After spending my entire life in Arkansas, in 2020 I finally made good on my life-long goal and moved to the great state of Texas. It’s abundantly clear to me that this was one of the best decisions I’ve ever made in terms of both my finances and my lifestyle, and I feel compelled to share what I’ve learned so far about Texas living 101.
I could go on and on about the best parts of being a Texan. From the low cost of living and rapidly appreciating housing market to the rich history and warm climate, it's no surprise to me that hundreds of thousands of people move here every year.
Of course, any place is going to have its downsides and there are definitely both pros and cons of living in Texas. If you're considering moving here, you'll want to have a clear sense of both what you'll be gaining and what you could be giving up, depending on where you're moving from.
So, without further ado, let's dive in and take a look at the best and worst things about living in Texas from my perspective.
With inflation rising out of control and many coastal cities outrageously expensive, the low cost of living in Texas is a major pro. When the cost of living in the US as a whole is considered a 100, Texas ranks at 93.9. If you’re moving to Texas from a high-cost of living state, you’ll be able to achieve the same standard of living for less.
With so many people moving to Texas, it’s no surprise that the housing market is booming in the state. In 2020, I bought my home for $640k. In just two years, its value has risen to more than $1 million. While skyrocketing home prices across the country are expected to slow with rising interest rates and inflation, Texas is still going strong. In fact, while national demand for housing has started to decline, demand in Texas has continued to accelerate.
If asset protection is important to you (as, frankly, it probably should be,) Texas is one of the best states to live in the entire country. Texas Homestead Law protects your home if creditors are coming after you, and there are a number of personal property exemptions in the state as well.
By exploring the rest of my blog, you'll find that I'm a big proponent of the stealth wealth lifestyle and taking asset protection seriously. You can learn about more wealth protection strategies here.
For people moving from highly-taxed states like California or New York, the fact that there’s no income tax in Texas is likely a huge relief. There are only nine states in the country that have absolutely no income tax.
That being said, the state has to collect its money somehow. You’ll find that property taxes and sales taxes are high in Texas. Regardless, the Lone Star State is still considered to be one of the ten U.S. states with the lowest overall state-local tax burdens.
Texas is so enormous that there really is a wide range of lifestyles that the state supports. Want to live in a big, bustling city? No problem. Looking for a more laidback, small-town vibe? We’ve got that too.
There are a bunch of great options if you want to live outside of the biggest cities in Texas. A number of areas with a small-town feel that still have plenty of amenities have been growing quickly, including San Marcos, Wavo, and New Braunfels.
If cities are more your style, you’ll be happy in Texas, too. Four of the ten largest cities in the U.S. by population are right here in Texas (Houston, San Antonio, Dallas, and Austin), but there are also plenty of options when it comes to small- and mid-sized cities like El Paso and Arlington.
When it comes to state history, there’s no shortage of fascinating rabbit holes to dive into when you learn about Texas. The first European settlers in the state were Spanish missionaries, who founded San Antonio in 1718. It remained sparsely populated until after the Revolutionary War and the War of Mexican Independence due to hostility from the native population. Once the Mexican government was established, settlers from the U.S. began claiming land in the region.
There was a lot of friction in these early days due to the resulting population explosion and tension between American and Mexican residents. In 1836, the Texas Republic was formed after a number of small insurrections and finally the Texas Revolution.
The newly formed nation only lasted a few short years due to incursions by Mexican troops. In 1845, Texas negotiated with the United States to join the union.
The rest, as they say, is history. When you move to Texas, you’ll have no shortage of historical sites to explore. Some of the best spots any history buff will want to check out are:
Texas is so huge that there is an enormous diversity of ecosystems all within its borders. Even if you’re living in a dense urban area, you’re never terribly far from some incredible natural environments. Home to two national parks and 89 state parks, natural areas, and historic sites, the Lone Star State also has five state forests and two state arboretums.
It’s worth noting, though, that Texas has a lot less BLM land than other neighboring, western states. For people that love to head out to the desert to camp on the weekends, Texas isn’t as great as places like Arizona, New Mexico, and Utah.
After moving from the incredible scenery of the Ozarks, I have definitely had to adjust to the environment of Texas. Eastern Texas is greener and lusher than western Texas (which is dry and, in many places, a desert.) If living in a treed environment is important to you, you'll want to stick to the east side of the state.
If you’re moving from a place with cold, seemingly endless winters, you’ll love the year-round warm climate of Texas. While snow does occasionally fall in the state, and freak cold spells do occur, you can usually bank on the weather being pleasantly warm.
Pleasant, that is, until the summers. When we get into the downsides of living in Texas we’ll talk about the sweltering summers. In general, though, the statewide annual temperature average in the state is 65 degrees. Since the state is so enormous and there are a lot of different types of environments in Texas, you’ll definitely want to check out the local averages and climate before moving.
For example, Austin, Dallas, San Antonio, and Houston all frequently rank on lists of the hottest cities in the US. While the Texas Panhandle doesn’t really register as “cold” on any lists, it certainly has the coolest summers, on average, out of the entire state.
If you're moving from a place with harsh winters and you're sick of waking up at 5 am to shovel out your car, the mild winters of Texas will definitely be a pleasant change of pace.
Texas is the second most diverse state in the US, according to a study from WalletHub. This study analyzed all fifty states in terms of the ethnic, racial, economic, and cultural diversity of their residents.
The Lone Star State ranked second in linguistic diversity, fourth in racial and ethnic diversity, and third in industry diversity.
If you move here, you'll also find that there's a lot of diversity when it comes to culture and politics. Though Texas has a reputation as a conservative state, there are definitely some areas that are much more liberal. This helps create a healthy balance where there is something for everyone, and you don't have to worry about falling into a self-perpetuating echo chamber.
Whether you want to further your education or your career, Texas offers tons of opportunities.
With the second-largest economy in the US by GDP, Texas is home to six of the largest 50 companies in the Fortune 500. Though Texas comes in second place to California when analyzed by GDP, it actually grossed more money than both California and New York combined in exports in 2017.
