Financially Good with 3 Quotes
Morgan Housel tells the story of Abraham Germansky and Jesse Livermore in the 1920’s.
The story goes that Abraham was a wealthy, multimillionaire real estate developer that loved stocks. He bet heavily as the market boomed but was wiped out during the crash of 1929. That was basically the end of Abraham Germansky.
Jesse also bet heavily on the stock market, but in the same week that Abraham was wiped out, Jess returned home the richest man in the world. He made, in one day, the equivalent of $3 billion by betting correctly that the stock market would crash.
I don’t know what Livermore’s goals were, but $3 billion would be enough to fund all of my goals and dreams 100x over, and whatever your dreams are 100x over as well. However, Jesse went on to make larger and larger bets, and eventually lost everything to the stock market.
Getting rich is one thing. Staying rich is a different animal.
The ability to earn money does not necessarily translate well to keeping money, because earning money is a skill, while keeping money is good behavior.
While the story of Abraham and Jesse seem distant, there are stories of celebrities that have made millions and lost it all all the time. The same applies to everyday people, meaning you and me.
The purpose of making money is not to have more money. The ultimate goals of wealth is to realize your dreams.
Money can’t buy happiness and love outright. But it can take you to different parts of the world, allow you more time with family, give to causes you care about, fund your own way to starting a company, etc. Money can help fund your dreams.
The tools to build wealth look different today compared to a decade ago, the fundamental principles remain the same. In order to get in on the fun that’s happening, you need the resources to invest. Here are three quotes to follow if you want to be in position to take advantage of future wealth building opportunities.
“Do not save what is left after spending, but spend what is left after saving.”
-Warren Buffet
Then spend whatever is left after your savings. This is called reverse budgeting.
Savings is the FUEL for your wealth. It’s what will help you pay off debt, increase your portfolio, and pay for that dream vacation or home.
Start with a budget. It’s the building blocks of building wealth and allows you to fund your most important financial goal: future expenses. Figure out how much you spend monthly or annually, and start with this number to calculate how much you need to save today in order to fund your future expenses.
In other words, fund your future expenses first.
Highly recommend this book
“Save Like A Pessimist, Invest Like An Optimist.”
-Morgan Housel
The biggest missed opportunities to build wealth is usually not a lack of effort, but a lack of knowledge about how to best invest your savings. Some take too much risk. Some not enough.
The most harmful thing you can do to your investment portfolio is to interrupt the compounding effect. The best solution is to have enough cash on hand for the unexpected flat tire, medical bills, and home repair. If holding cash seems dumb, give it an important name to make it feel as important as it really is.
Cash Reserves
High liquid short-term investments
Guardian angel of our goals and dreams
We know that cash alone won’t be enough to help grow your wealth. So once you have a healthy cash balance, or concurrently, build an investment portfolio with an appropriate amount of risk.
Taking a risk on a concentrated single stock position, statistically is not a good bet. Almost half of US stocks lost 70% of their value over a 30 year period. Relative to the amount of risk you are taking, it’s not unlikely you will get paid the right amount.
Risk that pays off is having a high allocation to a diverse basket of stocks. The US market as a whole returned over 11% per year over the past 40 years. A $10,000 investment in 1980 would have been almost $1m by the end of 2020.
Once you’ve built your cash and have invested for your long-term goals, now you have some discretionary money to take on bigger risks. Understand that most of these big risks, if not all, will not pay off. This is money you should feel comfortable losing.
“As an adult you don’t have $100 until you have $200. You can’t afford something unless you can buy it twice.”
-Jay-Z
Everyone needs housing and food. But once your essential needs are met, you can do one of two things with the rest of your income: save it for the future, or spend it for things that you enjoy today.
Saving for the future is important, but the present is equally important. One of the biggest lessons I’ve personally learned from working with wealthy clients is that tomorrow is never guaranteed.
I worked with a couple that had dreams of going back to Paris, and reliving a trip they took 20 years ago. They waited until they were retired, but shortly before taking that trip, one of the spouses had a stroke leaving him semi-disable.
I also worked with a high-powered attorney who loved to read novels. His dream was to retire one day on the beach reading novels all day, but instead read contracts all day for his job. Before he was able to retire, he gave me the unfortunate news that his eyesight was getting so bad, that he had a hard time reading anymore.
There’s so much talk about spending less… spending bad, saving good. I don’t subscribe to that narrative. Spend on things that bring you joy and live in the moment. Spending is personal and looks different between you and others. Don’t compare, and don’t judge.
It’s not about spending LESS, but finding the right balance between spending now and saving for the future. If you’re unsure if you should buy something or not, listen to Jay-Z for a rule of thumb.
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