% of the gains, which if you double it, like you said, it’s $200 million, 10 x that amount. So that’s the real driver and kicker in this and to get a private equity job at a promising fund out of college, a lot of things go into that, I imagine. And so this was not an accident, this was a situation you set yourself up for and that you put in 80 to a hundred hours a week for six, seven years in order to access and realize the most of that opportunity. Is that right?Yeah, I worked very, very hard. I would say that I was fortunate in landing the role straight out of school. I probably did not have the same track record of internships. What I did have was really, really high ability to engage in teamwork and some of these more behavioral skills that the firm that I was joining was really going to value. And that was because the type of investing we were doing was a lot of family businesses, smaller, medium sized businesses where relationship building was actually more important than financial modeling. And so while a Blackstone, A-K-K-R-A, Carlisle, these big private equity funds really look for people who are going to be able to come in and do the financial model the absolute fastest. The firm I was joining was much more leaning into people that were going to be able to build relationships with these companies.I’m gathering around 2021 is when you left this profession. Can you tell us a little bit about your transition out of private equity?And this is a big part of my journey and my own story, which is as the years started to progress in my own career and as I started getting a bit more senior, I started to become very narrowly focused and almost obsessed with accumulating financial wealth as the sole exclusive means of achieving happiness in my life. That was very much my own sort of narrow obsession and priorities. There was nothing in the firm, nothing in the group of people that I was around that I would say contributed to that. It was my own narrow myopic focus on this making money being the path to me achieving happiness. And I kept convincing myself that the next bonus or the next promotion or the next thing, I was going to feel great on the other side of that. And every time it would come, I would inevitably sort of feel that momentary high and happiness and then immediately reset to saying, is this it?
What’s next? What’s the next thing? And unfortunately, along that way I had allowed a lot of other areas of my life to suffer. I had so exclusively focused on money that all of these other areas of my life had started to deteriorate. My relationships first and foremost with my parents was never really seeing them. They lived 3000 miles away with my sister. My wife and I were struggling to conceive at the time that had created a strain on our life, my health, I was drinking a lot, six, seven nights a week, my mental health was suffering. So all of these other areas of my life had started to suffer because I was so focused on this one thing and thought that everything else was sort of a distraction. And in 2021 I experienced kind of all of that come to a head. I had a conversation with an old friend who asked me how I was doing and I said that it had started to get tough being as far away from my parents as I was not seeing them very often.
They were getting older and he asked how old they were, I said mid sixties, he asked how often I saw them. I said once a year and he just looked at me and said, so you’re going to see your parents 15 more times before they die. And I remember just feeling like I’d been punched in the gut. I mean the idea that the amount of time you have left with the people that you care about most in the world is that finite and countable, that you can place it on a few hands. I realized in that moment that something had to change and I told my wife the next day that I thought we needed to make a move and within 45 days I had left my full-time role at the firm. We had sold our house in California and moved 3000 miles to live closer to both sets of parents on the other side of the country.At this moment of inflection, when all these things are happening here, how are things going at the fund in a general sense?The fund is doing greatAndTo this day, yeah, theFund continues to do great. There’s no issue going on at work that caused this year. Now, what was the lifestyle like that you were leading at that point and was there any reduction in standard of living with the transition over from 15 days before the decision and 60 days later after you’d settled in 3000 away in the other state?So standard of living, we had a nice house that we had built in California in 2019. Standard of living with relationships was pretty negative, partially because Covid had hit and we were basically stuck at home and locked down in California. So my social life had taken a big hit part by my own doing part by Covid and things that were happening. It was pretty lonely in terms of reduction. The shift was moving across the country. We got a new house on the east coast. I was very fortunate in the fact that I had worked really hard for seven years and built a really nice investible asset base and a financial base where I wasn’t scared for the two year window to come. I sort of viewed it when I was making this transition as I didn’t go to business school, but after two or three years working in private equity, the traditional track is you go to business school and then you come back after the firm pays for you to go to business school and then you come back or you go down a different path.
