How have you set your financial "thermostat"?

Question

You come across the saying "you are the average of the five people you spend the most time with" in books, podcasts, and online. Anytime you're talking about real estate, business, and personal development. It's become cliche, but because there is validity to it.

When I was still a student, I had a small group of close friends who were all in good shape, except for one - let’s call him Ned. Back then, I never closely thought about Ned’s exercise and nutrition habits, but when I look back at it now, they were far from ideal. At some point, he started to ask us for advice about health. Of course, we obliged and though we didn't have any formal system of accountability, I think that the time he spent with all of us helped establish a new standard for what was normal. Over time, he ended up losing over 60 pounds!

This personal anecdote shows the power of social norms and the environment. Now, bringing it back to real estate investing, I've realized that although the people around me are hard workers, are good people, have high standards for their health, and have personalities that I love, they don't necessarily have the same type of goals for wealth and meaningful work that I value, meaning I've put myself in an environment where I'm working against the grain! I'm in a good environment for health, quality work, and day-to-day happiness, but I haven’t put myself in an environment where it's the norm to achieve financial freedom, take calculated risks to build businesses, and build wealth for my future family and community. So my question for the forums:

Besides the obvious ones of real estate investment meetups and social media groups, what have you personally found to be the best way to meet with and develop genuine relationships with people who are achieving at a higher level than you financially and in business?

And related to that, how much overlap do you personally have between your close circle of friends and those with whom you talk about your goals for wealth, business, and contribution?

Jim K. · Answer

The popular saying that your net worth is the average of the five people you spend the most time with was coined by motivational speaker Jim Rohn. Its validity has never been investigated.

But what you are talking about something I've come to understand pretty well at this point, from a first-hand perspective.

Most of the best relationships I have in this field with people are doing financially better than I am came about through two means: what I call "invited accidents," and referrals. The sort of accidents I'm talking about are the kind that come about when you are pushing hard, and people notice. The kind of people you're talking about are bright and awake. They understand that the number of people in this world who are bright and awake is very low. Whatever they do in life, they are awake to the presence of talent, they are are always listening for the voices of bright people. People you would never expect to go out of their way to meet you will do so from time to time. From those people, you tend to get referrals. It is always wise to follow up on those referrals.

Before I got into real estate investing, I had another life and I was somewhat successful in a career where I made lifelong friends, and I have a rather large extended family that has some ambition. Very few of these people are what I would call financially successful, which at this stage I would define as having self-made net worth of $1-5M net worth outside the value of their primary residence. In my case, most of my close friends are what I would instead call middle-class to upper-middle class.

They work well-paid jobs (mostly in the tech industry) and make very respectable salaries, but...that income is in all these people's cases frittered away on paying for the upkeep of an expensive home in an expensive neighborhood, multiple late-model cars, and bad investments (most typically actively-managed target-end-date pension funds with high expense ratios).

I have three millionaire friends and family from this pool of friends, all people who made their money investing in small businesses. I would not trade lives with any of them.

I've learned to keep my real estate friends and my "old" friends separate. I do not talk about my financial successes to my old friends and family -- if I tell them anything about my business, it's entertaining war stories and horror stories from the trenches. It's very easy to lose friends, really good friends, when you tell them your actual opinions. How do you approach someone who's living in a $1M house and driving his-and-hers $$$ cars and explain to him that the fact that his wife is endlessly determined to prove to her own mother that she could have more kids and turn them out better on Sunday by documenting it on Instagram is the main thing holding him back? You can't. So you shut your hole, and you keep your friend.

Sometimes, the difference in your lifestyles forces you to speak. One of the things I've done is move out of a $150K condo with tennis courts, a pool, and a fat HOA fee to a duplex I bought for $45K in a not-so-nice neighborhood. By every reasonable metric except the reputation of the neighborhood, the duplex is a nicer place. But when your brother at the same time moves from a $250K single-family in a solid neighborhood to a $750K McMansion in a new development, and you haven't bought a car in five years, well, if you explain nothing, your brother is going to automatically assume you're going broke. That conversation did not go well, sadly, and my brother and I barely speak today.

So not much overlap at all. The money makes it easier to live with that.

Taylor L. · Answer

I've cultivated my five by spending a number of hours each week interviewing experts. I learn a lot when we're doing the actual interview, but the deepest connections are formed when you connect off the record, on a more personal level.

One of my personal strengths is the ability to relate with others and find common ground. We live in a world where unless you have 100% overlap in personal (okay, political) values, you're expected to be enemies. I do not accept that paradigm. I seek to understand, relate, and connect as best I can. Everyone wants to feel understood, so if you can build that understanding you're well on your way to a strong connection.

Everything after that comes down to follow up. Take the follow up action into your own hands!

In the non-business area, my main consistent activity is Brazilian Jiu Jitsu. You get to know people and their character quite well, build mental toughness, and to learn an important skill. There are some bjj guys that invest, but there aren't many.

Jim K. · Answer

Glad you responded, Kohei. But I have to warn you about the sadness inherent in the road you are about to embark on, and give you one piece of advice.

A lot of people have very strong opinions about this topic and no one is comfortable consider that their whole financial belief system might be in grave error.

If you go from being less than financially successful to most of your friends (as something like an English language teacher) to more financially successful than most of your friends (as something like a real estate investor), you're going to realize that for some of these "friends," a very big reason they felt comfortable around you was because you initially validated their mistaken financial worldview.

Kohei Hayashi · Answer

@Jim K. Thanks for the in depth response. It sounds like in your experience, creating meaningful relationships comes from producing at a high level, through both hard work and quality work.

I hadn't considered that as you grow your wealth and business, some of the people around you might feel alienated and defensive. I'll keep that in mind. I hope that even if I can't help all my closer friends, I can nudge just one or two towards the same pursuit financial freedom and a better life.

Kohei Hayashi · Answer

Great advice! I think a lot of times, I'm able to get that initial relation and common ground, but the follow up is something I can definitely work on.

And with Brazilian Jiu Jitsu, what a coincidence! I actually started training with a friend last November during COVID and then at a gym later in June. No-gi is a blast for me, but in the gi, I didn't know that it was possible to be controlled by your opponent in so many different ways.

How have you set your financial "thermostat"?

How have you set your financial "thermostat"?

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