There are a lot of different industries that are booming in Texas, including:
With a large and diverse economy, thanks to our large population, thriving cities, and abundance of natural resources, Texas is a great place to start your career, further your career, or benefit from the many leading centers of higher education in the state.
Are you more of an entrepreneur that a careerist? Not a problem at all, in fact, you'll love it here. With fewer government regulations than many other states, Texas is decidedly pro-business. With more than 50 billionaires calling Texas home, anyone who wants to make their own way will appreciate the business-friendly environment of the state.
I could write a whole book about the pros of living in Texas, but for now, I'll just add a few additional reasons why I absolutely love living here.
One huge pro is that there are a number of major international airports in the state. This makes it super easy to get anywhere in the world without the trip to the airport itself being a huge hassle.
Another great thing about Texas is that it's a major hub for sports and there are tons of entertainment options when you're within a reasonable distance from one of the cities.
Lastly, a cherry on top of living in Texas is that it has some of the lowest electricity costs in the U.S. Natural gas prices are also on the low end at the national level, and Texas has the fourth-best gasoline prices in the states.
I seriously love living in Texas, but any place is going to have some downsides. Moving to Texas has been a lifelong dream of mine, and I have no regrets. There’s no reason to have rose-colored glasses, though. Here are some of the disadvantages I've noticed while living in Texas.
There’s really no getting around it: Texas is hot in the summer. Since the state is so big, you can experience dry, desert-like summers in west Texas and extremely humid summers on the east side. In fact, there is a distinct line that separates the state known as the dry line or Marfa front.
Regardless of the type of heat, one of the definite downsides of living in Texas are the sweltering summers.
Another thing that people considering moving to Texas will want to know about is the traffic. This doesn’t just mean that getting from point A to point B in the populated cities can be a headache, it also means that there are more car accidents here than less traffic-ridden places.
Though the overall tax burden is really pretty good for Texas, and the lack of income tax is a huge win, the high property taxes and sales tax rate are worth mentioning. The property taxes are assessed by local county assessors on 100% of the appraised value, and the average effective property tax rate is about 1.8%. This makes it the state with the seventh-highest property taxes in the entire country.
The sales tax in Texas is also fairly steep at 6.25%. That being said, there are a lot of states where the sales tax is higher, tying Illinois and Massachusetts for thirteenth place when it comes to U.S. states with the highest property taxes.
One report that was published in 2019 from The Commonwealth Fund found that Texas ranked 49th when it comes to health care access and affordability. One of the primary reasons that it received such a poor ranking was that Texas hasn't expanded Medicaid eligibility.
Depending on which area of Texas you're considering moving to, some of the types of severe weather that impact the state might not need to be at the top of your "things to worry about" list. For example, Texas is exposed to hurricanes every year, but by far the most vulnerable region is the eastern section along the Gulf.
Other types of severe weather conditions that can occur in Texas include flooding, tornadoes, extreme thunderstorms, and wildfires. When you've zeroed in on a region you're interested in, you'll want to look more closely at the types of severe weather you might experience.
It would be hard to write an article about the pros and cons of living in Texas without mentioning the power grid failure in 2021 that made international news. While issues with the grid are rare, the event definitely made it clear what it means to be the only state in the continental U.S. with our own power grid.
Another thing worth mentioning is crime. As with pretty much anywhere else in America, how safe Texas is has everything to do with precisely where you are. As is common in the U.S, the most dangerous areas in Texas are typically neighborhoods inside larger cities where there is high unemployment, low income, and lack of quality housing.
The two most populous states in the country are California and Texas. While California has long been hailed as “The Land of Milk and Honey,” people have been leaving California in droves for other states in recent years. In fact, more people have left California than have moved to the state since the 1990s.
People are leaving the state for a lot of reasons, including:
The exodus from California has meant that other states have been receiving Golden State residents. The states that have been receiving the most California residents in recent years are:
There are a lot of reasons that Texas wins out in the competition with California. Some of the most compelling arguments in favor of the Lone Star State, in my mind, include:
For anyone that’s interested in building wealth over time, it’s pretty much a no-brainer when you compare Texas and California.
When you’ve started looking at moving to Texas, it can get pretty overwhelming to decide where to begin. Texas is really made up of seven distinct regions, each of which has its own geographical features, attractions, culture, and more.
In far west Texas, you’ll find Big Bend Country. This is the only spot in all of Texas where you’ll find real mountains, and it’s also home to one of the most well-known national parks in the US– Big Bend National Park.
The largest city in this region is El Paso, and otherwise, you’ll mostly find smaller cities and towns that are pretty spread out. Arguably the most remote part of the state and perhaps also the most beautiful. If you’re looking for big-city living, this probably isn’t the spot for you.
Up in the northwestern part of Texas are the Panhandle Plains. The second-largest canyon in the U.S. is found here (Palo Duro Canyon), and the best-known cities in the region are Amarillo and Lubbock.
Other than some deep canyons carved by rivers and tributaries, the Panhandle-Plains are mostly flat grasslands and plains without many trees.
South of the Panhandle-Plains and east of Big Bend Country, Hill Country is pretty much in the center of the Lone Star State. With hilly terrain, steep canyons, springs, and underground caves and lakes, this is a much greener part of the state than the two regions we’ve discussed so far.
Home to Austin, the state’s capital, and a number of other small cities and towns, this is a bustling and thriving region.
South of Hill Country and bordering the Rio Grande River, a big chunk of this area is dry and covered in thorny brush and grasses. San Antonio is the biggest city in the area which is home to plenty of attractions including theme parks, sporting events, historical landmarks, and more.
Within this region, you can find the Lower Rio Grande Valley, which is home to subtropical woodlands, palm trees, and a lot of beautiful tropical birds.
Including the Dallas/Fort Worth Metroplex, Waco, College Station, and a lot of other cities and towns, the Prairies and Lakes region is located in north-central and central Texas.