I had explicitly not done that. I had worked during those years and continue to make money, and so my thought when I left was, let me go see what else I can do. Lemme see if I can create my own thing with and I’ll talk about it. But some of the different side hustles, different things that I had been tinkering with over the prior year and since Covid started and see if I can build something and if not, it was a two year business school stint and I’ll go back and take another job in the world of finance closer to my parents and being closer on the east coast. That was my mindset when I went into it, so there wasn’t a drop in our standard of living or our lifestyle.Awesome. What was your investment portfolio like in terms of the allocation and specifically how much cash did you have on hand in terms of monthly or annual spending when you made this decision?One of the first things I did when I started my career was to create a one year rainy day fund, and that was probably one of the best decisions I ever made. Financially. I am someone that believes that there are certain things that you can model on paper and then there are certain things that are just nice for you as a human being for your peace of mind based on what you need. I’m someone that is naturally a little bit paranoid, and so I knew if someone recommends typically three to six months as a rainy day fund, I was like, I’m going to have a year. I’m just going to set this aside in cash. And at the time, holding money in cash made no sense. There was no yield on it. Now obviously it’s a little bit different, but I had a year set aside in monthly spend, which is a really comfortable place to be if you’re going to make a transition.
To be clear, I wasn’t taking my income to zero by making this change when I was leaving and I wasn’t joining another fund. My firm offered for me to remain as an advisor to some of the companies that I had been involved in, so I was going to continue having income as a result of that. And then anything new that I was doing, I started a newsletter that was monetizing. There were some things that started happening, so it wasn’t as though I went to a hundred percent burn rate and I was just losing all of our monthly expenses. That would’ve made me feel a bit uncomfortable in making the decision. There were things that made the decision a little bit less, a little bit less scary, but yeah, having the one year rainy day fund was really helpful.It’s not an always rule, but it’s generally the rule that these life decisions seem to coincide with folks who have that one, six months, one year, maybe even two year cash position. And I think that the point you made about that being the best investment you’ve made is spot on. There’s the returns on that in general quality of your life. I always wonder, leave the question out there, does the decision happen if that cash reserve is not there in the same way? And I think the answer for a lot of folks is no, but again, it’s not a rule. It’s a hard rule. Just seems to be the tendency for folks that make decisions like yours.I think the combination between having that cash position and then also knowing that we could reduce our monthly to a bare bones minimum if we needed to was really comforting. Neither my wife or I we’re very aligned in money values, which by the way, number one life hack in the world is marrying someone with whom you’re aligned on your money values because she’s not into fancy things. I’m not into fancy things. We love having a nice house. That’s our number one thing that we really like. We love the place where we live. We want it to be nice, but we don’t do jewelry, we don’t do watches. I mean, this is embarrassing for me to admit. I have not gotten my wife a single piece of jewelry since her wedding ring. We got married eight years ago. We, that’s not the way that we express love. We like going on trips together and doing other things like that when it’s a shared experience. And so as a result, we knew that our monthly spend could be very, very low if we needed it to be, and we didn’t have our son at the time, and so that was kind of another lever of safety in making that change.Can you tell us a little bit about your journey with money since that move and the businesses you’ve built and kind of give us a little bit more about this X factor concept?Shortly after making the move, I built and had started this newsletter. So I had originally started writing on Twitter in May of 2020, right in the middle of Covid. Really, it was like just on the weekends I was kind of writing these threads, these posts, and I had grown the platform from 500 or so followers to about a hundred thousand or so. By the time May, 2021 rolled around when I was leaving, I had converted a bunch of those people to subscribe to this newsletter that I had started, which I called the Curiosity Chronicle, the idea of pursuing curiosity and sharing things that I’m learning, and that newsletter in May of 2021 when I made that shift was about 15,000 subscribers and I didn’t know anything about the media business, but I figured that I could see if I could get a sponsor for that newsletter.
And so after I made the shift that I was no longer at my job, I texted a few friends who had startups and asked if they would be interested in sponsoring an issue, and one of them took me up on it and paid me $500 to send out this sponsor snippet at the top of this newsletter. I was sending it one time a week at the time, and so I was like, okay, that’s $500 a week, call it $2,000 a month. I was like, what if I send it twice a week? I just doubled the income from this thing. And that was my first interaction with the scalability of the internet and of your ability to reach people because I just had this realization that as I grow the subscriber base and if I increase the surface area of the amount of send that I send, the income of this thing will just scale and presumably scale kind of infinitely or at least to some high level.
