Just Keep Buying

When we have the ability to save more, we should save more—and when we don’t, we should save less. We shouldn’t use static, unchanging rules because our finances are rarely static and unchanging.

The best savings advice is: save what you can. If you follow this advice, you will experience far less stress and far more overall happiness.

Why doesn’t spending go up proportionally with income? Because of something that economists call diminishing marginal utility. This is a jargonistic phrase, but its meaning is simple. It means that each additional unit of consumption brings about less benefit than the unit before it.

Their paper clearly illustrates that many poor people stay poor not because of their talent/motivation, but because they are in low-paying jobs that they must work to survive. They are, in essence, in a poverty trap. This is a poverty trap where their lack of money prevents them from ever getting training or capital to work in higher-paying jobs.

The most consistent way to get rich is to grow your income and invest in income-producing assets.

The best way to increase your income is to find ways to unlock the financial value that is already inside you. I am talking about a concept called human capital, or the value of your skills, knowledge, and time. Your human capital can be thought of as an asset that you can convert into financial capital (i.e., money).

Selling your time, skills, or products is great and all, but it shouldn’t be the end goal of your wealth-building journey. The end goal should be ownership—using your additional income to acquire more income-producing assets.

The 2x Rule works like this: Anytime I want to splurge on something, I have to take the same amount of money and invest it as well.

The second tip I use to spend my money worry-free is to focus on maximizing my long-term fulfillment. Note that I said fulfillment and not happiness. The difference is important.

Your money should be used as a tool to create the life that you want. That’s the point. Therefore, the difficulty lies not in spending your money, but figuring out what you truly want out of life. What kind of things do you care about? What scenarios would you prefer to avoid? What values do you want to promote in the world?

Labeling debt as good or bad misses the point. Debt, regardless of the type, is a financial tool like any other. If used properly, it can work wonders for your financial situation. If not, it can be harmful.

Though there are a lot of reasons why someone might consider taking out debt, the most useful ones tend to fall within two buckets: To reduce risk. To generate a return greater than the cost to borrow.

Those who benefit the most from using debt are those who can choose when to take it. If you can use debt strategically to reduce risk or increase return, then you may be able to benefit from it.

Not only can a home help you build financial wealth, but it also can help you build social wealth as well by providing a stable foundation to raise a family. Some consider this emotional return on investment priceless.

A renter and a homeowner experience these costs very differently from a risk perspective. Because a renter knows exactly what they will have to pay for the foreseeable future, while a homeowner doesn’t.

The primary cost of renting (outside of the monthly rent payment) is long-term risk. This risk shows up in unknown future housing costs, instability in living situation, and ongoing moving costs.

The right time to buy a home is when you can meet the following conditions: You plan on being in that location for at least ten years. You have a stable personal and professional life. You can afford it.

If you need to save for something that will take less than three years, use cash. If you are saving for something that will take longer than three years, put your savings in bonds.

To follow the 4% rule, you would need to save 25 times your expected spending in your first year of retirement. When you’ve reached this total amount of savings, you can retire.

Deciding to retire is far more than just a financial decision, it is a lifestyle decision too. So, in order to know when you can retire, you need to figure out what you will retire to.

Though money can solve many of your problems, it won’t solve all of your problems. Money is merely a tool to help you get what you want out of life. Unfortunately, figuring out what you want out of life is the hard part.

Despite how different your future self might be from your present self, research has shown that thinking about your future self is one of the best ways to improve your investment behavior.

Human capital and financial capital can be thought of as interchangeable.

If I had to pick one asset class to rule them all, stocks would definitely be it. Stocks, which represent ownership (i.e., equity) in a business, are great because they are one of the most reliable ways to create wealth over the long run.

Because bonds are more stable during market crashes, they also tend to be good at providing liquidity in case you need extra cash to rebalance your portfolio or cover your liabilities.

If you manage your property correctly, you will have other people (rent-paying guests) helping you to pay off the mortgage while you enjoy the long-term price appreciation on the property.

Buying individual investment properties is similar to buying individual stocks in that they aren’t diversified. When you buy an investment property you take on all the specific risks to that property. The real estate market can be booming yet you could get a bad result if your property has too many underlying issues and costs.

Royalties are payments made for the ongoing use of a particular asset, usually a copyrighted work. There are websites where you can buy and sell the royalties to music, film, and trademarks and earn income from their use.

Last, but not least, one of the best income-producing assets you can invest in is your own products. Unlike all of the other assets on this list, creating products (digital or otherwise) allows for far more control than most other asset classes.

When you shoot a basketball or write a computer program, the result comes immediately after the action. The ball goes in the hoop or it doesn’t. The program runs correctly or it doesn’t. But, with stock picking, you make a decision now and have to wait for it to pay off. The feedback loop can take years.

Getting the negative returns later in life (when you have the most money in play) leaves you far worse off than if you experienced those negative returns when you first started investing. In other words, the end is everything.

Despite the importance of luck in investing, your financial future is more in your control than you might realize. This is because no matter what markets do, you always get to decide how much you save/invest, which assets you invest in, and how often you invest.

If you want the upside—building wealth—you have to accept volatility and periodic declines that come with it. It’s the price of admission for long-term investment success.

Being rich is a relative concept. This is why no one feels rich. Because it’s always easy to point at someone who is doing better. The trick is not to forget all the people who could be pointing at you.