This book made me cringe pretty often. I’ll leave exclamation points (!) on particularly cringe-worthy ideas, just so you can see how based I am.
This book functions on the idea that if we accept a new set of words: poverty mindset, abundance mindset, etc, we’ll become wealthy.
- Zero-sum mindset: any critique of “success”, including environmental devastation
- Scarcity/poverty mindset: saving your way to wealth, judging or being jealous of those who have things, being too safe or too risky with your money, avoiding the risk of seeking your dreams, any ideas that make you make bad decisions
If more people live with an abundance mindset, we will all experience less hardship.
People have value, not the environment, so we can create infinite value. If we stop hoarding, the things will go naturally into the hands of those who want them most or are the smartest with them. (!)
When we refuse to spend or exchange, we eliminate the joy that comes from activities and possessions that cost money and the increased satisfaction that comes from exchanging something we value for something we value more.
People were afraid of the Gutenberg press, so we shouldn’t be afraid of innovation and change.
Get rid of the phrase “I can’t afford it”.
- Sole purpose: spend your money finding and developing the skills or tools to become wealthy through those things, rather than giving it to others to make money with. He wants everyone to be an entrepreneur.
- Value creation vs frugality, cash flow vs net worth: place emphasis on the things that produce money, rather than the money itself.
- Cash flow: income plus its stability
- Net worth: stored potential
He equates making money with providing value to others. (!)just like that guy in The Big Short!
Throwing money into a 401k mutual fund is like turning it over to someone else for a little bit of rent.Based. This is one of the ways the ownership class keeps control of the means of production while giving the proletariat the illusion of security.
The 10% penalty on withdrawing a 401k makes us unwilling to withdraw, even if the profit on using the money might be greater than the 11.1% to recoup.
Money velocity is GDP over money supply, personal velocity is income / input cash. Maximizing this velocity is finding the most productive use of the money. There are even ways to use money for multiple purposes simultaneously, like if you buy your office space then you reduce expenses while also collateralizing the business, getting tax benefits, business quality for workers, etc.
forget about the numbers
The numbers that a financial planner gives you assume things that shouldn’t be assumed. They assume a certain rate of return, a certain number of years to retirement, a certain tax environment, and none of those things are guaranteed. You just can’t reduce this sort of planning to a set of numbers: the amount you want to have when you retire, the amount you need to put away, etc. Even the ideal of being a millionaire is fraught: what does it mean to have a net worth above a million if it’s locked into illiquid investments? What does it mean if you have it but are unwilling to spend it because you’re so nervous about losing it? He says this focus on numbers distracts from how we really need to make our decisions.
A single year of -12% can drastically damage an otherwise +12% return. Financial planners ignore the effects of this volatility. Compound interest is not a safe place to put your eggs. The “70% of your current expenses” ignores things like lifestyle changes after retirement. He says you should just try to produce all the value you can (i.e. make all the money you can), and live the life you’d like to live at each step.
Think about external rate of return, after taxes and lifestyle changes. You would save money by selling your phone, but what lost productivity does that mean? We have to think about all the factors, risk, and unknowables. Employer match on 401k is not as great as people think. What about taxes, market volatility, etc? Money in a savings account might make us money because of what it does to insurance premiums.
Seek your purpose instead of money, because the money is only a means to an end. The numbers and predictions have nothing to do with happiness. Money won’t fix your problems. (!)
myth #4 financial security
Financial programs from the government and corporations are not safe. You’re the only source of your safety. Paychecks won’t get you anywhere,accidentally based and relying on the government is false security and stealing the labor of others. True independence comes from ownership. (!)See The Myth of Self-Reliance.
You kill your life by working a job you don’t like, and you hurt the company too.
Full security doesn’t exist, and it’s costly to get limited security. Seek real freedom by choosing accountability with your money. Choose self reliance, not self sufficiency. Self sufficiency ignores the benefits of specialization of labor, and hoards your contributions from benefiting others.Self reliance to him means not relying on a paycheck or a government program to be able to do what you want to do. Is there a single version of this guy’s plan that doesn’t involve owning real estate and becoming the evil capitalist?
People who get selfish with their control of the things they own are what make capitalism look bad. We need people to become stewards of things, instead of being selfish. (!)