So that was really my first interaction with building a new business. It was like that idea. Alongside that, I had a bunch of people that started approaching me asking if I could help them with writing on the internet, growing their platform, Twitter, LinkedIn newsletters, et cetera, a bunch of businesses, founders, et cetera. So I set up a sort of consulting company effectively where I would help people with that and it was a high ticket service. I would charge a lot on a monthly basis, call it five to $10,000 a month to help people operationalize building out a content engine within their business or for these founders, and it turns out at that ticket price, you just don’t need that many customers to replace the income that I had previously had from my old job. And so suddenly I was sort of in this world by fall of 2021 where I was actually making more money on a monthly basis income from those two things than I was at my old job. I didn’t have the same carried interest and wealth creation thing, but from an income standpoint, I was actually making more.We have to take one final ad break, but first I want to tell you about Momentum 2025 BiggerPockets Virtual Investing Summit. The last day to enroll is February 10th, so don’t wait. Go enroll today starting February 11th, we are kicking off this awesome eight week series that’s going to completely change how you think about real estate investing in 2025. Every Tuesday afternoon, you’re getting direct access to some of the sharpest minds in real estate. We are talking about 18 guest experts who are crushing it right now, folks who are actually out there doing deals and building serious portfolio. But here’s what makes this really special. You’re not just sitting back and listening. You’ll be connecting with other investors in small mastermind groups. Think about it, real feedback on your deals, brainstorming sessions with people who get it and direct access to pros who’ve built massive portfolios. Head over to biggerpockets.com/summit 25 to grab your spot today.Alright, welcome back to the show. We’re joined by Sawhill and just on that point actually, what was the quality of life difference in terms of hours for that income, because that’s the big trade you made here, right, is something about the quality of life. Life was all about maximizing money. Surely the interest would’ve been the theoretical potential for the carried interest was much higher than what you were doing here, but tell us about the happiness factor in the other areas of your life and how that transformed.No job will ever pay you enough to be far away from people you love. That’s the best way that I can put it. I was suddenly in this world where I was surrounded by people. I loved that number 15 times before my parents were dead, turned into hundreds. I mean, I saw my parents several times a month. I’ve continued to see them several times a month. The most important thing was when my life came into alignment and when my stress levels dropped and when I felt a level of clarity and calm in my life. My wife got pregnant and after two years of struggling to conceive, we got that incredible news and so many things in life just started to fall into place. I had the freedom to focus on my health again. I wasn’t working the 80 plus hours a week. I was kind of leaning into things that I really found energy in, so I was like, writing is my favorite thing in the world.
I was getting to write a lot. I was getting to work with founders of these companies directly. I was investing in some of those companies personally. I was really working on things where I felt like I was kind of the captain of my own ship, which just felt really good and it was the first time in my life and I had had no plans to do that. There was not an entrepreneurial bone in my body and getting to lean into that I just found every single day was waking up with real energy for the things that I was getting to do and my life started to improve all around it.Was it just you or did you have employees at that time?Early on it was just me and to this day it’s just me that writes and creates all the content because that’s my favorite thing. That’s what I want to do. I want to spend time writing. Now I have a team at the holding company level of my structure, which we can talk about. I have a team and there’s people that are kind of working on things that I’m not great at dealing with all of the optimization around ads and funnels and segmenting and video editing and all of the other things that I have no competency around. But early on it was just me.Yeah, I’d love to hear about how your company evolved and what the structure is today and what’s next.Yeah, so today I have everything structured in what I would refer to as a holding company. Can you introduce itAs well? What the holding company does? What is the mission, the purpose of the whole enterprise here?Yeah, so the holding company that I have is, it’s called es, bloom Media Holdings, and the entire idea is for me to be able to leverage the different things that I’m sharing out in the world, all of the media properties that I’m involved in, whether it’s the book or newsletter or any of the social media platforms to both reach people and create ripples through the content. And then also to accelerate companies that I own, either through significant minority ownership stakes in cashflowing larger companies or through my venture fund where I invest in early stage technology companies. So today the holding company sort of sits as a halo on top of a bunch of companies that sit below it at the actual holding company level. That’s where I have my book, my newsletter, any other monetizing media assets that sort of sit up there. The newsletter today reaches 800,000 or so people two times a week still is how much I send it newsletter sponsorships now or kind of order of magnitude $10,000 percent.
