$300,000 in passive income a year: This Financial Samurai did it

Sam Dogen isn’t your typical FIRE blogger. 

Unlike many personal finance bloggers that promote the FIRE (Financial Independence, Retire Early) movement, Sam made an early decision that he didn’t want to live an extremely frugal lifestyle. 

For starters, he preferred to reside in an expensive city (in his case, San Francisco). 

He didn’t want to live out of a van. 

He wanted to travel. 

He wanted to start a family.

He wanted to enjoy his life. Plain and simple. 

Sam founded his blog the Financial Samurai after the 2008 financial crisis left him with some hard-learned lessons that he felt would be valuable to share with investors new and old. 

As one of the pioneers of the now wide-spread FIRE movement, he then ended up formulating a practical alternative to the extreme savings techniques promoted by other FIRE bloggers. 

Sam’s kind of FIRE lifestyle would allow someone to reside in an expensive city, eat what they like and spend money on raising a family thanks in part to a laser-beamed focus on boosting income, as well as by learning how “to invest as much as possible” with extra savings. 

Sarwa recently spoke with Sam about his role in developing his own type of FIRE lifestyle, his investment strategies for entering a frothy market, and his passive (and active) income ideas. 

Like other advocates of FIRE, learning how to generate passive income from the stock market is at the core of Sam’s philosophy. At the moment, he is aiming to “generate $300,000 a year in investment income.” 

This isn’t an impossibility for people that work outside of finance, especially since it is only getting easier to access the stock market thanks to new robo advisors and online financial planners like Sarwa. Indeed, Sam believes that everyone should have access to the market; this creates the most equitable good for wealth building. 

“Robo advisors are great in that they lower the friction and difficulty for new investors to start investing,” he says. “I know so many people during this bull market who make good money, but who ended up just hoarding cash because they didn’t know how or where to start.”

For our readers in the UAE, we believe that his life lessons will offer practical inspiration to consider, especially for those interested in how to maximise their wealth building in Dubai. 

Enjoy the conversation! 

1. Sarwa: You were previously an investment banker but grew into personal finance blogging as a “cathartic way” to handle the events of the 2008 financial crisis. Describe what exactly inspired you to start the blog, and which previous FIRE bloggers most influenced you.

Sam: I started Financial Samurai after losing about 35% of my net worth in a matter of 6 months during the financial crisis. I thought I did everything right – saving aggressively, diversifying my investments in real estate, stocks, and bonds, and so forth. Despite my efforts, it was demoralising to get rocked so quickly. 

I actually came up with the idea to start Financial Samurai in 2006 after graduating from business school part-time. But life got in the way and I wanted to focus on my career. The financial crisis was the perfect catalyst to stop putting off an idea. 

As one of the modern day pioneers of the FIRE movement, there were only a few FIRE blogs back in 2009 when I started. Jacob Fisker from Early Retirement Extreme was interesting, but I didn’t want to live off only $8,000 a year on a small boat. That was too extreme. I wanted to enjoy life, travel, live in a nice house, drive a safe car, and one day have children. 

2. Sarwa: The events of 2008 were a sharp reminder of the importance of proper allocation between stocks and bonds, something that novice investors tend to overlook these days. Why is this allocation so important, and what stock/bond ratio do you personally propose?

Sam: The proper asset allocation of stocks and bonds by age is important for risk management. Bonds offer defense, stocks offer offense. After a consistent bull market since 2009, there is clearly a chance we could see another violent sell-off like we did in March 2020. Having a bond allocation or a real estate allocation helps buffer the downside. 

I encourage people not to confuse brains with a bull market. Most investors are getting rich off stocks and real estate. However, that doesn’t mean we can’t wake up and lose much of our gains one day. The closer you are to retirement or the closer you are to not wanting to work, the more conservative you should be. 

3. Sarwa: However, since we are in a prolonged bull market, there are many new investors that feel anxious about starting to invest today. What would you tell new investors looking to enter the market today?

Sam: I follow my version of a dollar cost average strategy to leg into the market. This way you’re not always buying at the highs (or lows).

