If you want to stop worrying about money, the first step is very simple. You need to get your finances in order. I’m talking about paying off your debt, saving for emergencies, and investing (even if it’s only $ 50 a month). When you have an automated system that you can trust, most of your financial worries will go away.
But what if you’ve already done all of these things and are still worried about money?
3 things we’ve noticed from people who aren’t worried about money
For the past month, we’ve looked into the tactics and mindsets of the rich to find out what they do when they “tick all the boxes” and master the basics of personal finance.
How did you get into this enviable position where you never have to worry about money again? What do these carefree people know that we don’t know?
Today I would like to give three examples:
1. You are prepared for anything
Earlier this year, the New Yorker published a fascinating article entitled “Doomsday Prep for the Super-Rich”. In the play, they described how some of the brightest and most successful people from Silicon Valley and Wall Street were preparing for the apocalypse (yes, you read that right). They buy secluded property, build self-sufficient bunkers, and sometimes even store ammunition in preparation for the possible collapse of civilization.
When asked simply “why?” Yishan Wong, former Reddit CEO, told the New Yorker:
Most people simply assume that unlikely events will not happen, but technical people tend to look at risk very mathematically. The technical pioneers do not necessarily consider a collapse to be likely. They consider it a distant event, but one with a very serious disadvantage. Given the money they have, it makes sense to spend a fraction of their net worth to hedge against it.
You might not be ready to dump a few million on a bunker in rural Kansas, but that doesn’t mean you can’t be prepared for the future.
When speaking to our students who are worried about money, I found that many people are afraid of unpredictable things that could happen in their future. Some people refer to these as “the things you don’t know, which you don’t know” or “unknown unknowns”. This is how one student described his fear:
What worries me is not the loss of jobs. What worries me are the millions of other things that might come up. What’s hiding around the corner that I don’t know about?
This type of fear can be incredibly powerful because your imagination goes wild with worst case scenarios. It’s like walking down the stairs into the pitch black basement of a rickety old house. It’s scary. Anything could lurk in these shadows.
But there is a simple solution: turn on the light.
You can do the same with your finances. Instead of worrying about the “unknown strangers”, you can shed some light on your financial future by learning from people ten years older than you who can tell you exactly what to expect.
We call it the “10-year savings strategy”.
2. They protect the money they already have
Ever see a message about a bankrupt or an athlete going bankrupt and ask yourself, “How is it even possible to lose so much money?” ESPN’s documentary Broke examined the phenomenon of very wealthy athletes going completely broke. The statistics are shocking:
According to a 2009 article by Sports Illustrated, 60 percent of former NBA players will be broke within five years of retirement. By the time they retire for two years, 78% of former NFL players have gone bankrupt or are under financial strain.
One of the main sources of financial problems for these athletes was not extravagant spending. This was mainly due to bad investments that ranged from real estate to restaurants to car washes.
It’s an interesting cautionary story, as one of the most common questions asked by students mastering the basics of personal finance is, “How can I make my investments grow faster?”
As your wealth grows, so will investment opportunities. Instead of a “boring” target future fund, you can now buy real estate, invest in startups, and take sizeable positions in individual stocks. At a certain level, the world of hedge funds and private equity opens up. These exciting opportunities and promises of oversized returns are tempting to toss your money, and it is easy to develop an obsession with growth and move forward faster.
I find this fascinating because the research I’ve done has shown that the most successful rich take the opposite approach. Instead of asking, “What can I win?” Your first question is, “How can I avoid losing money?”
For example, Warren Buffett has two rules for investing:
Rule 1: never lose money.
Rule 2: Never Forget Rule 1.
What does that mean for you?
This is more about mastering your own psychology than about new tactics or unusual asset allocation. There’s a reason why we at IWT consistently recommend boring, simple investments like lazy portfolios and target term funds.