So you can think about how it scaled from the $500 when I sent the first one on through where it is today, same two that you send every single week. But as I said when I first realized it, the scalability of these things is incredible as you reach more and more people. Below that, there are a handful of significant minority owned cash flowing companies. So I mentioned earlier that sort of consulting operation that I set up to help people with building out their content engines. That is now a company that has a CEO and a team that is running it and I own a chunk of that. There’s a newsletter, growth operation business. There’s talent business where we place talent into growing companies. There’s a web design and development business. There’s a handful of others that all sort of exist underneath and are owned anywhere from 10 through 50%.
They all have CEOs, they all have operators, they have teams that are running them on a day-to-day basis. My set of responsibilities is strategy, so I help from kind of a board level strategic oversight and then also driving business to those companies. So if people are coming to me looking for insights on newsletter growth or how to do any of these other things, I actually have companies that can help people with those exact things. So kind of lead generation. Those are all high ticket services companies for the most part and are all cashflow generating. So they pay out dividends every month or every quarter on the basis of the cash flows they’re generating. And then the final thing that’s a piece of my holding company is a venture fund called SRB Ventures 10 million fund that I raised in 2022. I had done a bunch of startup investing personally over the years just out of my own capital. I had the networks from the Stanford days and I’d continued to build on that, and so I ended up raising that fund from a bunch of investors and have been investing out of that since 2022.You just said a lot of things. How many hours a week are you working?Well, you’re catching me right now in a very crazy time because I’m in the midst of launching this book, so I’m probably working right now just as much as I worked as an analyst in my private equity days. Fortunately, I’m working on something that I really love doing and that I feel a real purpose and mission around, which means that it feels quite easy to do that, but in normal times, probably somewhere between 40 and 60 hours a week depending on what it is, but I really think there’s a difference between time and energy and working 60 hours a week on things you hate is significantly more challenging than working 60 hours a week on things that really provide energy to you. And I get so much energy from seeing how the ideas that I share can positively impact people. I’m sure the same way you guys do. Being able to hear from your listeners how they’ve changed their life on the back of something that they’ve heard from you. I can’t imagine a better use of my life than getting to do things like that. It feels incredible that I’m so grateful for the fact that I get to do stuff like that, and so I do work a lot, but it’s because I really like what I doThat really matters. You said working 60 hours at a job you hate is infinitely worse than working 60 hours at a job you love. I’ll give you working 40 hours at a job you hate is infinitely worse than working 80 hours at a job that you love because what is that cheesy phrase? When you love what you do, you’ll never work a day in your life. Yes, but or yes, and it’s also true. I have had jobs that I really did not even want to get up in the morning. Every time the alarm went off, you’re like, oh, five more minutes please. And this job, I just pop out of bed and I’m ready to go. I’m so excited to get to work because I get to talk about real estate and money all the time. This is like a dream job.You have two frameworks that I want to dive into here. One around these kind of pillars of financial wealth and then one around these levels of financial wealth. Can you introduce us to those and tell us about those and tell us about how, what’s in the book as well?So the pillars of financial wealth. Within each section of this book, within each type of wealth, I sort of lay out what I view as the three pillars of that type of wealth within financial wealth. Those three pillars are quite simple. Income generation is one that is kind of your cash inflows that you’re generating from primary employment, secondary employment, side hustles, whatever it might be. It is expense management, the actual cash outflows from spending money on things, experiences, taxes, any cash outflows that you have. And then the third is long-term investment. It is taking the gap between the cash inflows and the cash outflows and investing it into long-term compounders, things that are going to compound over the long-term in your financial life. That sort of simple model of growing your income, managing your expenses, and investing that gap is how every single person in the world that has made a lot of money has done it.
There’s different variations on how it happens. It might come from a windfall event, it might come from just steady rises in income, it might come from side hustles, whatever, but basically that’s what it is. You’re generating a gap, you’re investing that gap into things that are going to compound over the long term. And so complicating it beyond that ends up becoming a dangerous thing. You actually don’t to just need to think about how am I going to do those three things? Well, how am I going to grow my income? Basically that comes down to building skills and then leveraging those skills. How am I going to manage my expenses such that they grow slower than my assets, than my income is growing rather? And then how am I going to simply and basic invest my gap in something that is going to stack and compound for the longterm?What then are these levels of wealth that you describe here? And also I have a question of do you feel like there’s a specific time and place to apply each of those pillars? Is there a time in life when it is way more important to apply frugality than income or investing? How do you think about applying the focus in those areas and then how does that translate to these levels of wealth?I think that the basic principle that is true is that you can only manage your expenses so much, but you can grow your income infinitely effectively. And so overly focusing on saving the $2 here, the $3 here is actually energy that you should probably focus on growing your income. Similarly, overly focusing on trying to generate an incremental percent return in your investments is energy that you could spend on focusing on how to make twice as much income. I think about this all the time when I go and mentor young people, you get someone that has a hundred thousand dollars of investible assets and an a hundred thousand dollars income level and they’re spending all of this time and energy worrying about how to generate 10% returns versus 8% returns on the a hundred thousand rather than how to turn the a hundred thousand of income into 200,000.