If you’re interested in living in a diverse region that offers the ability to spend time in a major American city and also hop out to small-town America to go antiquing, this might be a good choice for you.
Piney Woods is the easternmost region of Texas. This is a more remote area, with the “big” cities being Huntsville, Conroe, and Tyler. There are also a number of small towns that have plenty of charm and fascinating histories.
The landscape here is made up of lush meadows, forests, streams, and quaint historic towns. Home to four national forests, this is a popular place for visitors that want to experience the great outdoors.
Stretching along the Gulf of Mexico, the Gulf Coast region reaches all the way from the Mexican border to Louisiana. The cities found in this area include Houston, Corpus Christi, Galveston, and South Padre Island.
In addition to the cities, there are a number of charming smaller towns in the region.
So now that you’re convinced that you want to live in Texas, where the heck are you going to live? There really is something for everyone here, but you’ll want to consider what you want to prioritize to help narrow down the options.
There’s no shortage of small towns in the state of Texas. Some of the best small towns to live in include:
When you're in your 20s, you're probably looking for a different type of living environment than you will be when you're married with kids. Unless you're specifically hoping to move to a small town in Texas for some solitude and space, you'll probably want to look into Austin, Houston, and San Antonio. If you're looking to tap into some of the cowboy vibe of Texas, check out the Dallas/Fort Worth area.
When you're moving with kids to Texas, you want to make sure that your new home suits everyone in the family. Some of the most family-friendly places in the state I'd recommend checking out include:
Houston is the biggest city in Texas and the fourth-largest city in the US by population. It’s also impressively large by area, ranking at number nine for the whole nation. This means that you have a whole lot of options when you’re looking for neighborhoods in Space City.
Some of my suggestions for Houston areas to live in are:
The third-biggest city in Texas by both population and area, the Dallas-Fort Worth metroplex experienced the largest population growth of all metro areas in the U.S. between July 2020 and July 2021, according to the Census Bureau.
Between 2021 and 2022, more people moved to San Antonio than anywhere else in the country. Some of the best neighborhoods in the Alamo City include:
Another fast-growing city in Texas, the numeric population growth in Austin ranks fourth in the U.S. between July 2020 and July 2021. A word of warning to people considering moving to the capital city: Austin has long been famous for its beloved weirdness. There is a lot of local concern that this has been diluted by the rapid growth of the city, and anyone that wants to move to the Austin they visited in the 90s will likely find it be radically different than it once was.
That being said, let's check out some of the best areas to live in Austin:
There is something truly unique about Texas, and I am so glad that I finally made the move to this incredible state after dreaming of being a Texan my whole life. Everyone is different, though, so it's important to identify what is and isn't important to you when considering making the move.
If you're desperate to be in a warm climate, a business-friendly atmosphere, and a state with no income taxes, Texas should definitely be on the top of your list. If you're the type of person that starts to get uncomfortable when the temperature sneaks above 65, on the other hand, and you prefer condensed metro areas to sprawling ones, you might find Texas to require compromises you aren't willing to make.
Moving to Texas has been so beneficial to me that I feel driven to share what I've learned so far to help others make the right decision for them. If you're wondering who the heck I am, be sure to check out my projects and more about me here.
Most parents want to offer their children a better life than they had. If you’re interested in systematic wealth building, you’re probably curious about how to build generational wealth. After all, money is a tool that can allow your children and grandchildren to have the ability to lead meaningful and impactful lives.
Generational wealth isn’t usually something that happens by accident, though. Even if you save up an incredible fortune, it’s all too possible for future generations to not only squander the wealth, but also suffer tremendously because of it.
So what is generational wealth, exactly, and how can you build it? And, perhaps most importantly, what can you do to avoid the negative potential outcomes of offering a fortune to your descendants that they didn’t work to create on their own?
Let’s do a deep dive into everything you need to know about generational wealth to help set up the future generations of your family for success.
The term generational wealth refers to accumulated wealth that is passed down from one generation to the next. This fortune doesn’t have to just come in the form of cash, but can also include:
Generational wealth can be passed down after your death in the form of an inheritance, but it can also be shared with your children and grandchildren while you’re still alive.
When you build generational wealth, you are granting the future generations of your family a significant financial advantage. The goal isn’t to create an outcome where your kids never have to work a day in their lives and suffer from severe affluenza, but instead to open up a lot of possibilities for your kids and their kids.
When you create generational wealth, it means that your children, your grandchildren, and so on, can begin their adult lives on a higher rung of the hierarchy of needs. If you’ve ever lived paycheck to paycheck, you know just how costly and time-consuming it is to be poor. In the best-case scenario, generational wealth can allow your progeny to accomplish more in their lives than you were able to because they started out with a huge advantage.
If you want to have the ability to truly impact the world, creating generational wealth is one of the most effective ways to do so. While rich people can get a bad rap in this day and age, money is definitely one of the most powerful tools when it comes to actually creating positive change in your community and the world as a whole.
When you create generational wealth that your children and their children can use, you are giving them the gift of freedom. Money is a resource that allows people to pursue their dreams and affords them security in life.
If you work a regular 9-5 job, you might be wondering if that will be enough to build generational wealth. The answer to this question obviously depends on what you have in mind when it comes to how much wealth you want to leave your children, what your income is, how many years you plan on working, your cost of living, and much more.
That being said, building substantial generational wealth is probably not possible with a traditional career alone without taking on extreme measures when it comes to saving and investment.
Let’s take a look at some of the biggest names in generational wealth to paint a clearer picture of what I’m talking about.
Some of the most recognizable family names out there certainly didn’t accrue generational wealth working standard W-2 jobs.
John D. Rockefeller is believed to be one of the richest men that has ever lived, despite the fact that he started Standard Oil all the way back in 1870. The fortune he built initially is now divided among 174 different heirs and funds a massive amount of charitable and philanthropic work.