But we’ve also spent enough time studying the psychology of personal finance to know that being a 100% disciplined monk with your investments is next to impossible. No matter how much you read about the merits of simply investing in an index and why stock picking never works, there’s still a little voice in your head saying, “Yeah, but what if I find the next Amazon stock? I would be a millionaire in five years! “
Here’s what we recommend: Instead of suppressing that voice in your head, accept it. Take 5% of your portfolio and set it aside for every crazy idea you have to help your money grow faster. Invest in Bitcoin. Buy $ 5,000 worth of Tesla stock. Invest in your cousin’s car wash if you want.
Do what you want because while you could lose that 5%, you can sleep well at night knowing that 95% of your money is still safe and secure.
3. You don’t do it alone
There’s a great scene in Entourage where agent Ari Gold introduces the management team to actress and singer Mandy Moore.
(Heads up: You may want to use headphones for this link. There is an NSFW language in this clip.)
It’s kind of an eye-opening when he introduces this super team of six people who have to manage the careers of just one person: manager, music agent, publicist, lawyer, music manager, theater agent, etc.
It is also possible to develop the same type of super team to manage your finances and literally outsource your worries to others. Lawyers, accountants, life insurance specialists, financial planners, investment advisors, and even a psychologist or psychiatrist could all be part of your finance super team.
You may be thinking, “Wait, what? I thought Ramit hated financial advisers. Doesn’t he spend an entire chapter in his book telling me not to hire a financial advisor? So what’s going on here? “
I asked Ramit about this incongruity and he pointed out a really interesting and counter-intuitive finding: once you get to a certain point, the basic rules of personal finance no longer apply.
Ordinary people with normal financial needs do not need an advisor. That is why we tell most people that it is not worth their time. However, once you’ve mastered the basics, the basic rules no longer apply.
Here are some scenarios when it makes sense to pay an advisor:
- When you have a lot of investable wealth (~ $ 1MM +) and a lot more to lose if you make a mistake.
- When you have complex situations (imagine having three children, planning college, and buying a house at exactly the same time).
- When you just want a second set of eyes to make sure you got everything right and aren’t missing out.
- When you are short on time and want to pay conveniently (e.g. you can hire an accountant to pass bills on to and pay them for you).
- If you’re running your own business, having an accountant who can “cover your ass” and also keep an eye out for things you don’t know about is a breeze.
Is it expensive to hire a consultant? Yes of course. But ask yourself how much do you worry about your finances all the time?
If you would like to get help with your finances from a professional, we recommend starting your search with the National Association of Personal Finance Advisors (www.napfa.org). These consultants are paid (they usually have an hourly rate) and are not commission-based. This means that they want to help you and not benefit from their recommendations.
What else can you do to stop worrying about money?
If you are still not sure that you have done everything right with your finances, you can implement the 10 year savings strategy.
The 10-year strategy involves asking people ten years older than you what they would like to have saved for and thus save.
Sounds obvious, but it requires admitting that, despite your superior financial skills, You will still have the same cost as everyone else. Young people love to pretend we’re millionaires, work from the beach and magically make money, and have low bills all our lives.
Here’s what will happen to you as you get older:
- Yes, you will have a beautiful and very expensive wedding (even if you are a hypocrite and think you are going to have a “small, beautiful” wedding)
- Yes, you will have children and you want to buy them nice things
- Yes, you need things like family health insurance and life insurance and homeowner insurance and family vacations and other things that you can’t predict right now because you are not in this life situation
So reach out to someone older than you and ask them what they would have liked to save for. I guarantee your answers will be surprising.
What will you do today?
If you are making no more than you spend, automating your money, and getting the most from your accounts, this may be your first goal. This is the majority of iwillteachyoutoberich’s readers.
When you’ve done all of this and are looking for the next step, try implementing the 10 year savings strategy.
One more thing: you can’t just make fun of it because you’re too easy and doing nothing. You have to choose consciously:
- I will do that within this week
- I’m not going to do this because I’ll be doing a different strategy within this week
- I’m not at this stage yet … I’ll pick up your book (or any other book, or just do) and get there
Note: There is no number 4 (“I’m not going to do this at all … I’m just not going to do anything”) as that is an excuse. Finish it.
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