If you just think about the pure math on that, it’s like the a hundred thousand to 200,000 is an a hundred percent return on what you are making in a year. The extra 2%, it’s $2,000, it’s 2% that you’re going to generate on this asset base. On top of that, you’re probably not going to outperform the market over a long period of time and acknowledging that and just appreciating that you can just ride market returns to an extraordinary wealth bucket. You will focus more on the income generation, on the skill building, and on the ability to leverage those skills in different unique ways. For that reason, I think that really focusing on building those skills and on figuring out different ways to leverage those skills across your primary employment and then with different side hustles that might earn you some side income is probably the most strategic path for most people to achieve financial independence. It is very hard to cut your way to financial independence.I also do wonder though that the person with a hundred thousand or even more extreme, the $10,000 in assets that’s super focused on etching out that extra return. Something about that mindset though leads those folks to end up earning more money or saving more money because they think about from an investment perspective. So I completely agree with the framework around there, and I remember being that person obsessing over my $10,000 in the Chinese fruit juice company that did not go super well trying to get excess yield, but I think that the fact that I was so interested and passionate about investing also just made me want to earn more and save more so that I couldInvest. That is a very good point under the Charlie Munger piece of wisdom that success follows interest and the fact that you were that interested in something and you were willing to lean in it and learn about it, actually probably uncovered new and interesting ways to make money down the line as well.Yeah, I mean, come on. How did I lose money though? It was trading below net asset value.I saw that way too many times in private equity, by the way, where we would try to outsmart a bad market. I would say the single thing that I focus on now as an investor in my venture investments or my companies or anything else that I’m doing is the macro conditions of a market because you cannot fight a bad market. You can have a great team and a great thesis for a company, but if the market is sort of declining or flat, it’s so hard to win and make more and more money and grow your earnings. But you can be an okay company with an okay thesis, an okay team in a great market, and you can capture your share of the market and just do quite well over the long term and grow earnings. And so I just focus more and more now on investing in great markets.So let’s play that out for a second here. I know this is a tangent that the year opened a whole can of worms here, and we’re trying to dissect the really high level macro themes right now before we get into the smaller markets, which I think you’re meaning this market is growing and this is a good venture capital investment because consumer interest is growing here. But we were thinking about this. Dave Meyer, the host of the BiggerPockets Real Estate podcast and I were thinking about this. We were talking about if we zoom out in 2024 and look at what happened in the financial markets at the highest level, stock market increased 24% and is now trading at close to an all time high price to earnings ratio. Gold went up 30%, bitcoin’s up 115%. The 10 year treasury yield went up about 18% year over year, and real estate went nowhere. The prices went down or rents went flat, and that led me to think about reallocating my portfolio, which I did from the index fund. I sold a big chunk of my index fund portfolio and putting it into real estate. I don’t think that’s what you mean when you think about markets growing or there, but I’d love a reaction to that thought process and then a definition of how you think about markets and investments in venture companies per the 10 million fund that you referenced earlier.Yeah, I find that when I try to outsmart things or think too strategically about these things, I’m like, I sort of like to know where I’m an idiot on stuff and I know that I’m an idiot on thinking about perfect how to rebalance my portfolio and how to spend time on that stuff. And so I just don’t, I know that if I try to do those things, I’m not going to do well with it. I just assume I’m not going to. And so I literally just dollar cost average into index funds and I’m happy to ride whatever ups and downs they have because I know I’m going to hold these for the next 30 or 40 years. It is just going to continue to build. I’m going to borrow money against it probably in the future, and I hope I never have to sell it and pay taxes on any of it.
