The Rising Income Trap

Desire is a contract that you make with yourself to be unhappy until you get what you want.

Naval Ravikant

When I was finishing my undergrad (in 2001), I remember thinking a $40,000 salary was a ton of money.

While in school, I made minimal income yet somehow went out on a regular basis. I wasn’t suffering. In fact, that was a great period of time in my life. Still, I imagined the things I could do with a massive $40,000 income.

Soon after graduation, I was earning $42,000. I was rich! Or was I?

Fast forward to today. I couldn’t even imagine how I’d survive on a $42,000 salary.

Today, I earn quite a bit more than I did in 2001. Yet, I fight a constant battle to ensure I don’t fall into the rising income trap.

What do I mean?

Money has a way of vanishing. The more you earn, the more you spend. Expectations rise and you can easily find yourself inadvertently living paycheck to paycheck.

Make a dollar, spend a dollar

People are masters at rationalizing increased spending after their incomes go up:

“I make good money now so…”

“…why not turn the heat up a little higher.”
“…why not move to a bigger house.”
“…why not buy that leather jacket.”
“…why not get that $65,000 car.”

Quickly, all the extra money generated by a higher salary is eaten up by a new set of automatic monthly bills and discretionary expenditures. Some refer to this as ‘lifestyle inflation’.

Don’t let the Lexus fool you!

Despite appearances, many high earners are actually broke. In fact, many high earners live precariously close to the edge of bankruptcy because they are so dependent on their paychecks to cover their massive monthly fixed costs.

The true cost of graduating from a Ford to a Lexus is economic security and financial freedom. Financial freedom is only available to those who have money tucked away in savings accounts, investments, real estate and other assets.

As your pay rises you have the opportunity to use the surplus income to build lasting wealth. In contrast, by spending your surplus you are trapping yourself in a cycle of financial dependency. You are locked into a job you might hate because you need it to make your monthly mortgage payments. This is the rising income trap.

Retail therapy is bad for your financial health

It’s easy to get stuck in the rising income trap. Marketers exploit your primal instincts to desire more and have developed cognitive techniques to make shopping feel therapeutic.

The pressure doesn’t just come from marketers. Your boss wants you to be up to your eyeballs in debt. The less financial freedom you have, the more he or she owns you. Your friends want you to live paycheck to paycheck because they lack self control and feel better knowing everyone else is just as irresponsible. The system is simply built so you live hand-to-mouth in one way or another.

Stop. No matter what your income, I suggest you take a moment to look at all your expenses.

Are you spending to fulfill some unnecessary desire? Do the things you spend money on bring you happiness that lasts beyond a couple days?

The trappings of a consumerist society don’t lead to happiness. Keeping up with the Joneses doesn’t lead to happiness. Owning a bunch of stuff doesn’t lead to happiness.

It’s time to cut the crap from your life and start building some financial security so you can actually do what makes you happy.

When you get your next raise, calculate how much extra after tax dollars you’ll receive each paycheck. Allow yourself to keep 30% as money in your account and increase automatic debt repayments and investment account contributions to soak up the remaining 70%. Call your lender and financial advisor asking them to set this up. If it’s automated there’ll be less temptation to cheat because you’ll never see the money sitting in your account.

Do this for five or ten years (I know that sounds like a long time, but it’ll fly by and future you will thank you) and you’ll get a huge head start in building wealth and attaining financial freedom.

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Visualizing the Billionaire Class

I believe people deserve to get rich if they work hard.

But there comes a point at which wealth is so obscenely huge that you have to wonder if it is really deserved. Can a single human really earn $150 billion without it coming at the expense of other humans?

While history has shown that humanity’s wealth pie can be expanded over the long run through productive innovation, over the short term it’s likely that hyper competitive behaviour is a zero sum game.

Today, Amazon is rapidly growing at the expense of small independent retailers. This has never been more clear than during the Covid-19 crisis, as lockdowns shut almost all of Amazon’s brick-and-mortar competition. While Amazon is probably creating long term wealth for society, right now it is succeeding at the expense of others.

The chief beneficiary is Jeff Bezos, Amazon CEO and founder, who is now worth over $150 billion. Amazon has added a ton of efficiency to our lives and Jeff Bezos deserves to be rich, but $150 billion is obscene.

At what point does genuine wealth creation transition into exploitation and hoarding? It’s not an easy question to answer, but that’s not the point. If wealth anomalies like Bezos don’t pass society’s smell test, action must be taken.

Society makes judgment on the scale of wealth differences between ordinary people and the 1%, deserved or not.

Ordinary people earn in the tens of thousands and can barely save for retirement. To most, millionaires are considered rich. Once you start talking about $ billions the sheer scale of wealth is baffling.

I recently saw an article that highlights how ridiculously wealthy billionaires really are. Below is a graphic visually comparing the difference between various wealth levels. Remember, Bezos is worth 150x the largest box below.

While ordinary people struggle to pay back their college debts, billionaires have to work hard to spend their money:

  • Elon Musk can spend a MILLION dollars EVERY DAY for 65 years
  • The Koch brothers can spend a MILLION dollars EVERY DAY for 242 years.
  • Bill Gates can spend a MILLION dollars EVERY DAY for 247 years.
  • Jeff Bezos can spend a MILLION dollars EVERY DAY for 306 years.

