Categories
Wealth

Who Are Your Real Friends?

Question: What is important in life? Friends? Family? It’s definitely not material things. Unless you live a wildly opulent lifestyle, the history books won’t remember what kind of shoes you had. They’ll remember you for the kind of person you were and for the things you did. Historians will write about your relationships, decisions and experiences.

So let’s agree that your relationship and experiences with friends and family are the most important things in life.

Now who are your friends and family? Who are the people that will be there for you when the sh!t hits the fan. The people who will help take care of you when you’re recovering from knee surgery. The people who will mourn you for months or years when you are dead. These are the people you should be dedicating your time and energy to. Yet, we spend 8+ hours a day with a group of people who behave in a friendly manner, call themselves ‘family’ but who couldn’t really care if you were there or not. We call these people ‘work colleagues’.

Throughout your career you may pick up a few really good friends, but most of your work colleagues will drift away once you move on. I think there’s nothing wrong with this, so I’m not trying to be a downer. I’m simply trying to help you realize that there are people out there who appear to be your good friends but really are not. This doesn’t mean you should be unfriendly to them. Simply recognize that some friendships have more depth and longevity than others.

Moral of the story: If you think friends and family are the most important things in life, you need to ensure you are committing your free time to the right people.

This is why I take my kids places on the weekends. This is why I try to go home from work as soon as I can.

Categories
Wealth

Trapped at Work?

There are some that truly thrive in a corporate environment. There are many who simply go with the pace. And then there are some who hate it and feel trapped, yet remain nonetheless. Today, I’ll talk to you about the third group.

Somehow I’ve met a lot of people throughout my career that are stuck working a job they dislike in a corporate environment. Most have unfulfilled dreams of entrepreneurship or significance that never materializes. Work in real life is not like the movies – I’m sure Wall Street (the movie) motivated many wide-eyed youth to join Wall Street (the financial district), only to realize that beneath the sexy veneer exists mundane tasks, bosses with moronic ideas and colleagues you’d never associate with outside of work. To people who had a youthful dream this reality can hit them quite hard and they can become depressed or even passive aggressive.

These people don’t simply quit and pursue their dreams for many reasons. Some are in debt, some have families and others are simply too scared to take the plunge into entrepreneurship. So they feel trapped.

Let me end the sob story here. Nobody should feel sorry for these people.

1. Most of these people are doing things most citizens of the world could only dream of. Or said differently, they’re not doing things the rest of the world is forced to do: work in dangerous environments with minimal protection for crappy pay. If you’re safe and making an average wage in a developed country you are the envy of much of the world.

2. These people still have a choice. Financial independence (or what I sometimes call ‘career independence’) can be a long-term goal, requiring long-term planning. People in debt are often in debt because they don’t have the discipline to get out of debt. If debt is keeping someone at a job they hate, they should cut their spending and pay off their debts. Many people are trapped because they are too lazy and undisciplined to change their predicament.

3. Those who are truly trapped should learn to play the game. We get one life and can only walk down one path, so make the most of it. If a person is trapped in a box they should make that the best box they can. When properly understood, a corporate environment is actually one massive social and psychological experiment. What it takes to succeed often has little to do with competence at a specific function. Instead, success in a corporate environment is driven by understanding and manipulating the motivations of your colleagues and superiors. People who hate their jobs but are stuck can treat their career like an social experiment or psychological game. This might make the entire experience more interesting. Of course, shifting to this kind of attitude can be difficult for those who truly want to make a difference.

Having said all this, ideally one never enters a situation that they dislike in the first place. I will write more about that later, but it is critical that young kids and teenagers make career choices based on a true understanding of what they’re getting into. For those already stuck in the rat race, it’s not half as bad as you think.

Categories
Wealth

Don’t Let Unlikely Events Financially Wreck You

Yesterday I caught my kid running down the middle of a long flight of stairs, nowhere near the handrail. I told my kid that if she fell she would have no way to stop herself and would probably smash her face or something.

Her response: “I do it all the time…nothing has ever happened before.”

At that moment, I realized this is a very common attitude among adults towards potentially catastrophic risks:

  • People don’t wear their seat belts because they think they’re good drivers and have never been in an accident.
  • People don’t save their money because they’ve never been laid off and think that if they were they could easily find another job.
  • People don’t wear bike helmets because they’re careful and have never wiped out.

As a DumbWealth reader, I want you to think differently.

Unfortunately, some bad things only have to happen once in your life to ruin you. One car accident, one major change to your employment prospects, one tap by a passing car can devastate your life. Sure maybe the odds are in your favour, but by thinking these things could never happen to you you’re gambling with your life, wealth and happiness.

Think about it another way. If you were to get into an accident without wearing a seatbelt, become a paraplegic and later found out you would have been fine if you had only worn your seatbelt, would you have any regrets? Probably.

People take low-probability but catastrophic risks because they focus on the odds and not the potential outcome. Just because something has never happened, it doesn’t mean it never will. There are no ‘do-overs’ for when a low-probability but catastrophic event occurs. Probabilities don’t care that you were right 99% of the time.

Moreover, many people believe they have more control over their lives than they actually do. Unfortunately, even the most skilled motorcyclists can be nicked from behind by a distracted driver. Within the past 3 years alone, I’ve personally known two motorcycle riders that died in relatively minor accidents that weren’t their fault. Both were part of a motorcycle culture that believes careful riding can prevent accidents. The reality is the destiny of even the most careful motorcyclist is actually in the hands of all the other drivers around them.

People also take low-probability but catastrophic risks because the warnings are mostly third-hand. People don’t often have friends or family who have been through such events and can serve as a direct warning. This is partly because these events are rare, but also because when they do occur often the victim is no longer alive (or mentally capable) to spread the warning.

This isn’t just about motorcycle riding and running down stairs. People also take potentially catastrophic risks with their finances.

Many people ignore the big risks that could result in devastating losses. Instead, they focus on the potential gain or the probabilities, as if they were buying a very expensive lottery ticket. However, they often fail to anticipate the impact of a bet gone wrong.

True, it is unlikely that any particular company goes bakrupt. But if it does, your investment may be wiped out – a catastrophic loss in anyone’s book.

When investing, you need to assume that you know less than you think. You need to be less confident in your bets, and therefore invest smaller amounts in each investment. Ideally, you also need to spread your money across risk factors as well. Diversification: that’s the DumbWealth way.

Over the years, I’ve personally learned my lesson. I’ve had many ‘sure things’ crash and burn. My saviour was always diversification.

Spread your money across many investments, many asset classes and many risk factors, so you can live to fight another day when you inevitably are wrong about one assumption or another, and so you’re not crippled by an unlikely, but catastrophic, event.

Even if you have a long winning streak , don’t forget that its all a gamble. Don’t start to think you’re some kind of investing genius. More than likely your success is due to luck…and luck runs out. People that spend their entire careers trying to outsmart the market fail. So what makes you so especially talented?

Bottom line: diversify because you’re not as skilled at avoiding low-probability but catastrophic events as you think.