And so I think that when I think about allocating into different asset classes, I think about net new dollars versus reallocating things I’ve already invested. Every time I make an investment, my operating thesis in my mind is I’m never going to sell this. Am I happy making this investment if I’m never going to sell this investment? Usually when the answer is no, I’m better off not making it because I am not comfortable in the long-term thesis and what this is. And so that is a very old school, probably somewhat of a buffet monism mindset around it. But that’s what works for me from a Headspace standpoint, mainly just because I want to take all that headspace that it would consume for me to think about those things and put it into assets that I know I have control over, the ones that I own and things that I’m actually involved in the operations of.
So that’s what works for me. As I think about that when I talk about investing in good markets, I’m really referring to in my private equity days, I’ll give you an example. There was a company that we were looking at in the e-commerce space. They were selling sort of home decor products that was like an okay business. The actual operations of it were kind of okay, team was okay, but the market was growing at 20 plus percent per year in a broader GDP growth of a 2%, 3% GDP growth environment. The market was growing at 20 30% because more and more of home decor was shifting to online purchase from traditionally being a totally in-store thing like buying rugs. It was the first time in history that people were buying rugs online and getting them shipped to their house. And so all of a sudden this market was booming and that as a thesis would’ve been a great place to invest money at the time because it didn’t really matter if the business wasn’t extraordinary or exceptional. What really mattered was they could be okay and ride this rising tide that was happening for the next three to five years. And that company as an example, I think grew earnings from 17 or so million when we looked at it to like 70 million over the course of three to five year time span. If you had put a little bit of leverage on that when you bought it, you probably would’ve made 10 times the money that you put into it.Awesome. So those returns would floor, I couldn’t resist on a terrible pun for your home decor and carpet business here. Sorry. That was quite good. It was good enough that I completely missed it. We’ll keep moving here. Last question before we kind of adjourn here. Can you tell us about the five types of wealth, five types and five levels of wealth here, the framework that you have? Introduce us to that and tell us a little bit about the book as well.Yeah, so two separate things here in the financial wealth section, I have this idea that there are five levels of financial wealth building on from level one, which is just your baseline needs being met, food and shelter on through level five, which I consider to be the level where the assets that you hold are producing significantly more income and cashflow than what your monthly expenses are. So like true financial independence, all needs are met, you can do whatever you want. And your pathway through those levels is really what you’re talking about when you’re talking about your journey. You’re kind of focused one level at a time. It’s kind of like a video game. It’s kind of a fun way to think about that journey that gives you these incremental steps that you’re working towards. The five types of wealth is sort of the macro theme and the title of the entire book.
And the whole idea is that the way that we’ve measured our lives is broken or at least incomplete because it has historically and culturally just been focused on money. It is the only way, the only type of wealth that we’ve ever considered. And unfortunately, while money isn’t nothing, it can’t be the only thing. I saw that in my own life, money had become the only thing that I focused on at the expense of all of these other areas. And there are these other types of wealth that contribute to living a great, happy, healthy, fulfilling, wealthy life. And so the five types of wealth that the book considers are time, wealth, that is the freedom to choose how you spend your time, who you spend it with, where you spend it, an awareness of time as your most precious asset. Social wealth is the idea of your relationships, the people you are surrounded by mental wealth.
That’s all about your purpose, your growth, your ability to create space, to wrestle with some of the bigger unanswerable questions of life. Physical wealth, which is all about your health and vitality. Health is wealth. And then financial wealth, which we’ve talked about at length on this podcast and specifically with financial wealth, it’s the idea of really understanding what your definition of enough looks like, what that life actually looks like to you. Because in the absence of that knowledge, in the absence of the understanding of enough, you just chase whatever more the world is telling you that you need.That is the journey of BiggerPockets money in a nutshell, is to figure out what that enough level is, get there and then begin that journey of figuring out what’s life beyond work in a general sense or beyond the need to work to fund that. So love it. And can you tell us about what the book is called when it Comes Out and where People can find it?Yeah. The book is called The Five Types of Wealth. You can find it anywhere books are sold. I’m always a big fan of supporting your local bookstore. If you have one that you love, obviously you can get it on Amazon, Barnes and Noble, anywhere else, and you could find more information at the five types of wealth.com, and you could find me at Sawhill Bloom on any platform.Well, thank you so much for coming on BiggerPockets Money Day and sharing your story. This was a wonderful, wonderful conversation to have with you. I think folks learned a lot and a lot of good perspectives that you share here, a lot of wonderful frameworks that you bring to the table in terms of life and wealth building. So thank you, thank you,Thank you, Sahil, and we’ll talk to you soon.All right. That was Sahil Bloom. Mindy, what’d you think?I thought that that was very interesting. I have been giving a lot of thought without actually putting a name to it about his five types of wealth just recently in conversations that I’ve been having with Carl and the time, wealth is absolutely the most important thing. You can’t do anything. The clock always keeps ticking. I recently saw that movie Interstellar, where they talk about time warps and the theory of relativity, and it kind of went way over my head, but here on earth, we have a clock that keeps ticking and keeps moving forward with no way to go backwards. And the freedom to choose how you spend your time is so important, but also social wealth. I mean, what are you doing with your time if you’re just sitting at home alone doing nothing all the time, social wealth, your relationships, mental health, I’m sorry, mental wealth, your purpose.