Anyone arguing that billionaires are created because they help generate societal wealth, should look at the following chart. While worker productivity has risen, average wages have stagnated. Meanwhile, income going to the top 1% (aka the billionaire class) has skyrocketed. In other words, billionaires are built off the backs of the average worker.

The top 1% has captured a growing share of societal wealth partly because the tax system has changed to favour the rich. The two charts below compare tax rates by income level in 1950 and 2018. In 1950 the top tax rate was 70%. In 2018 it was just over 20%.

While Amazon shares hit new highs and Jeff Bezos gets richer, 40% of US renters face the risk of eviction. Those are families and children and hardworking people, many of whom will soon be homeless.

For many the American dream has become the American tragedy. Gone are the days of collecting a paycheque and a comfortable retirement pension. Loyalty is irrelevant. You are on your own to build wealth for you and your family. For some this means building a bulletproof portfolio. For others it means constructing multiple sources of income.

Build wealth in a age of turmoil. Subscribe today:

The Covid-19 economic crisis is gripping the world. After 20 years in the asset management business, it looks like we are fighting through unprecedented territory.

This is war. I created a 17 step, 47 page guide to help DumbWealth subscribers get through this.

I originally planned on printing the guide and selling copies for $20+. Instead I’m giving this away free because I think we all need to help each other during these difficult times.


Americans are Nowhere Near Prepared for Retirement

Americans haven’t been saving the recommended 10-20% of their incomes and simply aren’t prepared for retirement.

The median 401k for someone aged 55-64 (i.e. pre-retirement years) is only $61,738. Even the most frugal spender could only make that last a couple years in retirement.

In other words, for most Americans a comfortable retirement simply is out of the question. Instead they will continue to work, depend on social security and rely on family.

The dream of sailing through the Mediterranean or hiking in the Alps will remain a dream for most, as they work double-shifts as Wal-Mart greeters.

I get it. Life happens when you’re in your 20s, 30s and 40s.

There are bills to pay, things to buy, life to live. At that age, many people feel like they can’t save for retirement and believe they can make up for it later. However, people need to understand that when they spend money they’re making a tradeoff. Do they want that extra vacation or do they want to retire a year earlier? Do they want to upgrade their Toyota to a Lexus or retire 5 years earlier? When compounding is considered, those are real tradeoffs.

Most people I know don’t want to work forever. People want to stay busy and contribute to society, but they also want the freedom to pick and choose what they do. That requires money.

Unfortunately, as you can see by the tables below (source: Vanguard) most retirements are quite underfunded.

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Investing Wealth

What Drives Gold Prices?

As a monetary metal, gold has been with humanity for thousands of years. Its role as a safe haven for wealth has been generally understood throughout time. Historically gold was simply another currency – one that couldn’t be debased and could reliably store vast amounts of wealth.

When thinking about gold, one must separate its value from its price. The value of gold is fairly stable. When compared to fiat currency, gold prices will fluctuate over time, but this is not because the value of gold is changing. Rather, it’s because the fiat currencies are appreciating or depreciating. For this reason, it’s important to analyze gold in terms of your home currency, despite it being most frequently quoted in USD. For example, the price of gold in USD might be stable but for a Canadian investor it might be rising because the value of CAD is declining. This relationship to currencies is an important first step to understanding what drives gold prices.

Many people believe inflation drives the price of gold. While this might be partly true (because inflation increases the value of tangible assets), it is inflation’s effect on currencies and investment alternatives that actually makes gold more attractive to investors.

Inflation will cause a country’s currency to depreciate relative to other currencies. As previously explained, in such a circumstance the gold price will rise in relation to a declining currency.

Equally important, inflation erodes the real returns provided by assets like stocks and bonds. In particular, safe havens like US Treasuries may provide a very low or even negative real yield when inflation is high enough relative to nominal yields. (Real yield = nominal yield minus inflation.) Importantly, this condition doesn’t require high inflation. Simply, inflation only needs to be higher than nominal interest rates.

Gold competes in many ways to US Treasuries as a safe haven. If investors can receive a positive real return on US Treasuries they are less likely to use gold – which provides zero yield – as a safe haven. The higher the real yield, the worse non-yielding assets look in comparison.

In contrast, when real yields on US Treasury bonds are negative, investors actually lose by holding them. A zero-yield actually becomes more attractive at that point.

Most gold bull markets have occurred when real yields were falling, low or negative. Gold bear markets tend to occur when real yields are rising, high or positive.

The Chart 1 below compares 1yr US Treasury yields (black line), inflation (red line) and real yields (blue line) going back to 1970. In Chart 2 below shows gold prices over the same period. As you can see in the first chart, real interest rates were falling, low or negative during the 1970s, but then began to rise around 1980. From 1980-2000 real interest rates remained positive and relatively high, until they began to decline at the turn of the century. Between 2000-2011 real interest rates were low and negative for most of the time. Leading into 2011, real interest rates began to rise and peaked around 2015. After 2015 real interest rates moved sideways again spending much time in negative territory.

