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 per month). If you have an automated system you can trust, most of your financial worries will go away.
But what if you have already done all of those things, and you’re still worried about money?
3 things we noticed from people who don’t worry about money
Over the past month, we’ve been digging into the tactics and mindsets of the wealthy to find out what they do once they’ve “checked all the boxes” and mastered the basics of personal finance.
How do they get to that enviable position where they never have to worry about money again? What do these carefree people know that we don’t?
Today I’d like to share three examples:
1. They are prepared for everything
Earlier this year, the New Yorker ran a fascinating article titled “Doomsday Prep for the Super-Rich”. In the piece they described how some of the smartest, most successful people from Silicon Valley and Wall Street are preparing for the apocalypse (yes, you read that correctly). They are buying remote property, building self-sustaining bunkers, and sometimes even stockpiling ammunition to prepare for the eventual breakdown of civilization.
When asked the simple question of “Why?” here’s what Yishan Wong, the former CEO of Reddit, told the New Yorker:
Most people just assume improbable events don’t happen, but technical people tend to view risk very mathematically … The tech preppers do not necessarily think a collapse is likely. They consider it a remote event, but one with a very severe downside, so, given how much money they have, spending a fraction of their net worth to hedge against this … is a logical thing to do.
Maybe you’re not ready to drop a few million on a bunker in rural Kansas, but that doesn’t mean you can’t be prepared for the future.
In speaking to our students who worry about money, I’ve noticed that a lot of people are afraid of unpredictable things that might happen in their future. Some people refer to these as “the things you don’t know that you don’t know” or “unknown unknowns.” Here’s how one student described his fear:
What worries me isn’t job loss. What worries me is the million other things that could pop up. What’s hiding around the corner that I don’t know about?
This type of fear can be incredibly powerful, because your imagination runs wild with worst-case scenarios. It’s like when you are walking down the stairs into a pitch black basement of a rickety old house. It’s terrifying. Anything could be lurking in those shadows.
But there’s a simple solution: Turn on a light.
You can do the same thing with your finances. Instead of being afraid of “unknown unknowns,” you can shine a 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 news story about a rock star or athlete going bankrupt and wonder, “How is it even possible to lose that much money?” ESPN’s documentary Broke investigated the phenomenon of very rich athletes going completely broke. The statistics are shocking:
According to a 2009 Sports Illustrated article, 60 percent of former NBA players are broke within five years of retirement. By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress.
One of the primary causes of financial problems for these athletes was not extravagant spending. It was mostly due to bad investments, ranging from real estate to restaurants to car washes.
It’s an interesting cautionary tale because one of the most common questions I get from students who have “mastered the basics” of personal finance is “How do I make my investments grow faster?”
As your wealth grows, you’ll find the investing opportunities start to grow as well. Instead of just a “boring” target date fund, now you can buy real estate, invest in start-ups, and take sizable positions in individual stocks. At a certain level, the world of hedge funds and private equity start to open up as well. It’s tempting to throw your money at these exciting opportunities and promises of outsized returns and it’s easy to develop an obsession with growth and moving faster.
I find this fascinating, because the research I’ve done revealed that the most successful wealthy people have the opposite approach. Instead of asking “what can I gain?” their #1 question is “how can I avoid losing money?”
For example, Warren Buffett has two rules of investing:
Rule 1: Never lose money.
Rule 2: Never forget rule 1.
So what does this mean for you?
This is more a matter of mastering your own psychology than any new tactic or fancy asset allocation. There’s a reason at IWT we consistently recommend boring, simple investments like lazy portfolios and target date 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 near impossible. No matter how much you read about the merits of basic index investing 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’d be a millionaire in five years!”
Here’s what we recommend: instead of suppressing that voice in your head, embrace it. Take 5% of your portfolio and put it aside for whatever crazy idea you have for making your money grow faster. Invest in Bitcoin. Buy $5,000 in Tesla stock. Invest in your cousin’s car wash if you want.
Do whatever you want, because while you might lose that 5%, you can sleep well at night knowing 95% of your money is still safe and protected.
3. They don’t do it alone
There’s a great scene in Entourage where the agent Ari Gold is introducing the management team of actress and singer Mandy Moore.
(Heads up: You may want to put in headphones for that link, there’s some NSFW language in that clip.)
It’s kind of eye-opening as he goes down the line introducing this super-team of six people who are required to manage the career of just one person: manager, music agent, publicist, attorney, music manager, theatrical agent, etc.
It’s also possible to develop the same type of super-team to manage your finances and literally outsource your worry to someone else. Attorneys, accountants, life insurance specialists, financial planners, investment advisers, and even a psychologist or psychiatrist could all be part of your financial super-team.
You might be thinking, “Wait, what? I thought Ramit hated financial advisors. 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 incongruence, and he pointed out a really interesting and counterintuitive insight: Once you reach a certain point, the basic personal finance rules no longer apply.
Normal people with ordinary financial needs don’t require an advisor. That’s why we tell most people it’s not worth their time. But once you’ve conquered the basics, then the basic rules no longer apply.
Here are a few scenarios where it DOES make sense to pay an advisor:
- When you have a lot of investable assets (~$1MM+) and have much more to lose if you make a mistake.
- If you have complex situations (imagine having three kids, planning for college, and buying a house at the exact same time).
- When you just want a second set of eyes to make sure you have everything done right and aren’t missing anything.
- When you’re short on time and want to pay for convenience (e.g., you can hire a bookkeeper who you forward bills to and who pays them for you).
- When you run your own business, an accountant is a no-brainer who can “cover your ass” and also look out for things you don’t know about.
Is hiring an advisor expensive? Yes, of course. But ask yourself, how much is constantly worrying about your finances costing you?
If you’re looking at getting help with your finances from a professional, then we recommend beginning your search at the National Association of Personal Finance Advisors (www.napfa.org). These advisors are fee-based (they usually have an hourly rate), not commission-based, meaning that they want to help you, not profit off their recommendations.
What else can you do to stop worrying about money?
If you’re still not sure you’ve done everything right with your finances, you can implement the 10 year saving strategy/
The 10 Year Strategy involves asking people ten years older than you what they wish they’d saved for, and starting to save for that.
Sounds obvious, but it requires admitting that despite your superior financial abilities, you’re still going to have the same expenses as everyone else. Young people love to pretend we’re going to be millionaires, work from the beach, and somehow magically make money and have low expenses all our life.
Here is what will happen to you as you get older:
- Yes, you WILL have a nice and very expensive wedding (even if you’re a hypocrite and think you’ll have a “small, beautiful” wedding)
- Yes, you WILL have kids and want to buy them nice stuff
- Yes, you will need things like family health insurance and life insurance and homeowners’ insurance and family vacations and other things that you can’t predict right now because you’re not in that life situation
So reach out to someone older than you and ask them what they wish they’d saved for. I guarantee their answers will be surprising.
What are you going to do today?
If you’re not earning more than you spend, automating your money, and maxing out your accounts, that can be your first goal. This is the majority of iwillteachyoutoberich readers.
If you’ve done all that and are looking for the next step, try implementing the 10-Year Savings Strategy.
One more thing: You can’t just scoff at this for being too easy and do nothing. You have to consciously choose:
- I’m going to do this within the week
- I’m not going to do this because I’m going to do another strategy within the week
- I’m not at this stage yet…I’m going to pick up your book (or another book, or just do it) and get there
Note: There is no #4 (“I’m not going to do this at all…I’m just going to do nothing”) because that is a cop-out. Get it done.
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