We just had Doc G on with his new book, the Purpose Code, and that book is so, so good at walking you through, figuring out what your purpose is going to be, physical wealth. Scott, I started going to another gym. I started going to a gym last week, or I’m sorry, last year, and it closed on December 30th. It was so disappointing. I know. I’m like, how does the gym close? It turns out Longmont has a lot of gyms, so I found a new gym. I’ve been going, I can’t say that I love it, but I love the way I feel when I’m done. And obviously financial wealth, which we have spent a lot of time on, but this show talks about the financial wealth. It doesn’t really talk so much about time, wealth and social wealth and mental wealth and physical wealth, but those are all part of being a wealthy person, a well-rounded, wealthy person. It’s not just about money in your bank. And the rest of his story was fascinating too, but that really, really hit with me.Yeah, I’m a big believer in this. I see this pattern a lot. And Sahil is a great example of this where folks go well past the point where more money really incrementally has an impact on their happiness or lifestyle. And once they actually make the change and pursue the options that brings them, they’re able to pop up and think about more of these other areas of life in a different way. And that’s kind of sad about capitalism in America in 2025 is that for a lot of people, it kind of takes that reality to take place. So I think BiggerPockets money, we need to enable that for more folks, so you can get over the finish line here and have enough assets to, well, more than cover your lifestyle needs so that you can pop out and think about those other things. And I don’t think we will pretend to have a lot of answers on how to have fitness, although my next book title after Set for Life will be Sweat for Life. So look up for that in 2027 here. But I don’t think we pretend to have a lot of answers and all those other areas on there. I hope that the folks view us as a means to getting to that point so that they can really begin that next part of the journey on there and focus on those other levels, those other areas of wealth outside of that.Yeah. Well, I have a suggestion. Don’t do it. I did it. Carl and I were just like, Sawhill and his wife focused on the money and well, maybe not. His wife just Sawhill was focused on the money and focused on the money, and all of a sudden he’s like, I’m only going to see my parents 15 more times in my life. Something has to change. And once we reached financial independence, we looked around and we were like, oh, that wasn’t a very enjoyable journey. Focus on your time during your journey. Focus on your relationships during your journey. Your mental health, your purpose, your physical health, focus on all of these things, not finance aspect of it, because we might’ve retired or Carl might’ve retired a year later with a much more enjoyable journey. And because of that time thing where we don’t have go back in time, we can’t go back and see if we would’ve had a better journey, if we would’ve done it differently the first time.Your advice is wonderful and people should take it. And for the many people out there who will definitely not take it and will still obsess about the money, my advice to you would be to just know the finish line to when you get there, make the pivot on that front. Make sure it’s not decade away. Make sure it’s just a few years away and do it like Sahil. Do it like Sahil did and make that transition and get to work on those other things because time is finite. Mindy’s answers better. But if you can’t do it, do that just to find that finish line and get there, and then make the pivot, make the change,And don’t keep pushing the finish line. Really do your research and figure out what your finish line is and then don’t keep pushing it. Figure out what you want to do once you hit that finish line. And I mean, you can always change your mind, but the one more year and one more. Oh, just a few more dollars and, oh, I’m not sure if the 4% rule works and keep changing all of this, then you’re never going to be done.Love it. Well, should we get out of here, Mindy?We should. Scott, that was an awesome episode and that wraps up this awesome episode of the BiggerPockets Money podcast. He is Scott Trench. I am Mindy Jensen saying, can’t linger wedding singer.