TMBA 461: The 40% Rule

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Podcast 42:39 | Download | Stitcher | iTunes | Comment

If you’ve been listening to this podcast for a while, you’ll know that one of the major motivations for Dan and Ian is creating the freedom to live life on your own terms.

Freedom can mean a lot of different things to different people.

On recent episodes, we have spoken about how entrepreneurship, in this way, shares a lot in common with the FIRE (Financially Independent, Retire Early) community.

One of the tenets of FIRE philosophy is ‘The 4% Rule’, which is the practice of saving and investing enough money to allow you to withdraw 4% of that income every year to live on.

In order for that rule to work, though, you would need to save 1 million dollars to live on a modest income of $40,000 annually. That can be a tall order for people who are on a small salary, especially those with families.

Enter Jase Rodley. Jase recently wrote a piece called The 40% Rule, which addresses this head-on. The 40% Rule is an investment strategy that allows people to concentrate on returns from modest investments, while still allowing themselves to “stay in the game”.

On today’s episode, Jase discusses The 40% Rule, the business that he is currently building, and how that experience has informed his investment strategies.


Listen to this week’s show and learn:

  • Jase’s experience in the world of “digital real estate”. (7:38)
  • The difference between an Investor mindset and an Operator mindset. (13:49)
  • What The 40% Rule is and how Jace developed it. (18:10)
  • How the life that you want to build for yourself could very well be possible. (29:36)
  • Why 40% might actually be a conservative estimate. (34:49)

Mentioned in the episode:

This week’s sponsor:

This week’s episode is brought to you by Empire Flippers. Empire Flippers are the leading specialists in helping entrepreneurs buy, sell, and invest in online businesses. Whether you are looking to buy or sell, Empire Flippers’ dedicated team will make sure you are supported at every step of the process. As a very special gift, the Empire Flippers are offering a free business valuation (A $300 value) exclusively to listeners of this show. All you have to do is visit for more details.

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Published on 10.04.18
  • Key question: “Do you really want to retire?” Something to think about for sure! On our current course, my wife and I don’t see “retirement” in the traditional sense ever happening. I can simply scale back my own hours on my business (I’m already down to 10/week) and improved my team or systems.

    I know that was one tiny part of the episode, but it struck a nerve. Great episode Dan & Ian (& Jase)!

  • Just to add to the discussion:
    1. Websites as assets depreciate (or appreciate). You need to invest in keeping them up to date, both technically as also with changing markets. Imagine if Amazon changes their affiliate terms because they don’t need affiliates anymore. That’s the demise of a complete industry.

    2. Buying websites through brokers still requires much due diligence. Some marketplaces do a mostly cosmetic vetting process, some a more thorough.

  • Yep, I agree massively on both points.

    1. A lot of Amazon affiliate sites lost a lot of revenue (and therefore drop in valuation) not long ago as Amazon slashed their commissions. That’s an issue with diversification on the monetization side, just as there’s an issue with sites that only get traffic from one source (organic search sites being penalized by Google). Despite this, small Amazon affiliate sites regularly sell for crazy valuations.
    2. Justin from EF openly said this on the Web Equity Show podcast… They aren’t necessarily acting in the best interest of buyers or sellers. They get paid when a deal is closed, whether the buyer pays too much or the seller sells too cheap (though brokers earn more when the buyer pays too much). The way I see it, brokers offer a marketplace – they get 2 parties in the room together and can facilitate negotiations. Most “due diligence” is actually just “adding numbers to a spreadsheet”.

    Your two points really tie in together though. When looking to buy a digital asset you should be asking yourself: What happens if my traffic is halved? What happens if I can’t get an affiliate commission on stand up paddle boards anymore? What happens if Amazon freezes my FBA account?

  • Loved this episode. I think a missing element in both the FIRE story and the 40% story is diversification.

    Dan pointed out that so many FIRE types have stealth side businesses. Similarly, I would bet that a lot of successful small business owners have fat ROTH IRAs that they don’t talk about. I believe a major part of a smart small business strategy is to figure out how to diversify the cash from your small business into other assets that are either passive or have risks that counterbalance the risks of your business. Personally, I would be very reluctant to have the preponderance of my net worth tied up in small businesses that I must operate.

    Personally I try to strike a balance between all of the below uses for cash. (…and once you look at all these options, you start to see why a Warren Buffet style skillset is so valuable — that is is the ability to quietly sit in a chair and evaluate all the risks and expected values to put your next dollar where it will be MOST productive)

    1. Yourself (improving skills, network, joe rogan-style home flotation tank, etc)
    2. Cash for unexpected life events
    3. Financial assets (stocks and bonds, preferably researched and understood by yourself, preferably in tax-sheltered accounts)
    4. Re-invest in your own small business (growth and to free up your time)
    5. Cash to buy new small businesses (Empire Flippers style deals)
    6. Quirky 1% of net worth type stuff (guitars, crypto currencies, vintage IBM keyboards, etc)
    7. Real estate
    8. Insurance (life insurance if you have kids, business insurance, disability insurance, long term care insurance if taking care of aging parents is in the picture)

  • So much of money and hell, life is vibing mainly from an energy of love, not from fear…AND acting from an energy of love, not fear. Mostly. I keep giving, have fun, serve people, worry not much about money, spend a little, and prosper. Save, invest, serve. Save, invest, serve. When you become incredibly obsessed with serving people and keep income streams open, the money will slowly and steadily begin piling up. Save a chunk, invest a bunch and darnit, spend some and keep serving. Thanks guys. Every time I see you pop up in Feedly you pull me back to the tropics :)

  • Angela Roberts

    Please bring back Rap & Reviews! They are the best!

  • Patrick Millerd

    Because many people have talked and written about the 4% rule hardly makes it a “rule” as it’s a result based on a whole bunch of assumptions. Much of what has been written about finance and retirement is by people with strong vested interests in you believing that they are experts and you can trust them with your money!
    I have decided I’m a “nevertiree” as the whole idea of stopping work at age 65 or 70 and just living out the next 25 years seems pointless.
    I want freedom and independence but also to carry on building insurance and adding value. As Marc commented below assets are either appreciating or depreciating … and so are humans!

  • OK!!! :D

  • It’s a fascinating question for sure as so many of us make multi-decade plans based on exactly that. Glad you dug it!

  • YO! Glad to rope you back in :)

  • hehe I dig it. And yep, 100% just because a vocal minority buy into something and communicate it well doesn’t mean it makes any sense.

  • Thanks man, appreciate the comment and I dig your approach here.

  • :)

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