The Walton Family is said to have a net worth of about $235 billion between the seven heirs to Sam Walton’s fortune. This massive generational wealth was built through the Walmart retail empire, a public company that has a market cap of more than $395 billion.
While H.L. Hunt might not be as much of a household name as that of Rockefeller or Walmart, the Hunt family fortune is nothing to scoff at. Supposedly using poker winnings to secure title to a big chunk of the East Texas Oil Field (one of the largest deposits of oil in the world,) the massive wealth of the Hunt family definitely wasn’t built by showing up at the office at 8:45 and clocking out at 5:15 alone.
I could go on, but the point is that the biggest players in the world of generational wealth were entrepreneurs, not employees. While you absolutely can build up a nice inheritance for your children through aggressive savings from a traditional career, building truly significant wealth usually takes something more than a regular job.
Of course, there’s a huge range between leaving your children in debt and building up a Rockefeller-style fortune. You don’t have to be a billionaire to create generational wealth that can have a huge impact on the lives of your descendants for generations to come.
The deeper you get into the examples of families that have generational wealth, though, you will start to notice a pattern.
In short, entrepreneurship of one form or another seems to be the most common thread between examples of family wealth. This doesn’t necessarily mean that you have to start the next big social media platform, though that certainly wouldn’t hurt.
That being said, most of the world’s wealthiest people have a number of different irons in the fire. Some other wealth creation methods you’ll want to consider include:
If you are starting from zero or worse, (that student loan debt can really be a downer,) it’s worth noting that nearly 68% of the world’s richest people are considered ‘self-made.’ Don’t assume that you can’t build generational wealth within you’re lifetime without a huge inheritance of your own– it is completely within your power to build wealth from the ground up.
Now that we’ve taken a look at the basics of generational wealth, let’s hop into how to build it.
One of the most important steps to building generational wealth is about something way more valuable than money– your mindset. In order to accrue assets that you can pass on to future generations, you’re going to need a mindset that allows you to pursue long-term goals on a playing field that offers the opportunity for big gains.
Of course, investing is also essential to building generational wealth. If you’ve got a big pile of cash and you bury it under the oak tree in your backyard for your grandkids to find, they’re probably going to be pretty disappointed. (As an example, $5,000 in 1950 is the equivalent of about $60k in 2022.)
Not only do you need to invest your money to make sure that it maintains its value in face of inflation, but investing is going to be a big part of how you make your money work for you.v
Another way that you can generate wealth is through business ownership. This doesn’t necessarily mean you have to quit your day job if you don’t want to– it’s definitely possible to use your savings from your career to get a business off the ground as an investment.
Not only can a business help you to build your wealth through income generation, but a business is also an asset that you can pass down to future generations. If your great-great-great grandkids don’t want to work in the family business, no problem. All that means is that they have a saleable asset.
One of the biggest expenses you’ll have throughout your life is taxes. If you go through your life without tax-advantaged strategies, you’re taking money right out of the hands of your descendants and handing it over to Uncle Sam. If you know anything about compound interest, you’ll understand exactly how negatively impactful that can be on generational wealth.
Diversifying your income streams allows many of the same benefits you can receive from diversifying your investment portfolio. If you have all of your eggs in one basket, you’re putting yourself at a much greater risk than if you’ve got them spread out in a bunch of different baskets.
No matter how stable your business or job seems now, we ultimately never know what’s going to happen in life. When you have a number of different income-producing endeavors, it means the sky doesn’t fall if something unexpected occurs.
Building wealth doesn’t do you much good if you spend it all on useless material objects. I’m not saying you should find yourself a nice spot in the nearest shanty-town, but I am definitely a big proponent of avoiding the trappings of consumerism.
In fact, I believe wholeheartedly in living a stealth wealth lifestyle. Not only does it keep you safe from spending your money on things you don’t need, but it also can be a valuable asset when it comes to protecting your wealth. To learn more about why you might want to keep your wealth a secret, check out my recent post on “stealth wealth”.
One of the most important steps you can take towards maintaining generational wealth is investing in your children. A lot of people assume that this mostly means sending their kids to college. While a college education might be the right choice for your kid, it is not the only way to obtain success in life and sometimes is an expensive derailment from the type of education that is most beneficial to sustainable generational wealth.
You are the one that can begin the cycle of generational wealth, and you can certainly set things up to avoid your children blowing their inheritance in one crazy year. That being said, without proper education about personal finance and wealth, your descendants will likely make costly mistakes and might even suffer from the afflictions that can come along with being rich.
Beyond teaching your kids about personal finance, you’ll also want to strive to give them the skills they need to grow into responsible, mature, competent, and capable adults. These essential tools are not something you should expect are taught in classrooms, and it takes deliberate effort on the part of the parent to create this outcome. If your children are growing up wealthy, you will likely need to work extra hard to help your children learn the lessons that you learned through the hardships you encountered on your way to success.
You don’t want to learn the hard way that even the most immense fortunes can be squandered quickly if you aren’t careful. Some of the most successful and wealthy people in history have filed for bankruptcy (Michael Jackson, Mike Tyson, and Nicolas Cage, to name a few.)
Even if you aren’t going on wild spending sprees, how much wealth you can tuck away for your kids has a lot to do with deliberating using wealth protection strategies.
Passing down generational wealth isn’t something you want to leave to chance. Let’s take a look at how exactly to pass down generational wealth.
One of the most essential pieces of the generational wealth puzzle is having an estate plan. Not only can it help to minimize or even eliminate estate taxes but it can also help set up safeguards against your hard-earned fortune disappearing due to a few crazy years of excess on the part of your progeny.
When creating an estate plan, it’s a good idea to work with financial professionals that can help you work out the best options for your particular circumstance. That being said, some aspects of estate planning include:
By creating a thorough estate plan, you can avoid a lot of drama and chaos after your death. The last thing you want is for the wealth you worked so hard for to tear your family apart.