How did gold perform during these periods?

1970-1980: Gold bull market
1980-2000: Gold bear market
2000-2011: Gold bull market
2011-2015: Gold bear market
2015-Present: Gold bull market

Chart 1: Nominal Yields, Inflation, Real Yields
Chart 2: Gold Price

While negative real yields might seem like an economic rarity, they occur quite frequently. As a matter of policy, negative real yields are often associated with periods of financial repression when governments are attempting to climb out from under the weight of oppressive debt levels. Essentially, when yields on government debt are less than inflation governments are able to ‘inflate’ their way out of debt. Because of inflation, the value of government assets and tax revenues are able to rise faster than the value of government liabilities and interest expense.

What does the future hold for real yields and gold?

While the world is currently working through a deflationary shock due to the Covid-19 shutdowns and collapse of demand, the monetary and fiscal response may push up the inflation rate and push down yields.

Note: I realize that the last time policy makers expanded the Fed balance sheet it failed to create any meaningful inflation. Long story short, I believe this time might be different because the US Treasury is increasingly involved, corporate debt is effectively backstopped by the Treasury and private banks are therefore much more willing to lend (thus increasing the money supply) than during previous crises.

Massive – and quickly growing – public and private sector liabilities have cornered policy makers. The only escape is secular financial repression to erode the real value of debts. Another option – default on debts and entitlements – simply isn’t politically palatable.

Therefore, it is reasonable to expect real yields to remain low-to-negative at least until the economy recovers from the current economic crisis. However, since debt loads are growing massively because of the crisis I can’t see any alternative but financial repression for at least a few years. Using the 2008/2009 global financial crisis as a rough guide, we may be recovering from this for years to come. the current gold bull market could last a few more years and gold prices could double from today’s levels.

Important note: I don’t have a crystal ball. Also, forecasts change as economic circumstances evolve. So don’t read this article and think you can set it and forget it. With an investment like gold that is so fundamentally different from the more traditional long-term asset classes, you must track the changing environment and adjust accordingly.


The Destruction of America’s Middle Class

America was once a beacon of light for dreamers around the world. The land of opportunity presented a way for people to earn more money and increase living standards by joining the middle class.

Today, many can dream but never come close to the opportunity they were sold. So what happened to the American middle class dream? Why is wealth disparity and inequality widening?

America as a whole is far richer than it was a decade ago. But as a population – as individuals – for a troubling proportion it is getting poorer.

There are three potential explanations for why the American middle class has collapsed. I’ll briefly explain each and provide supporting graphics below.

  1. Deregulation: The deregulation of America since the early 1980s – a pillar of Reagan policy – systematically removed protections for American workers, transferring power (and wealth) to the owners of capital. This benefited the wealthy and corporations at the expense of average people. At the same time, automation and offshoring replaced jobs once performed by humans, further weakening labor and the middle class.
  2. Living Costs: A result of deregulation, costs for many services critical to one’s standard of living have risen disproportionately to incomes. Namely, health care and education costs have grown far faster than incomes, eroding the ability for average citizens to build and maintain the wealth required to be considered middle class.
  3. Weak Innovation: Since the Industrial Revolution, the combination of wealth generating innovations afforded society the flexibility to provide for all citizens on more equal terms. These innovations included electricity, combustion engine, refrigeration, indoor plumbing, telecommunications and computing. The great wealth derived from these innovations and their many offshoots meant that money could be pooled to raise the standard of living for all segments of the population, helping to create the middle class. Things changed towards the end of the 20th century. Since the 1970s, the American productivity growth rate has been on a secular decline. This is not to say new innovations don’t exist. Rather, today’s innovations don’t have the same revolutionary impacts as those from 50, 75, 100 years ago. Many of today’s innovations are incremental in nature, enhancing efficiency and lowering costs. However, humanity is still largely run on technology invented many decades ago.

Check out the charts below for details on this transformation:


Investing Wealth

Your Money IS Your Life

If you’ve managed to save a decent chunk of money over the years you’re probably wondering what to do with it.

Do you invest it? Buy real estate? Do nothing?

You’re watching the markets rise and you feel like you’ve been left out of the party. Everyone else is making money but you. FOMO (fear of missing out) is a natural reaction when you’re sitting on the sidelines.

Some people will act on that fear by opening up an investing account and putting the money to work. Over the long run that has worked for investors willing to ride out the ups-and-downs of the market. However, this is not a decision to be treated lightly.

What does your money represent?

There is a behavioural bias called ‘loss aversion’. It says that people react more poorly to losses than to gains of the same magnitude. In other worse, people prefer not to lose $10 than to gain $10.

While finance theory argues people should evaluate investments based on expected returns – the weighted average of all possible outcomes – in reality this is nonsense. Loss aversion is a behavioural characteristic grounded by millions of years of evolution.

In the past, losing a day’s worth of food could mean your family starves. In contrast, gaining a day’s worth of food (before we were able to store it) wouldn’t have an immediately positive affect on life. (Over the long-term, if an abundance of food consistently existed we’d simply add more humans.)

