No Worries

Financial stress compounds other kinds of stress: marriages, jobs, kids. It makes your life difficult.

Most people believe that the antidote to financial stress is more money. But it’s not. A stress-free financial life is a function of how you structure your financial affairs, and your attitudes toward money.

There is a fallacy in the personal finance discipline that having money is the product of a million small daily decisions. As it turns out, if you get the big decisions right, then you don’t have to worry about the small decisions.

Debt and risk are the two sources of financial stress—there are no others.

Getting rich may get you a higher standard of living, but it may not necessarily reduce your stress. If you have bad habits, it frequently doesn’t.

Your job is not your job. Your job is to be friends with your boss.

If you look at all the really profitable businesses out there, they are all scalable, weightless businesses. “Weightless” means not much in the way of capital expenditure or assets on the balance sheet.

Money is a choice: you have to choose to want it. It also represents choices. It represents things you can do. It represents options.

Time is more important than money—always. If you have the relationship between time and money backwards, you will never succeed in accumulating wealth. You can always make more money. You can’t make more time.

When you have debt, you have a fixed payment that you need to meet every month. This causes stress. If you don’t have debt, you don’t have payments, and you have no stress. Simple as that. Debt is a source of stress.

Is the goal to eliminate all debt? Ultimately, yes. Some debt is better than others—mortgage debt is better than car loans, which is better than credit cards, which is better than student loans.

The goal of any investment strategy should be to target risk first, and returns second. Because risk is the second source of financial stress.

The goal isn’t to be rich—the goal is to be happy; though if you’re doing it right, you can probably have it both ways. I know rich people who are profoundly unhappy. I know poor people who are deliriously happy. The happy ones, rich and poor, have minimized their debt and risk—without fail.

If you’re not thinking about money, then your mind is freed up to think about all kinds of other things, and you can be much more productive and happy.

If you think about your household as a business, the first question you should ask yourself is: is the business growing? Are you making more money year after year? Is your revenue growing? How fast is it growing?

The primary benefits of being rich are psychological, not the Richard Mille watch that you’re going to buy. It’s peace of mind, but it’s more than that. A rich person believes that even if he lost everything, it’s not the end of the world; he’d be able to make it all back. There is literally nothing to worry about.

Asking for a raise is a necessary first step. It is necessary, but not sufficient. You want to get yourself into a position where you have upside. Oftentimes that means getting equity in the company where you work, so you can share in the profits. If the company grows, then you benefit along with it. If you’re not an owner, you’re simply an employee, and you’re limited by whatever your boss feels like paying you.

Another way to get exposure to upside is by owning stocks. Stocks can theoretically go to infinity. Most of them don’t, but if you have a portfolio of 30 of them, one or two of them might go up a lot.

All of this ties together—focusing on the revenue side, getting exposure to upside, and being positively exposed to luck. These three ideas will change your life.

The one thing all financially successful people have in common is delayed gratification—the ability to put off some pleasure today for more pleasure tomorrow. But sometimes we take delayed gratification too far—we never get to the gratification part.

The most important personal finance decision you will make in your life is: Who to marry. When selecting a partner, you want to choose someone who shares your values on money.

Early-stage investing can be one of the most profitable things you can do—with virtually unlimited upside—but it should not make up more than 10% of your total net worth.

Teenagers should have jobs, no matter how stultifying. The last thing you want is for your child’s first day of work to be when they are 22. Showing up on time, in the right clothes, ready to work, and putting forth maximum effort is what should be learned at age 16, not age 22.

Let the cash sit there in the bank: it is serving a purpose, and that purpose is your mental health. There is nothing else that is more important.

Living a stress-free financial life means maintaining a strong liquidity position at all times. If you are a real estate investor, and you have ten to 12 houses, you will want to have a lot of cash on hand. Don’t be one of these asset-rich/cash-poor people. This is how you get into trouble.

You should not use a credit card for frivolous spending unless that purchase is cash-secured. Meaning you already have the money in your bank account.

You should not be spending more than 25% of your income on housing. Why? Because if you do, you will be unable to pursue other financial goals, like saving for retirement. The mortgage will suck up all the available cash flow.

Even in today’s information age, we still need to fill a lot of jobs where people are doing physical labor with physical things. And there are big opportunities in those types of careers.

Do not get a car loan longer than five years. If you can’t afford the car with a five-year loan, then don’t get the car; get a cheaper car.

Since we are talking about losing money, you have to think of the probability of losing money and how much you will lose when you do. When you buy a stock or any other investment, you should first think about the asset’s volatility. Because the more risk you take, the more stress it is going to cause you.

The funny thing about insurance is that lots of people purchase insurance on their life or their home, but they do not purchase it on their portfolio—which is often their biggest asset.

You’ll be building a diversified portfolio of mutual funds and ETFs. Your portfolio should be: Simple, Boring, Diversified (across asset classes)

The most important thing about investing is to stay invested, so you can keep compounding. Once you panic and sell your stocks and bonds, you stop compounding, and the growth ends.

What is the “right” amount of spending? How do you know what is the right amount? Well, a good guideline is that you occasionally buy things that make you happy and you do it without the use of debt, and there is plenty left over for savings. That is pretty much it.