It’s all too common for parents to not talk to their children about money and personal finance. This is a big mistake and can end up leaving your descendants unequipped to deal with the fortune they inherit. If you want to create wealth that lasts for generations, go out of your way to teach your kids how to build, grow, and manage money.
Life insurance can also be used to pass your wealth down. If you end up dying unexpectedly, your spouse and children have a safety net. On top of that, it’s an affordable tool you can use to build generational wealth that offers tax advantages.
There are some pretty dire statistics out there about generational wealth which you’ll definitely want to familiarize yourself with. Most notable, 70% of wealthy families are estimated to lose their wealth by the second generation. Even if your kids don’t blow your fortune, there’s a 90% chance that their children will.
While an issue like this is obviously complicated, one of the most common reasons that generational wealth is squandered is that inheriting generations didn’t have to work for the wealth they have. When you build wealth that can be passed down, you likely experienced a lot of hardships along the way that required discipline, hard work, and sacrifice to overcome.
The second generation might have the opportunity to see how hard their parents worked to build wealth and, even though life was easier for them financially, were still able to understand all of the hard work and sacrifice that went into creating the family fortune. They might have grown up in a fairly frugal environment and been able to learn from their parents about making smart financial decisions.
The third generation, however, is much farther away from the hard work and struggle that it took to build the wealth they benefit from. In this situation, it’s all too easy to assume that the family coffers are a bottomless pit of gold. These people really might not have any idea how to handle money or just how much effort went into creating it in the first place.
When you aim to build generational wealth, you likely aren’t hoping that your kids will grow up spoiled, out-of-touch, and extravagant. You probably particularly don’t want them to end up in a heartbreaking riches-to-rags story that involves a life of excess that results in bankruptcy and destitution.
Luckily, it doesn’t have to be that way.
There’s a common saying that is very appropriate to understanding how family wealth is lost only a few generations down the line. It refers to a cyclical pattern that can be broken down into four steps before looping back around to step number one:
Rinse, repeat.
To avoid this all-too-common sequence, you’re going to want to purposefully instill the value of struggle in your children. It’s natural to want to give your kids everything in life and never let them feel uncomfortable even for a moment. If you shield them from ever having to face hardships and struggle, though, you’re actually doing them a major disservice.
I’m not saying you need to drop your five-year-old on a desert island and send them off with just a pocket knife. Being put in a position to deal with a hardship that is too far out of your comfort zone can sometimes be just as damaging as never facing hardships at all.
The value of struggle can be learned in an incredibly diverse variety of ways– through sports, games, jobs, school, relationships, hobbies, business endeavors, and travel, just to name a few. The goal is to support or help facilitate challenging situations for your kids so that they can see the personal gain and growth that comes from struggle firsthand.
We think of struggle as negative, but it’s ultimately one of the most important ingredients to achieving personal growth and success.
“Strength does not come from winning. Your struggles develop your strengths. When you go through hardships and decide not to surrender, that is strength.” – Arnold Schwarzenegger
If you’re not yet convinced, let’s just take a look at a handful of some of the benefits of struggling:
I could go on and on. While too much struggle can obviously be devastating to an individual, you might be surprised just how resilient, strong, and capable your children are in the face of challenges. When your children learn the valuable lessons of struggling, mistakes, failure, and success, you’ll find that they are much better equipped for the “real world” when it’s time for them to go off on their own.
If you dump a cool $20 million in cash on your kids on their eighteenth birthday, there’s a good chance you’re playing with fire. Of course, how they handle this type of situation will have a lot to do with how much personal finance education they’ve had and whether or not they understand the value of money. However, even the most responsible person can start to act erratically when they see all those zeros in their bank account.
There are a lot of different ways you can go about creating criteria future generations need to meet before they have access to wealth. Some examples include:
The ability to pass money on to your children is something you should be truly proud of. That being said, it’s important that you don’t project the lessons you’ve learned onto your children and assume that they will be as diligent in building and maintaining wealth as you have been.
Of course, it’s generally not a good idea to use financial incentives to get your kids to be the way you want them to be. For example, if your kid has always wanted to run their own restaurant, it probably won’t go well if you only allow them to receive their inheritance if they graduate from medical school. You want your wealth to support future generations in their ability to achieve their goals and ambitions, not cause major personal and relationship issues in your family.
Sure, your kids don’t have to work or pay for any of their own stuff. If you just buy them everything they want without them having to do anything for it, it’s going to be hard for them to learn the value of money.
I don’t care if you have one trillion dollars in the bank– make your kid get a regular job. Even working at the local pizza place a few hours a week can go a long way in teaching your children priceless lessons.
Beyond your kids learning that money is something you receive through offering something of value to others, it’s important to teach them that pretty much everything costs money. It isn’t enough to constantly harp on your kids about how expensive their back-to-school wardrobe was or how much you spent sending them to private school. In order for them to really learn, they’ll have to use their own hard-earned money to make some meaningful purchases.
There are a lot of different ways you can go about this. You might have your kid be responsible for saving up and buying their first car, pay for their own clothes beyond the basic essentials, or let them foot the bill when they go to the movies with their friends.
Having financial wealth can offer a lot of opportunities in life, but it can also be a curse. Money is just a tool that can be used in positive and negative ways. At the end of the day, it’s going to be hard to prevent the downsides of generational wealth if your kids don’t understand that material objects and a luxury lifestyle don’t automatically result in a happy or satisfying life.
I’ve actually written at length about the fact that you need more than money to lead a meaningful life. Check out my article on the different types of wealth to learn more.
At this point, you’ve heard enough of what I have to say about generational wealth. Let’s check in with what some of the greatest (and, in some cases, wealthiest) minds throughout history have said about family fortunes and wealth in general.