When it comes to your money, it makes sense to weigh losses more than you weigh gains. First of all, even a temporary decline in cash availability could lead to a missed mortgage or rent payment. This has a significant and lasting affect on your ability to enjoy life, especially if it results in homelessness.

However, losses have even greater psychological significance over the practicality of missed payments. Your savings represents all the time and energy you spent working over the years. If you’re like most people you’re not particularly fond of your job. You probably wouldn’t be there if you won the lottery.

Your savings represents all the time and energy you spent working over the years.

Your savings is what you have to show for years of pointless meetings, directionless projects, crazy commutes, stress and even physical pain. (Remember, not all jobs are at the comfort of a desk. People in the trades often have a limited span during which their bodies can handle their work.) This is time that you’ll never get back.

In exchange for sacrificing significant elements of your life, you were paid and you saved some of this money. So you can see why losing a portion of this money creates hugely negative psychological consequences. It’s your life’s work encapsulated into a single number. Watching this number decline by 50% is like losing half your working life – you might as well have spent that time playing X-Box.

What to consider before you invest.

When it comes to investing your money, unless you have a lot of time to make up for your losses (i.e. you’re young, in which case you probably don’t have much to invest anyway), you shouldn’t invest anything you can’t afford to lose. Assume your investments could decline by 50%. Would you be comfortable with that?

Of course, the wealth management industry will point to long-term average returns on stocks and bonds when pitching to clients. However, the reality is that these averages smooth out wide year-to-year fluctuations.

While it’s true that (historically) if you you simply bought-and-held the index you would have achieved these average returns, it doesn’t consider the journey that individuals experience. This is precisely why people sell their investment after losing 20, 30, 40%+. It’s a stop-loss strategy on their life’s work. Although the US stock market has never gone to zero, each double-digit decline makes that risk feel real, so investors take action.

Of course, what ends up happening is investors lock in their losses and end up underperforming the averages by a significant amount over the long run.

Final thoughts.

Forget about FOMO. Ignore your friends bragging about their gains. This should not be what drives you to invest.

Instead, consider the losses you are able and willing to handle. Could you ride through a 50% loss without worrying about funding your retirement or paying your bills? Could you handle the psychological shock of watching 30-50% of your life’s effort evaporate?

My suggestion is to start with the stash of cash you need to stay comfortable – financially and emotionally. This goes beyond emergency savings that covers a few months worth of bills. This cash stash is your backup plan in case everything else fails. The size of this stash is dependent on how you answered the questions above. A young person living at home will have a smaller stash than a breadwinner supporting a family of 4.

Once you’ve stashed some cash you can then invest the rest. Although your investment portfolio will be smaller, your results might actually improve because you’re less inclined to sell after markets decline.

Your cash stash should help you get through market madness without emotionally reacting by preserving a significant portion of your life’s work.

Get your free guide to surviving the economic depression:

The Covid-19 economic crisis is gripping the world. After 20 years in the asset management business, it looks like we are fighting through unprecedented territory.

This is war. I created a 17 step, 47 page guide to help DumbWealth subscribers get through this.

I originally planned on printing the guide and selling copies for $20+. Instead I’m giving this away free because I think we all need to help each other during these difficult times.


39 Wealth Building Hacks by Naval Ravikant

Whether you’re an entrepreneur, corporate manager or a student, if you want to build wealth you need to read this. Honestly, I have never seen such a dense compilation of wealth-building hacks in a single list.

This is gold.

The following list of 39 wealth building hacks was created by tech entrepreneur and investor investor Naval Ravikant.

Naval is an Indian American entrepreneur and investor. Naval is the co-founder, chairman and former CEO of AngelList. He has invested in over 100 companies including Uber, FourSquare, Twitter, SnapLogic, Yammer, and Clearview AI. Ravikant is also a Fellow of the Edmund Hillary Fellowship. He was listed as 4th on CoinDesk’s “Most Influential in Blockchain” 2017 list.

How to Get Rich (without getting lucky):

