My Top 10 Money Rules

This is my response to Morgan Housel's Top 10 Money Rules and Barry Ritholtz's Top 10 Money Rules.

Earn More. Spend less.

"A penny saved is 1.4 pennies earned if you consider taxes" -from the internet

This sounds like a "duh" rule but it's not. The two concepts work against each other and require different soft skills.

To increase your earning potential you need to free your time for activities that make more money- this often requires spending money (e.g. eating out to save time, paying to have your shirts pressed, etc). Reducing your expenses requires the elimination of excess, or being conservative with your existing resources... this also has a cost. It's a mindset that will keep you from making more money.

To put this another way: High earners are usually big spenders, and fiscally conservative people often have difficulty increasing how much they earn.

If there was only one rule to wealth creation: you need more coming in than going out. Being good at both is a paradox that you must master.

Keep it Secret, Keep it Safe

My grandfather is friends with a billionaire. I'm not sure what he's driving these days but for ~15 years his daily commuter was a beat-up Ford P.O.S. Most days he wears jeans and a flannel shirt/work shirt. He has no problem going to the grocery store, gas station, or sandwich shop. He can do these things because, like several other wealthy people I know, he hides his wealth/ money intentionally.

Wealth, and having money, are about freedom or having options. When you display wealth publicly (cars, houses, clothes, consumables, etc), you trade your options. For some people, this is desirable (such as celebrities) but for most people, especially those with REAL money, this is a nightmare. You lose your humanity (not to mention it's dangerous). So if you start accumulating wealth, keep it to yourself. You will be thankful you did. As Morgan Housel says: "Wealth is everything you don't see" (paraphrased).

"Enough" is Hard. Very Hard.

There's a famous quote by Coco Channel: "The best things in life are free, the second-best things are very very expensive." What Coco is talking about is something that we all inherently know: it gets progressively harder to deliver higher and higher quality, and so the cost to do so increases as well (or put into mathematical terms: quality is logarithmic, cost is exponential).

For most people, this experience is why they can never get out of the rat race- a better human experience always costs more, takes more time, requires more knowledge, and is often compared to others around you (i.e. "Man's reach exceeds his grasp").

This is why having "enough" is hard. It requires that you decrease your expectations, appreciate what you have, and find the middle road with these concepts in your culture/ community. With that said having "enough" is incredibly powerful. It's a form of freedom and something that should be strived for.

Most Pop-Financial Advice is Useless or Bullshit

Financial gurus (Tony Robbins, Dave Ramsey, Ramit Sethi, Money Moustache, etc) are trying to sell you content and build their audience. "Famous investors" can neither relate to your financial world nor do they want you educated on theirs. Financial advisors provide a service... they need you coming back and spending money to stay in business. In short, just know that you're swimming in a pool of sharks - you generally have to form your own opinions the hard way: research and experimentation.

Be Wary of Consensus

"Whenever you find yourself on the side of the majority, it is time to pause and reflect."

- Mark Twain

My "first investment" was a mutual fund in the 90s. Of course, it wasn't really my investment- my parents picked it out because mutual funds were "the thing" at the time. I used my birthday card money to buy half - my parents covered the other half. If I remember correctly it was a $1200 minimum for the mutual fund (a LOT at the time). ~12 years later when I went to college it was worth ​$1500 (in a good market). My story of course wasn't unique. For a period in the late 80s to the 90s mutual funds picked by rockstar managers were the consensus advice to retail investors. No one was paying attention to expense ratio/ fees and "survivorship bias" just wasn't talked about like it is today. And for that short period, the mutual fund industry made a lot of money.

In financial history "the 90's mutual fund" period isn't the only time this has happened. These financial movements aren't just about "bubbles" either. Any time there is a "consensus" among investors, opportunists take advantage because they know those investors aren't paying attention. I don't care if it's 2000's real estate or a 2020 total stock market index fund - it's fitness. When everyone is doing something and not paying attention - cookies are about to get stolen.

Invest in Yourself and Things That You Know

Pound for pound reading books, courses, training, seminars, tutoring et al. is one of the best investments you can make. In growing industries, you can readily add +30% to +40% to your income every 16-18 months. Almost no other investments out there can keep up with that kind of return.

...BUT the knowledge you gain can give you more than just a bigger paycheck. It also gives you a deeper understanding of an industry, relevant technologies, and upcoming trends. You can use this knowledge to choose investments that will also have higher returns than laypersons will. Just be sure to make those bets when you get there.

Be Aware of "Shadow" Financial Decisions

Some decisions impact you a lot more than you expect. Some decisions are structured so you can't easily quantify how it will financially impact you. I call these "shadow" financial decisions. Outsized impact on your finances, but hard to understand or predict.

As an example, your marriage will probably impact your financial life (for better or worse) more than any other decision you make, except maybe your career. Being in good physical shape is probably the most underrated financial investment - it impacts earning potential, healthcare spending, energy levels, and much much more. Moving, travel, friends, networking, hobbies, are all examples of "shadow" financial decisions. So don't forget to think through these decisions as actual financial decisions and how they might impact you before you make them.

Avoid Taxes like the Plague

Tax avoidance (NOT evasion) can make a massive difference in your financial situation (think millions over a lifetime). I can't recommend enough spending some time to learn how the system works and how to take advantage of ways to avoid paying taxes (I'm still learning, but it's been very valuable).

(Note: I also would heavily recommend reading up on where our government spends our money. It's very sobering how little regard our elected officials have for our tax dollars.)

Creativity Starts When You Remove Two Zeros from the Budget

"Anyone who lives within their means suffers from a lack of imagination." (Oscar Wilde)

Generally speaking, I like money. Not because of the things I can use it for, but because the lack of money creates conditions where better solutions can be found... and sometimes better problems. Rory Sutherland provides a great example in this video, where he discusses a different approach to fixing a transportation problem. His approach reduces the money needed to 10% of the original budget - but comes up with better results. This is why I think capitalism is more fun - because money doesn't do that much to make things better - people do. People make things better through creativity.

The narrative isn't reality.

Early in my career, I worked for a tiny little billion-dollar company that you've never heard of. It was a great business that was bootstrapped by a solo founder and grown for 20 years from a mall kiosk, to roughly ~10,000 employees and something like $3 billion today. The founder was self-made and achieved all of this through hustle and grit.

It's a great story. It's an especially good story for a bunch of mid-20s salespeople hungry for success. The problem is the narrative is missing some details.

The sole founder wasn't solo, he wasn't even the majority owner of the business. The majority owner of the business was actually his wife, who had plunged her life savings into that business to get it off the ground. Her current occupation is "homemaker" ... which is probably less inspiring if you're trying to get a sales guy to work 80 hrs a week for you.

There are a lot of narratives out there, but don't confuse a good story for reality. Warren Buffet's returns have pretty much been the same as the S&P total return for the last 10+ years. A Rockstar that signs a Million dollar record deal might take home $45,000 that year.

But its not just about other people. We also tell ourselves stories that don't match reality: When you start a business you should be working 80 hours a week and never sleeping. If you want to have a successful career you don't have time to be a good parent. These are all false narratives.

Bonus Answer!

I asked my wife what her top Money Rules were... and she answered:

"Find a husband who likes this stuff and offload it on to him!"

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