“Wealth consists not in having great possessions, but in having few wants.” – Epictetus
“The poorest man I know is the man who has nothing but money.” – John D. Rockefeller
“We need to make a game out of earning money. There is so much good we can do with money. Without it, we are bound and shackled and our choices become limited.” — Bob Proctor
“Someone’s sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett
"Be careful to leave your sons well instructed rather than rich, for the hopes of the instructed are better than the wealth of the ignorant.” – Epictetus
“Industry, perserverance, and frugality make fortune yield.” – Benjamin Franklin
“The philosophy of the rich and the poor is this: the rich invest their money and spend what is left. The poor spend their money and invest what is left.” — Robert Kiyosaki
“The advantages of riches remains with him who procured them, not with the heir.” – Ralph Waldo Emerson
“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.” – Theodore Roosevelt
“Material abundance without character is the surest way to destruction.” – Thomas Jefferson
Building generational wealth is within reach for anyone that is seriously invested in systematic wealth building. That being said, you will need to employ the same thoughtfulness, hard work, diligence, and planning in passing your wealth on to future generations as you did in creating that wealth in the first place.
When you create a family fortune, you are giving your descendants a tremendous gift. However, if they don’t have a good head on their shoulders in relation to money, it honestly might do more harm than good. It’s therefore essential that you help your kids learn how to create and lead meaningful lives. A part of the toolkit you’ll want to pass on to them will be a thorough education in personal finance, but that simply isn’t enough if you don’t help them learn how the value of struggle, the power of a growth-oriented mindset, and the reality that you need more than money to lead a worthwhile life.
Every week I post a new article about wealth building to share some of the valuable lessons I’ve learned over the years. You can learn more about me and my projects here.
According to a number of recent studies, an increase in income can actually lead to more stress and less happiness. Winning the lottery doesn’t appear to create the perfect life any more predictably than earning a higher salary, either. In fact, getting rich quick can leave people suffering from something called sudden wealth syndrome.
Before you start playing the world’s smallest violin for people out of feigned sympathy, you might want to consider the negative ways that a windfall could impact your life.
Why would someone who won a $315 million lottery have been quoted as saying “I wish that we had torn the ticket up”? The reason is that, for all the problems that money can solve, it is also very capable of creating a lot of new ones that are hard to even imagine before it happens to you.
Sudden wealth syndrome is a psychological condition (though not technically a psychological diagnosis) that can happen when someone comes into a large sum of money in a short period of time.
While many of us assume that having a surprise windfall would be the best thing that could ever happen, there are a number of potentially negative side effects that you should be aware of. A big influx of cash or assets can be shocking even when you’ve been expecting it, but it can really shake up your world if you had no idea that the wealth was heading your way.
When you have access to wealth all of a sudden, it can create a bunch of overwhelming pressures in your life. Even the most level-headed person can start making decisions they normally wouldn’t when their bank account blooms overnight, and it’s hard to anticipate how you would act if your net worth suddenly puts you in the “rich” category.
You might think that a ton of money is the answer to all of your problems. In reality, though, it can lead to extreme psychological outcomes like:
Understanding sudden wealth syndrome is essential for anyone who is working to build wealth. While some people might have a hard time feeling sympathy for someone that has money to burn, you never know with certainty how you would react to a windfall unless it happened to you.
A quick trip on the rags-to-riches roller-coaster can leave you experiencing a tremendous amount of stress and other negative psychological symptoms. It’s one thing to steadily and systematically build wealth over many decades, where you have time to adjust to your increasing net worth in small bites. Of course, people who get rich slowly can certainly fall prey to the same side effects as people who receive a windfall, but it’s particularly notable when a fortune is received in a short period of time.
Whether you know an inheritance is on its way, you expect that your side hustle might blow up and make you rich, or you have no expectation of experiencing sudden wealth, it’s a good idea to familiarize yourself with the potential symptoms of sudden wealth syndrome.
Guilt is often described as a self-conscious emotion because it involves self-reflection. In its healthiest iteration, guilt can help us learn to not repeat mistakes we’ve made. However, it’s all too common for people to feel guilty in ways that are out of proportion to the supposed error or are even completely disconnected from any actual harm to themselves or others.
This is the case with the guilt that comes along with sudden wealth syndrome.
There are a lot of reasons why you might feel guilty after a windfall. One familiar example is if you received an inheritance after the death of a loved one. This can create mixed emotions, such as feeling like you can’t be happy to have the money because that would imply that you’re glad your relative passed away.
People who come into wealth suddenly can also feel guilty because they don’t believe they deserve the money. They look around and see other people that seem to be working harder or that appear to need the money more. Why did you get rich all of a sudden, while these other people that are seemingly more worthy of a windfall have to keep struggling? This is particularly common for people who grew up poor, but it can happen to people of all tax brackets.
There’s also a pervasive cultural concept that money is bad and so are people who have it. Someone who was wandering around complaining about the 1% just a few months ago might be overcome with incredible guilt when they find themselves a lot closer to that category.
What would you do if you found out you were about to receive an inheritance of $100k? How about $500k? What about $5 million?
Your first instinct might be to celebrate. After all, why wouldn’t you call your buddies, your parents, and your girlfriend of six months to tell them the good news? Heck, you’re rich now– it’s time to party!
Unfortunately, money can complicate even the strongest relationships, and the actual emotions you experience might be a lot different if you experienced a windfall than you think they would be.
Coming into a lot of money all of a sudden can compel people to isolate themselves from the people they know. Because getting a bunch of money can trigger a lot of self-critical emotions, you might separate yourself from others due to depressive moods or other unpleasant mental states.
If the people in your social circle aren’t well off, you might feel uncomfortable being around them with your new wealth and lifestyle. Similarly, your friends and family might create separation through envy, resentment, or jealousy.
Sudden wealth can, in short, leave you feeling really alone.
If isolation as a symptom of sudden wealth syndrome doesn’t make you nervous, perhaps this one will. Becoming rich all of a sudden can lead to paranoia in its own right, but paranoia can also result from social isolation.
People who suffer from SWS might worry, for example, that their fortune will disappear as quickly as it showed up. They also might become paranoid in regard to their relationships. The changing dynamic of their social world can create paranoia– whether their fears are real or imagined, the newly rich person might feel that their friends and family members are always trying to get a piece of the action.