“Consumers” are the people who don’t take ultimate responsibility, and who take more than they give. Producers are the ones who give their service and produce all the goods we have. (!)This is a rationalization for the existence of the capitalist class as “stewards”.
myth #5 money is power
Money is a representation of value creation for others.
This idea is fundamentally how he dismisses the idea of capital as power or unfair control.
“It takes money to make money is wrong” according to him because ideas and actions are separate from money.
Money doesn’t solve problems; people do. If you have a big idea and need money to get started, you can find people to give you money for it. Problems that people say require more money usually actually need better management.
Capitalist apologia with a Mormon worldview!
myth #6 high risk = high reward
Entrepreneurial investments are really good because you’re really close to the knowledge of whether it’s going to work. That’s low risk, high reward. The best bets are certain. Investment without knowledge is gambling.
What you invest in is the people involved in the effort. Know the people and the structures of the thing you’re giving money too.
Your very best investment is in yourself. You increase the value you can create in the future.
Waiting out the lows is just living in ignorance. Contrary to popular belief, young people aren’t able to take on more risk. Sure they can wait longer on a stock price, but the opportunity costs when choosing a particular investment are also higher.
myth #7: self-insurance is best insurance
Self-insurance is an unnecessary assumption of risk. You have to collect vast stagnant assets to self-insure. If you have a $1M home and $1M in the bank, the $2000 home insurance is worth freeing up the $1M.
He recommends getting insurance for:
- car
- home
- disability
- renters
- life
- liability
- medical
Term life insurance sucks because the it becomes more expensive quickly. You need life insurance you’re whole life to insure the assets you’ll have when you’re old. Permanent insurance grows in value. You need insurance when you grow old so that the money you do have can stay in motion.
myth #8 avoid debt like the plague
Don’t pay off your mortgage too fast or you won’t have cash around for upcoming expenses. Choose rather to invest in places that will pay. The choice to get rid of liabilities should be based on your personal desire to not owe someone something, rather than simply the fear of debt in general.
Think about assets and liabilities not as dollar amounts but as how they affect your prosperity. There are intangible liabilities and assets, like the amount of time it takes to manage a rental property, or the employees you hire.
Constructive liabilities are for things that make more money. It might also include lifestyle choices that make you comfortable and happy and productive. But be careful not to live beyond your means because of this.
To try to reduce actual debt, focus on the personal thinking and choices that led to the root cause of the debt. (!) Then create a practical plan that uses any of the techniques out there to recover.
Human life value balance sheet says people might just consume.
It is a person’s human life value that determines what their property value assets are worth, because it determines if those assets will be put to productive use or not. (!)
No warning about overleveraging at all… What about macroeconomic factors my guy?
myth #9 a penny saved is a penny earned
Focus primarily on value, not price. Price alone shouldn’t not determine whether you purchase something. You’re worth more than whatever you might save by trying hard to get good gas prices, TVs, etc.
Expand your means rather than limiting to current means. Focus less on the budget and more on your productivity.
Savers and spenders both make financial decisions based upon price. Spenders gloat about the good deals they find; savers are smug about not buying things.
We decide what something is worth to us, regardless of what the price is.
Would I buy it if it weren’t on sale?
conclusion & thoughts
He defends consumer activism: buying what you want to see in the world. What if the options aren’t available? This is fundamentally a consumerist ethics for the wealthy.
“Why wait to have what you want in the future when you can have it now” is a paraphrase of something he literally said. This is a recipe for insolvency in the case of the poor, and in the case of the rich it builds castles in the sky that eventually crash and hurt the poor.
Figure out specifically what you really want to accomplish in your life, and that will guide the financial decisions much better than “standard financial advice” that just tries to get you to retirement with a certain number.
Considerations when offered a financial opportunity:
- What are the opportunity costs?
- Do I have the skills or understanding to do this?
- Will it produce value immediately?
- Why is it being sold to me?
- What are the secondary and tertiary effects?
questions for him
- In the book, you compare your life choices with those of Jesus and Gandhi. You claim that while these men lived lives of poverty during much of their work, they maximized their life value and fulfilled their sole purpose, just like you are trying to do. Would those two men have been fabulously wealthy individuals under modern capitalism, due to this maximization of their life value?
- Why doesn’t our current financial system reward certain kinds of contribution, like motherhood, activism, or being old?
- What does a society look like where everyone, even someone who works the mines their whole life, is appreciated for their contribution in their old age?
- What would society look like if everyone took your advice?