  • Seek wealth, not money or status. Wealth is having assets that earn while you sleep. Money is how we transfer time and wealth. Status is your place in the social hierarchy.
  • Understand that ethical wealth creation is possible. If you secretly despise wealth, it will elude you.
  • Ignore people playing status games. They gain status by attacking people playing wealth creation games.
  • You’re not going to get rich renting out your time. You must own equity – a piece of a business – to gain your financial freedom.
  • You will get rich by giving society what it wants but does not yet know how to get. At scale.
  • Pick an industry where you can play long term games with long term people.
  • The Internet has massively broadened the possible space of careers. Most people haven’t figured this out yet.
  • Play iterated games. All the returns in life, whether in wealth, relationships, or knowledge, come from compound interest.
  • Pick business partners with high intelligence, energy, and, above all, integrity.
  • Don’t partner with cynics and pessimists. Their beliefs are self-fulfilling.
  • Learn to sell. Learn to build. If you can do both, you will be unstoppable.
  • Arm yourself with specific knowledge, accountability, and leverage.
  • Specific knowledge is knowledge that you cannot be trained for. If society can train you, it can train someone else, and replace you.
  • Specific knowledge is found by pursuing your genuine curiosity and passion rather than whatever is hot right now.
  • Building specific knowledge will feel like play to you but will look like work to others.
  • When specific knowledge is taught, it’s through apprenticeships, not schools.
  • Specific knowledge is often highly technical or creative. It cannot be outsourced or automated.
  • Embrace accountability, and take business risks under your own name. Society will reward you with responsibility, equity, and leverage.
  • The most accountable people have singular, public, and risky brands: Oprah, Trump, Kanye, Elon.
  • “Give me a lever long enough, and a place to stand, and I will move the earth.” – Archimedes
  • Fortunes require leverage. Business leverage comes from capital, people, and products with no marginal cost of replication (code and media).
  • Capital means money. To raise money, apply your specific knowledge, with accountability, and show resulting good judgment.
  • Labor means people working for you. It’s the oldest and most fought-over form of leverage. Labor leverage will impress your parents, but don’t waste your life chasing it.
  • Capital and labor are permissioned leverage. Everyone is chasing capital, but someone has to give it to you. Everyone is trying to lead, but someone has to follow you.
  • Code and media are permissionless leverage. They’re the leverage behind the newly rich. You can create software and media that works for you while you sleep.
  • An army of robots is freely available – it’s just packed in data centers for heat and space efficiency. Use it.
  • If you can’t code, write books and blogs, record videos and podcasts.
  • Leverage is a force multiplier for your judgement.
  • Judgement requires experience, but can be built faster by learning foundational skills.
  • There is no skill called “business.” Avoid business magazines and business classes.
  • Study microeconomics, game theory, psychology, persuasion, ethics, mathematics, and computers.
  • Reading is faster than listening. Doing is faster than watching.
  • You should be too busy to “do coffee,” while still keeping an uncluttered calendar.
  • Set and enforce an aspirational personal hourly rate. If fixing a problem will save less than your hourly rate, ignore it. If outsourcing a task will cost less than your hourly rate, outsource it.
  • Work as hard as you can. Even though who you work with and what you work on are more important than how hard you work.
  • Become the best in the world at what you do. Keep redefining what you do until this is true.
  • There are no get rich quick schemes. That’s just someone else getting rich off you.
  • Apply specific knowledge, with leverage, and eventually you will get what you deserve.
  • When you’re finally wealthy, you’ll realize that it wasn’t what you were seeking in the first place. But that’s for another day.

After the above list went viral, Naval created a follow-up video (1hr) to explain his thoughts:

In the video, Naval recommends the following book: Influence by Robert Cialdini

Real Estate Wealth

What You Must Know Before Deferring Your Mortgage

“No part of the mortgage is forgiven, as many people assume.”

Given massive economic stress on millions of Canadians, Canadian banks are now offering the option to defer your mortgage for up to 6 months. If you’re considering deferring your mortgage payments, there are few key points you need to know.

Mortgage deferral is a fair option for those temporarily in a cash-squeeze as people remain locked-up in their homes. However, no part of the mortgage is forgiven, as many people assume.

The mortgage deferrals simply rearrange financing, potentially leaving you with more debt in the end.

According to the Canadian Mortgage and Housing Corporation (CMHC), which oversees insured mortgages in Canada:

The mortgage deferral agreement does not cancel, erase or eliminate the amount owed on your mortgage. At the end of the agreement, you will have to resume payment according to your regular payment schedule.

NOTE: The interest that hasn’t been paid during the deferral period continues to be added to the outstanding principal of your mortgage. This can affect the total amount you owe in accordance with the original payment schedule.

In other words, you will need to repay the deferred principal amount plus interest on that amount plus interest accrued on the interest.

After the mortgage deferral, you will likely be presented a variety of options by your mortgage lender. The two main options will probably be as follows:

  1. Repay the deferred principal and interest as a lump sum and continue with your regular mortgage payments. This will help you avoid paying interest on the interest, but obviously means you need a big chunk of money.
  2. Add the deferred principal and interest to your mortgage principal, and either increase your monthly payments (to accommodate the higher principal amount) or extend the length of your mortgage amortization. With this option, you will be paying interest on the interest deferred during the deferral period.

For many people there is no other choice but to defer mortgage payments.

If you defer your payments your cash-flow will improve. I suggest putting aside as much money as possible while you have the opportunity. Use this chance so you have more flexibility at the end of the deferral period.

If you must defer, you will need to seriously consider whether your situation will change after the deferral period. Will you be able to pay your mortgage after the deferral period? Consider your options and stay in contact with your mortgage provider if you don’t think the 6 month deferral will be enough.

Deferrals won’t last forever. Use this deferral period wisely.


Now is the Time To Build Emergency Savings

About 4 billion people around the world are under some form of lockdown right now due to the Covid-19 coronavirus. Except to get groceries, many of us haven’t left the house in weeks. 

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If you’re one of the lucky salaried employees able to work from home count your blessings! You’ve just been forced onto a highly restrictive spending diet. 

If you’re like me you haven’t bought anything except food over the past couple weeks. My only other bills are utilities and mortgage payments. Many people are saving a ton of money right now.

This is a rare opportunity that might soon vanish. Use this to your advantage!