Both paranoia and isolation can lead to a number of other health issues, such as insomnia, depression, or anxiety disorders.
Receiving a windfall can also leave you in a state of shock. Even if the money can seriously change your life for the better– allowing you to get out of debt, start saving for retirement, invest in new business ideas, and follow your dreams, the experience of getting a bunch of money can be shocking on just about every level.
Becoming suddenly rich can leave you feeling paralyzed. You might not have the slightest idea what to do with the money. Even the smallest spending decisions can become completely overwhelming.
Feeling numb from sudden wealth often results, at least in part, from being emotionally unprepared for all the changes that money can create. Things like the new lifestyle you can afford, increased responsibility, and the ways money changes your relationship can leave you feel shocked and dissociated.
You could also find yourself ridden with feelings of confusion and uncertainty. Regardless of how good your new wealth could be for you and your family, it’s can be downright impossible to wrap your mind around.
How you respond to a sudden fortune can depend on your background. If you grew up in a wealthy family but didn’t have access to much money until your recent windfall, you might have a place to put the experience in your mind. However, if you grew up in a family that was always living paycheck-to-paycheck, the realities of wealth might be so new and unknown that you end up resorting to self-destructive coping mechanisms.
People afflicted with SWS might start spending money excessively, make financial promises to their friends and family, or make risky investments. This, of course, can happen to people who grew up in wealthy families as well. Regardless of background, and influx of charities and other organizations giving you their attention can leave you feeling suspicious and paralyzed.
As you might imagine from all of the symptoms we’ve discussed so far, increased anxiety or even panic attacks can result from the sudden change of becoming wealthy. All of these potential psychological consequences of an overnight fortune are deeply interconnected and interrelated. For example, anxiety about the money vanishing could lead to social isolation and paranoia, or the shock of being rich can start making even the most level-headed person anxious.
Panic attacks occur when a person is overcome with unreasonable feelings of anxiety and fear that manifest themselves in physical symptoms like fast breathing, a racing heart, and excessive sweating. If you’re truly overwhelmed by your new wealth and don’t know what to do, you can also find yourself experiencing these intense waves of fear.
A play on the phrase sticker shock, ticker shock refers to a state where a person watches the stock market obsessively and experiences cycles of anxiety and depression in response to market volatility. If you invested your windfall in the stock market (or made your money that way,) it’s a little too easy to be constantly checking in on your investments.
No matter how much money you have, it’s important to never exceed your risk tolerance when investing. If you invest money that you can’t afford to lose, you’ll find yourself flinching every time there’s a slight dip in the market.
All of these other symptoms can leave you suffering from insomnia or other sleep problems. You’d think that being rich would mean you can sleep like a baby every night, but all of the new responsibilities and other related issues can leave you staring at the ceiling until the wee hours of the morning.
One of the most drastic symptoms of sudden wealth syndrome is the potential it creates for an identity crisis.
I dealt with this myself when I went from being broke and in debt to a multi-millionaire over the course of eighteen months. Even though I’d been putting my all into the projects I was working on, I was left in a state of deep confusion about who I was when one of them actually panned out in a big way.
While we might not realize it, we tend to factor our financial situation into our sense of identity. On top of that, humans typically settle into a comfort zone where they can feel in control and everything is familiar.
When you get rich quickly, it can make you question who you are and what matters to you. If it was a part of your identity that you’re working class, for example, what does it mean about who you are when your bank account says otherwise?
Even though everyone thinks they want more money than they have, having your net worth skyrocket can put you way out of your comfort zone. This can be incredibly stressful, confusing, and overwhelming.
You might think that you’d be clicking your heels and shouting from the rooftops if you got news of a $10 million inheritance, but it’s actually not that uncommon for sudden wealth to leave people with feelings of depression.
This might appear on its own or it can result from guilt, isolation, paranoia, anxiety, or any of the other symptoms of SWS.
We’ll talk about why rich people can get depressed a little later in the article. But, in short, receiving a ton of money can actually leave people feeling empty and low energy. This might be for a number of reasons, including the realization that money simply can’t fix all your problems or provide meaning in life on its own.
Money can make people start acting strange. Even if you manage to keep your cool after striking it rich, unfortunately, your friends, family, and coworkers might not be as emotionally mature.
Sudden wealth can make you isolate yourself from others, make others isolate themselves from you, or both. You might find your best friend is all of a sudden so envious of you that your relationship falls apart. Your mother might demand that you give her a chunk of your winnings. Childhood friends can start coming out of the woodwork with sob stories about medical bills and sick kids.
It really is sad but true. The reality is that an experience like this can teach you who your true friends are. That can be a pretty hard pill to swallow if you come to find that you have a lot fewer friends than you used to think.
Similarly, it can make you suspect of every new person you meet. This is particularly the case if your wealth is known to the general public.
Let’s say, for example, that you made a killing trading crypto. You didn’t think to hide this about yourself, and you jumped at the opportunity to be interviewed about your new fortune for stories that appear in the Wall Street Journal, Buzzfeed, and on NPR. In your hometown, news travels fast and everyone from your high school drama teacher to your middle school girlfriend now knows that you’re a multi-millionaire.
Maybe the attention feels good for a while, but chances are you’ll start wondering whether your popularity is resulting from the fact that everyone is hoping for a handout. You might get tangled up in the dangerous gray area between reasonable and unreasonable paranoia.
As you can see, there are a lot of ways that getting wealthy can mess up the relationships you already have in life and jeopardize your ability to make new relationships in the future.
So, now that we know what can happen to people who become suddenly wealthy, let’s take a look at some of the most common ways that a regular Joe can find themselves with deep pockets practically overnight. Remember, there are many types of wealth, but the type we're talking about here is purely financial wealth.
Even if you know that an inheritance is coming down the road, it can still be hard to grasp how it’s going to change your life if you don’t consider it carefully ahead of time. Sometimes, individuals might receive news of an inheritance that they had no idea about, which makes them ripe candidates for the symptoms of SWS.
