Win by not losing.
One of the best ways for the average person with a steady, middle class 9-to-5 job, kids and a mortgage to build wealth and avoid going broke is to not fuck up.
If you want to build and keep wealth, you need to pay attention to the bottom line. That means controlling personal expenses to ensure something’s left at the end of the week.
The average person can build wealth by avoiding massive mistakes that drag them into a spiral of deterioration. Honestly, it’s unfortunate I have to write this because this is the type of advice our grandpa would have taught us. Indeed, they’d probably slap us upside the head for some of the financial choices we make nowadays.
Anyways, here’s a list of things that will seriously fuck up your chance to build wealth. If you want to avoid going broke, stay away from the following:
Gucci taste but H&M income.
Are you trying to keep up with a lifestyle you can’t afford? Perhaps you’re entitled to it? Perhaps you deserve it? Well, you can’t afford it so neither of those are true.
I’m not just talking about clothes here. Vacations, cars, dinners out, bars, weddings and so on. If you’ve got an H&M income you need to be down with H&M. Sorry…no more Gucci for you.
Gucci taste requires money. Do you subsidize your income by putting everything on credit?
Everyone knows credit cards charge ridiculous fees so eventually you consolidate that debt into a line of credit. Great, but you’re still in debt for something you’ve probably long forgotten about.
Consumer debt is bad debt. It erodes wealth. Not only are you spending money on things you shouldn’t be, you’re spending money on interest to pay for the loan to buy the things you shouldn’t be. Sounds absurd, doesn’t it? Yet nobody is surprised when they hear a friend is $30, 40, 50k in debt.
Consumer debt. Unless you can pay it off within a month, just don’t.
Payday loans are pure fucking evil. Once you’re sucked in, you’re trapped forever.
Think about it this way: you’ve borrowed against your next paycheck, which means the next paycheck needs to re-pay the loan. But then you’re left with no more money so you borrow again. And again. To infinity and beyond.
Moreover, the interest rates (sometimes called ‘admin fees’) are astronomical. They make credit cards look like a charity.
Seriously, it’s really difficult to break out of that cycle. Often the only way is to borrow from somewhere with more flexible terms (like mom).
Don’t ever borrow against your next paycheck if you want to avoid going broke.
Marrying the wrong person.
The roads would be much safer if it weren’t for all the bad drivers out there, right? Well, just like car accidents, marriage breakdown is always the other person’s fault, right?
OK, I know we’re more mature than that, but most people lose their rationality in the beginning of a relationship. The first 1-2 years of a relationship are as good as it’s gonna get. But we don’t admit that. Instead, we truly believe we can change people or at least accept their faults.
But what was once cute, becomes insufferable. And what was once “loves the finer things in life” is now “we may be eating cat food in retirement” because you’re lover is flushing cash down the toilet.
Worse yet, maybe your better half now hates your guts and is screwing the gardener, but will still walk away with half your stuff and half your future income. You’d need to clone yourself to come back from that fuckup.
So instead of jumping face-first into marriage, put some rational thought into the massive economic decision you’re about to make. Do your due diligence and know what you’re getting into. Ask some experienced people what they’d do differently. Ask them what red flags they should have seen. It could save you a ton of misery and moola in the long run.
If this one isn’t obvious, maybe it’s time for a stay at the Betty Ford Clinic.
Most people I meet aren’t fundamentally lazy. They may have lazy moments, but they’ll get shit done when they need to.
Most people are able to hold down a job – a source of income. They show up, they take (or fake) interest, they are respectful, they make their boss’s life easier, they get things done. This is all it really takes to have a career and steady income.
Of course, climbing the corporate ladder involves an entire set of additional political skills, but that’s not what I’m talking about. That’s not a requirement.
You can build and maintain a solid source of income throughout life just by giving a consistent 7/10 effort. And that’s all you really need. More money obviously helps you get there faster. In contrast, if you can’t hold down a job you’re never going to build wealth.
Not learning to invest.
People with money constantly get asked to part with their money. As you build wealth you’ll notice if the way people treat you changes. Stay true to your friends and watch out for gold-diggers.
But even the person with average wealth will have people trying to siphon their wealth. Many of these people wear suits and call themselves financial advisors. Some of these people charge exorbitant fees (either explicit or embedded) for the pleasure of investing your money. Over a long time these fees eat up a big chunk of your retirement portfolio.
On the other hand, you might make your own investing decisions. While you could save a big amount on fees, you also could potentially accidentally murder your portfolio.
Watch out for those ‘sure things’. Because there are none. If you want to avoid going broke, assume every investment you hold could go to zero – in other words, only invest in single stock, bond or whatever the amount you’d be willing to lose. Don’t think you’ll be the one to get out at the top. You won’t be.
Also, diversify. Learn how different asset classes can be combined to create a more stable portfolio. This is fundamental to investing.
Finally, look at investing as a long, slow, boring adventure. If you are getting a few percent each year in returns you’re doing well. Don’t chase high returns because you will likely get burned. Most wealthy people didn’t build their wealth in the stock market. They created it elsewhere and invest it to stay ahead of inflation and generate some additional income.
Can’t you picture grampa giving you that kind of advice? Now go ahead and build some wealth. Do it for Gramps!