If you have still been spending money, stop. After all, with unemployment skyrocketing we don’t know how long we will keep earning an income. At this point, each paycheck we receive should be able to cover about 3 pay-periods worth of expenses. We need to do this so if we lose our jobs we have money to continue living. 

Actual experiences may vary, depending on the size of your fixed costs (rent, mortgage payments, utilities, etc.). If you’re still spending a considerable portion of your paycheck on these fixed expenses, take some time to go through each one. Can you cut back? Can you renegotiate with your provider? It is worth the effort and right now banks, telecoms and utility providers might be more receptive to your negotiation requests.

You’re at home working, eating and watching TV. So take the time and effort to AGGRESSIVELY minimize your spending. Essentially, what I’m saying is – if you’re still getting a regular paycheck – you now have an unprecedented opportunity to build your emergency savings. Use it wisely.

Subscribe now to get your free copy of ‘CoronaCrisis’

The Covid-19 economic crisis is gripping the world. After 20 years in the asset management business, it looks like we are fighting through unprecedented territory.

This is war. I created a 17 step, 47 page guide to help DumbWealth subscribers get through this.

I originally planned on printing the guide and selling copies for $20+. Instead I’m giving this away free because I think we all need to help each other during these difficult times.


Should You Put Up with Crappy Parents for Your Inheritance?

I recently had a conversation with a friend who has a real distaste for his parents. When he was a child, they were neglectful, selfish and abusive. As an adult, they’re still quite annoying. They’re much better than before, but still oblivious to their actions. They’re not abusive in any way today, but the scars run deep.

The funny thing is he’s not sure they even realize how their previous behaviour still impacts him decades later. Indeed, his parents are genuinely surprised he doesn’t gush over them 24/7. They rarely discuss his childhood, so he hasn’t made them aware.

Sometimes he feels like he wants to distance himself from his parents. Other times he thinks he should try to salvage what they still have.

He necessarily doesn’t enjoy time spent with them and finds it very stressful, so he wonders why he feels compelled to spend time with them. He questions his motives for maintaining a relationship with them. He knows his parents have money that he would eventually inherit, and wonders if this is the unconscious motive. Does he truly want to salvage the relationship or does he just want the payoff?

He doesn’t know the answer.

Is it morally OK to maintain a relationship with your parents for an inheritance? On one hand, I think it’s not fair to be dishonest with someone for personal gain. On the other hand, I think years of neglect and abuse deserve compensation.

Or maybe we all don’t measure abuse equally. Was what my friend experienced as a child perfectly normal? Maybe all parents are the same behind closed doors. It’s hard to get a baseline on the shitty parent quotient.

Below I have pasted a bunch of anecdotes from Reddit users who had crappy parents. These are probably the worst of the worst, because they all turned into physical fights.

I’m including these anecdotes because I think it helps set a level for what’s abnormal. Because it is honestly hard to know sometimes.


My father is verbally abusive. Has been my whole life. Earlier this year I was at my lowest, depressed, living unhealthy etc. Sought the help of my father, tried talking to him etc. He went off on me calling me a loser, a pussy etc and challenged me physically (ive always been too skinny or too weak in his eyes etc). This time I had had enough. Little did my father know I have been doing boxing and jiu jitsu for 4 years now. I beat the shit out of him in a very humiliating way, holding him in awkward submission and screaming at him whos the pussy now.

I have surely been removed from any wills (my dads loaded too lol) but I could not give two fucks. It was liberating. It crushed my depression on the spot and lit a fire lol. Totally worth the million bucks or so I lost down the line lol.


I duked it out with pops one time. And it was a long time coming. He reached across the table and grabbed a leftover porkchop my sister cooked for supper the night before. He chucked it in the dogs dish. I had one little bite on the end of my fork…

He had been drinking since 8 a.m. and his excuse was that he couldn’t pick my mom up from work because of it. I told him I had a major assignment due at school and couldn’t. “I’m sorry, I can’t.”

His face turned red and he grabbed my food. I took the bite remaining and stared at my fork and.. I just boiled over. I launched the fork across the table like a ninja star. End over end. It hit him in the cheek and glanced off his glasses and it was on.

Up went the table and his chair fell over.

I felt horrible after all that shit. I didn’t want to fight him at all. But he was always bullying me somehow. I just.. had enough. The porkchop was the last fucking straw. He knocked everything over and cornered me so I couldn’t get out of the dining room.
He ended up like this guy. But.. fucking sad and drunk and sloppy and pitiful. I was disgusted it happened.


My mother used to beat the shit outta me my whole life. Would pull down my pants in front of my friends and spank me until I would cry in front of them to humiliate me. I was 17 years old and one day she tried to pin me to the side door by my neck, choking me. Something flipped a switch in my head. It was like when Darth Vader turned on the Emperor. I grabbed her face and pushed her back. Hard. She fell all the way down the stairs. I left and never returned.


