This book was recommended by both James Clear and Morgan Housel so I had to check it out. If you’re looking for a book similar to The Psychology of Money but with more data, this is the book for you.
Here are a few short lessons from the book:
1) The Biggest Lie In Personal Finance
The biggest lie in personal finance is that you can be rich if you just cut your spending.
Financial gurus try to tell people that if they just stopped spending $5 a day on coffee, they could become millionaires. Here are a few problems with that advice:
They assume earning 12% returns when the historical average is closer to 8-10%.
They assume the person will hold a 100% stock portfolio instead of a diversified portfolio.
They assume the person will keep investing for decades and never sell any of it until they retire.
And lastly, all of the gurus that share this advice didn’t get rich this way. They became rich through selling books, courses, etc.
Yes, you do want to cut spending if you’re living an extravagant lifestyle with unnecessary luxuries, but there’s no need to cut out your daily bagel or coffee order.
Instead, the most consistent way to get rich is to grow your income and invest in income-producing assets (stocks, real estate, etc.).
2) How To Spend Money Guilt-Free
Do you ever feel guilty about spending money?
You think to yourself, “Oh I could invest this money instead of buying these new shoes or coat”?
Here’s a simple tip from Nick that will help you–it’s called the 2x Rule: Anytime you want to splurge on something, take the same amount of money and invest it as well.
So if you’re feeling guilty about buying a new suit work that cost $400, take that same amount and invest it into your stock portfolio.
Following this simple tip will help you stop feeling guilty about enjoying your money because you know you’re also investing in your future at the same time.
Also, if you’re super-rich or feeling in a good mood, you can use the 2x Rule to donate the money to charity. So if you’re feeling bad about buying a Rolex for $20,000, donate another $20k to your favorite charity.
3) Don’t Buy Individual Stocks
Here’s a scary stat: 75% of professional money managers working full-time with teams of analysts don’t outperform the market.
Here’s an even scarier stat: Research has shown that 4% of stocks from 1926 to 2016 created ALL the excess return for stocks.
So ask yourself, do you think you can find that 4% of stocks that will outperform the other 96%?
Maybe. But the odds aren’t in your favor. Even skilled professional investors have a hard time beating the market.
So what can you do instead? Simple–buy an index fund or ETF. This is usually a far better bet and you’re likely to end up with more money and less stress following this path than from trying to pick big winners among individual stocks.
Disclaimer: I’m not a financial advisor nor is any of this financial advice. Do your own research and talk to a professional.
✅ Actionable Advice:
1) Stop trying to cut out every small purchase:
Focusing on cutting out every small purchase isn’t the secret to becoming wealthy.
Instead, focus on increasing your income and investing it in stocks, real estate, etc.
2) Follow the 2x Rule:
Every time you make a large purchase (ex: over $400), take that same amount and invest it into your portfolio.
This way you’ll be able to enjoy your money today while also investing in your future.
3) Buy a basket of stocks instead of individual ones:
4% of stocks are responsible for all of the excess returns
Buy an index fund or ETF and chances are you’ll get better returns and
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