4. Sarwa: One of the biggest criticisms of the FIRE movement is that it is inaccessible, especially for urbanites that live in expensive city centers like Dubai. However, you have managed to develop a lifestyle that has led to financial independence while living in San Francisco. How can city dwellers cut down expenditures and boost savings — without following the more extreme frugality measures proposed by other FIRE bloggers?

Sam: I firmly believe the best way to build wealth is through generating income and making investment returns. You can only cut and save so much. The income and investment upside are unlimited. Therefore, I recommend saving as much as possible each month in order to invest as much as possible.

Here are my best passive income investments ranked. I recommend everybody generate supplemental retirement income or side income while you have a job. Do some moonlighting before and after work. Financial Samurai was born from moonlighting between 5 am – 7 am and from 9 pm – 11 pm while I was working in finance. Now, the site generates enough revenue to take care of my family. But the site has also been around since 2009. 

5. Sarwa: There are three types of FIRE lifestyles: Fat, where adherents live in expensive cities; Lean, which promotes extreme frugality; and Barista, which is a combination of both. Which one best fits your blog?

Sam: I subscribe to the Fat FIRE lifestyle and am currently shooting to consistently generate $300,000 a year in investment income to take care of my wife and two young children in San Francisco. We may also eventually move to Honolulu where my parents are from.

For reference, when I left finance in 2012, my passive income was around $80,000. When my wife, who is three years younger than me, left her job in 2015, we shot to generate $150,000 in consistent passive income. As we had children in 2017 and 2019, our passive income targets increased to cover healthcare costs and education costs. It’s been a fun challenge, which has been thankfully helped by a raging bull market. 

We decided to shoot for more passive income so we wouldn’t feel stressed being two stay at home parents. Our goal is to both stay at home for their first five years of life until they start school full time. 

6. Sarwa: Building a passive income stream has been at the core of your blog and your road to financial independence. How important is learning to invest in stocks and bonds as early as possible to financial independence, and how can ETF investing help new investors?

Sam: Due to the power of compounding, the sooner you can start investing in stocks, the better. I encourage younger investors (<40) to mostly invest in growth stocks over dividend stocks. The goal as a younger investor is to more rapidly build your capital base. Once your capital is large enough, then you can start investing in dividend stocks or dividend ETFs for income. 

7. Sarwa: You are a huge advocate of online entrepreneurship. Can you provide some examples of how you were able to generate extra income through novel ventures online? How much passive income do these ventures make?

Sam: Online entrepreneurship is anything but passive. It takes a lot of time to write posts and also answer these interview questions. However, once the articles are written, there is a passive income component form the organic search engine traffic that comes from Google etc. You can learn more about potentially how much bloggers can make here. 

Everybody should brand themselves online. When you can own an online business that can’t be shut down, that’s huge! 

8. Sarwa: There are many emerging technologies that are lowering the barrier to entry for the average investor, such as robo advisors. This is now enabling people from across the world without previous access to now enter equity markets in the US and other regions. Do you believe that investing should be for everyone, and what would you tell a younger version of yourself about the importance of starting investing early?

Sam: Investing should definitely be for everyone. Robo advisors are great in that they lower the friction and difficulty for new investors to start investing. I know so many people during this bull market who make good money, but who ended up just hoarding cash because they didn’t know how or where to start. 

Robo advisors should help make investing easier for everyone.

9. Sarwa: You have written a book and gotten into real estate crowdfunding. What is next for the Financial Samurai going into the upcoming decade?

Sam: Besides writing a severance negotiation e-book, I will be publishing a new book with Penguin RandomHouse due in 2022. That will be an interesting and exciting experience.

I also plan to continue looking for San Francisco ocean-view property, which I think is one of the most promising investment opportunities in the world. Ocean view properties generally trade at a big premium to the median sales price in any big city. But not yet in San Francisco, hence the opportunity!

20 years from now, I want my children to be proud of me for having the foresight to invest at today’s prices. I’m confident that when they are adults, they will look back and marvel at how cheap things were today.