I hated my real dad, because when I knew him he was a complete alcoholic asshole who ruined me and my brothers lives by never being there for us, false promises, and endangering both of us several times. I thought it was so objectively clear how fucked up he was because that’s the only side of him I really knew. Yet time and time again he would weasel his way back into our lives even after the divorce because my brother would fall for his charismatic charm and my mom would too. So I would play nice but every time be it a month or 6 months later it would always end in heart break for my brother and old wounds reopened for my mom. One day it occurred to me why it was so easy for them to want to believe he had changed, my brother was younger than me and when my dad lost his job I was already in school while my dad stayed home and bonded with my little brother while my mom went back to her old work from before she had kids. He had almost 2 years being my little brother’s main caretaker and source of fun, going to the zoo, eating dessert for breakfast you name it. Meanwhile i wouldn’t get him to the afternoon by then my brother was asleep taking a nap and he would pick me up from elementary school already a few beers drunk and not really take care of me. My mom on the other hand had years of him before he got like this that she remembers, literally almost a decade of him being a real stand up guy I wish I had gotten to know. So that’s why they would let him back in to break their hearts again and again, they both were hoping to see the guy they knew again.

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5 Year Plan for Financial Freedom

One of my readers recently asked me to provide more information on my background. To be fair I have so far divulged little about myself, other than what’s on the ‘Start Here‘ page. While I might never provide a full curriculum vitae – as I must remain discrete – I will strive to give more insight into who I am and why I see the world the way I do. I’ll eventually put up a more ‘About Me’ page, but I will also strive to infuse more personal experience into my articles. Below is one of those articles.

It was February 2009. I was sitting in my boss’s office waiting for him to get off the phone with his car guy so I could talk to him about some competitor product research I was conducting. At the time, I worked for a big Canadian asset manager that managed retail and institutional money.

In 2009 the world was in the grip of a devastating financial crisis and my world was collapsing around me. Every day I feared for my fate, as I watched thousands around me get laid off. I had a baby, stay at home wife and a massive mortgage.

Unemployment wasn’t an option.

I had no fall-back. No parents to move back with and no family wealth to rely on if I was laid off. I had enough saved to survive a few months but the midst of a crisis was no time to be searching for a job. Frankly, if I were laid off I would have been unemployed for a long time.

My stress levels were off the charts. At the mercy of those around me was no way to live. My stress eventually manifested in what felt like an explosion in my head. I experienced a blinding headache that took 16 days to dissipate.

My neurologist’s diagnosis: stress. Fucken great. I honestly wasn’t sure if I was relieved I wasn’t dying or disappointed I had no choice but to head back into battle.

As I waited for my boss to finish talking to his car guy I used the opportunity to create a plan to achieve financial freedom.

Up until that point I had played the game by the rules. Study, get a job, buy a house, pay your bills on time. But the financial crisis abruptly taught me I couldn’t rely on the system to provide me income. I mapped out my escape plan on a scrap piece of paper.

My mortgage term was renewing that month and that felt like a good catalyst to create change. I was sick of depending on the kindness of strangers (employers) so I roughed out a 5 year plan to get me on track to financial freedom. The gist of the plan was to remove the thing that could sink me if I ever lost my job: my mortgage. My strategy wasn’t necessarily to completely pay it off. After all, mortgage rates were low and over the long run inflation would make my debts more manageable. (Inflation effectively erodes the value of the debt.)

Instead, my plan was to get to a point where I could cover my fixed costs with a minimum wage job.

While I sat in my boss’s office I quickly compared my monthly essential expenses with my take-home income. Any difference was deemed nonessential. I earmarked a portion of that nonessential expenditure to mortgage prepayments. I didn’t allocate all of it at once to ease my budgetary shock.

After my meeting I contacted my mortgage provider to increase my monthly mortgage payments and switch to bi-weekly payments. I started small by increasing my payment by 20%. Once I got accustomed to the higher payment after a few months I again increased my payment. I also plowed any salary increases into my mortgage payment. I increased my by-weekly payments every few months or so until I was eventually doubling every single mortgage payment.

By slowly increasing the payments and by using any salary increases the change was less painful. It just became a matter of fact that I didn’t have any money left for vacations or other pleasures and conveniences. My wife and I both committed to this 5 year plan. (Luckily my wife and I are very compatible when it comes to money.)

While life felt stagnant for those five years, I was actually putting a major dent in my mortgage principal. Five years pass by quickly. I made sacrifices but the outcome was worth it.

At the end of my five year mortgage term I re-amortized my mortgage back to 30 years to minimize the payments. My mortgage payments shrank to a level I could cover (and then some) with a minimum wage job.

Also, during those 5 years my house appreciated in value, salaries rose and inflation eroded the real value of what remained of my debt putting me in a better financial position. Effectively, after my 5 year plan my mortgage payment became so low that it could be viewed as super cheap rent that would never rise.

After minimizing my mortgage payments, I then used the freed up cash-flow to save, invest and live life.

As you’ve probably noticed, there’s no magic trick to this. I simply gradually but consistently increased my mortgage payments to an aggressive level and committed to the 5 year plan. By only increasing by small increments – say 10 or 20% at a time – and by passing any pay increases directly through to my mortgage I barely knew what I was missing. In fact, that 5 year experience taught my wife and I to live quite frugally, which we still do.

Note: The purists out there will say that I would have generated a better ROI by using funds put towards my mortgage to instead invest in the stock market. While I agree with this in theory, in reality the life-altering downside risk of mortgage default outweighed the incremental potential financial gain of investing. Today, with that life-altering downside risk removed I am psychologically equipped to invest in assets with higher reward potential.

While I wouldn’t necessarily say I am 100% financially free (not sure I would ever feel that way until my dividend income covers all my expenses) I feel secure. Life improves dramatically when you feel secure. I still work and I still get stressed, but now it’s mostly on my terms.

As for my boss? He’s still living paycheque to paycheque and remains wholly dependent on the kindness of his employer.


Is $1 Million Still F.U. Money?

Painting: The Tribute Money by Masaccio (1401–1428)

Ask someone how much they’d need to quit their job and follow their dreams. For most people the magic number to walk away from it all is $1 million. That’s their F.U. (f@ck you) money.*

*F.U. money is the money you’d need to have saved to say “F.U.” to your boss and job.

However, people have been quoting that number for many, many years. Realistically – with inflation – $1 millions means less today than years ago. But it’s a nice clean amount so it has retained its status as the magic number.

Is $1 million still a lot of money?

Let’s not pretend to be stupid. A sudden inheritance of $1 million would be life changing for most people. You could take care of a lot of shit with that kind of money. But is it enough to buy a lifetime of freedom?

If you won $1 million, you’d probably first need to pay off your debts and mortgage. If you’re lucky to live in a an area with reasonable house prices you’d probably be left with about $700,000. (If you live in a place like Toronto, New York or Tokyo, consider moving to a city with a lower cost of living.)

If you invest that $700,000 in a balanced portfolio I think it’s fair to say you’d get a conservative return of 4-6%. If you didn’t touch your initial capital, you’d be generating $28-42k annually. This is livable, if you have your primary residence paid off. However, it might be an unreasonable range if it’s only 25% of your current income.

Of course, one must consider taxes in a situation like this. Often, income from investments is taxed more favorably than regular income. So $30k from investments might be worth more after tax than a $30k salary. Meaning, you might require slightly less capital to generate a desired level of after tax income. However, for purposes of simplicity – and because I don’t know who you are and where you live – I will ignore taxes.

A 75% cut in income would most likely require a substantial change in lifestyle. Moreover, the real value of that lower income will be eroded by inflation as time goes on. The longer remaining life you have the worse it’ll get.

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The previous example assumes you don’t touch your initial investment. If you change your strategy by withdrawing initial capital along with your gains you can draw a larger income. The downside is you will eventually run out of money.

For example, if you drew an annual income of $50,000 (assuming 5% rate of return), you would run out of money in 23 years. Increase that income to $60,000 and you’d run out in 17 years.

To achieve a consistent annual $50k income over 40 years you’d need $885k in starting capital (given a 5% return assumption). Again, that $50k is worth less and less as time proceeds, due to inflation.

For some, that amount and timing works perfectly. For others it doesn’t. If you can handle a $50k lifestyle and are well into retirement age, $1 million might be your magic number. However, $1 million no longer appears to be F.U. money for anyone with a considerable time horizon.

Additional sources of retirement income (e.g. government pension) will help, but it won’t amount to much for most people. Many people will require more.

After reading all this, if you’re anything like me, you’re thinking “well that’s just f@cking great – I’m going to be a corporate schmuck forever then.” Maybe. Or maybe there are other options.

For starters, you can take out a smaller income and supplement it with part-time work…perhaps a secret passion project. Or you can live like a student on ramen noodles and Pabst Blue Ribbon.

Cut and supplement. If you can’t do that, I’m afraid you might need to play the corporate game for longer. Because $1 million is no longer F.U. money.


How Much Should You be Saving?

How much should you be saving? Many people have no idea.

David Bach, author of The Automatic Millionaire, provides his recommendation:

Why does it rise with age? According to Bach, “typically the older you get the more you earn and spend. And if you lose your job it can take longer to find a job that replaces that income.”

I’ve witnessed this first hand. It frequently takes a senior executive 1-2 years(!) to find comparable employment. I can only imagine how devastating this can be to the ego, savings account and family dynamic. Since senior executives tend to be in their 40s or 50s, they probably have exhausted marriages, college-aged kids and massive responsibilities. There is no worse time to stop the regular paychecks.

This is where years of socking away money into an emergency fund helps. But how many people are doing this? The reality is quite bleak – 26% of Americans have no emergency savings at all. This means they’d be dipping into their retirement funds if an emergency occurs. Unfortunately, the median retirement account savings for Americans is only $5,000.

Why are people so unprepared?

The average person is financially illiterate. In 2011, the Investor Education Fund conducted a survey and found that only 29% of respondents could pass a basic financial literacy test. If people don’t understand basic personal finance, they sure as hell aren’t taking the right steps to secure their financial future and prepare for emergencies.

The average person must become more invested in their financial future. I’m happy to see that the Ontario government is working towards mandatory financial education in high schools. More must be done. Unfortunately, by the time a student reaches high school many bad financial habits have already formed. Parents still have the ultimate responsibility teach their children values and behaviors that support financial freedom and flexibility.

As I alluded to earlier, the risk of ignorance is financial ruin, divorce and missed opportunities for your kids.