People talk about winning the lottery as if it would solve all of their problems and change their lives for the better. However, the actual experience can be so shocking for a person that is unprepared for wealth that it can lead to a number of horrible consequences.
There are a lot of examples of lottery winners whose lives seemed to take a turn for the worse as soon as they became rich.
Take Billy Bob Harrell Jr., for example. He won $31 million dollars from the Texas Jackpot after unsuccessfully attempting to become a minister. With his winnings, he helped out his family, his church, and his parishioners. No matter how much money he gave, though, people always seemed to be asking for more.
His family life fell apart as well, with the constant demands plus some bad investments eventually leading to divorce and general family turmoil.
“Winning the lottery was the worst thing that ever happened to me.” – Billy Bob Harrell Jr.
Sadly, less than two years after Harrell had become a multi-millionaire, he committed suicide.
You can spend hours going down the rabbit hole of the sometimes tragic lives of lottery winners. If you’re interested in learning more about how destructive sudden wealth syndrome can be, there are, unfortunately, countless extreme examples out there.
The median salary for all NFL players is $860,000, which is a pretty healthy income if you ask me. For the biggest names in the game, players can receive contracts that include yearly salaries in the tens of millions of dollars.
You’d expect that, from these numbers, NFL players would be set for life.
However, statistics suggest that, within just two years of retirement, 78% of NFL players fall into severe financial distress or go bankrupt.
You can find examples of this same type of situation in the world of celebrity as a whole. People as rich and successful as Michael Jackson, Nicolas Cage, Mike Tyson, and Kim Basinger have had to file for bankruptcy.
When people start making huge amounts of money every year, it can leave them with the expectation that their bank account is bottomless. They can lose site of smart money management and fall into self-destructive (and sometimes very expensive) habits.
Other types of gambling beyond playing the lottery can also leave people with more money than they know what to do with. This is also a particularly dangerous way to become suddenly wealthy, because people can end up putting their money back into games where the odds are against them.
Sometimes people can end up with a big chunk of cash if they’ve sued someone for medical malpractice, wrongful death, or some other legal proceeding. Unfortunately, a lot of people aren’t aware of the necessary steps that should be taken to manage and protect wealth, and suffer from the symptoms of sudden wealth syndrome when they get a big payout from a lawsuit.
Whether you take investing very seriously or you engage in r/wallstreetbets style gambling, having a big win in the stock market or crypto can change your life incredibly fast. Take a look at this story from the New York Post, for example, about people who’re rich thanks to crypto. While I hope everything works out for these new millionaires, getting rich from crypto or stocks doesn’t always go well in the long run.
Of course, the symptoms of sudden wealth syndrome shouldn’t be enough to keep you from trying to systematically build wealth. However, you should learn how to avoid SWS so you don’t become another tragic story recounted on a blog.
If you come into a bunch of money, the first thing you should do is nothing.
Before you buy a new house, pay off your parents debt, or put it all into a risky investment, slow down. I mean way down.
The most important thing is to avoid making quick decisions. All those zeroes can do weird things to your brain, and even the most level-headed person can start acting erratically with new-found wealth. Put the money somewhere safe (like an insured savings account, for example) and don’t touch it until you’ve created a solid plan.
I get it. You’ve struck it rich and you want to tell everyone you know. It’s essential that you resist this urge and keep it to yourself as much as possible.
If you don’t, your friends, family, and colleagues might start acting differently when they learn you’re rich. Whether they’re giving you investing tips, asking for money, or just acting strange, letting people know about your wealth can cause a lot of problems. If you do tell the people in your inner circle about your windfall, make sure you can trust them and be sure to set clear boundaries.
Instead of telling your coworkers about your major gains, talk to an experienced financial planner. They’ll help you make a plan that protects your wealth.
To learn more about how to keep your wealth a secret, check out this article on stealth wealth.
Sometimes you can’t plan ahead for sudden wealth, but in other instances, (like an inheritance you know about,) you can. Regardless of whether or not you were able to prepare for your fortune, if you slow down and keep it quiet, you can make a plan with the help of a financial advisor.
Make sure you are keeping the big picture in mind when you make a long-term plan. Your windfall could change your life for the better if you’re smart about it, but it could also vanish if you have too narrow of a focus on how the money changes your life right now.
Discipline is key for navigating the obstacles of sudden wealth. Work on being self-aware (i.e. keep an eye on ideas that crop up about impulsive purchases or risky investments) and don’t do anything until you make a solid plan.
Once you create a plan, trust it. Don’t stray from it unless you have a very good reason to and it supports your long-term purposes.
This one is simple. If you get a windfall and you don’t have any experience as an investor, now isn’t the time to learn just how risky it can be. Don’t let your coworker talk you into putting your money into the latest meme stock– while it could work out, it could also leave you right back where you started.
Depending on how you made your money, you’re likely going to need to give some of it to Uncle Sam. You’ll want to learn about how your new fortune will be taxed so you can make sure you can foot the bill when it comes time to pay.
Regardless of whether or not you ever strike it rich overnight, educating yourself about personal finance is never a bad idea. The more you know about managing money, the more prepared you’ll be if you end up with a ton of it.
When you don’t have any money, it can feel like being rich would make all your troubles go away. If that was really the case, though, why are some rich people depressed?
There are a lot of different reasons for this, but a big one is that money is just a means and not an end in itself. While it can seriously expand your options in life, money alone won’t make life meaningful.
Having money can also lead you to:
Being rich can also leave people struggling with boredom and purposelessness. A regular person doesn’t have to question why they get out of bed and go to work in the morning– they have to in order to support themselves. For multi-millionaires or billionaires, though, motivation and purpose is necessary beyond putting food on the table.
Even though being short on cash can create a lot of tension in the family, having a high net worth isn’t necessarily a walk in the park either. Building generational wealth can be a blessing or a curse depending on how you navigate the situation, and the family turmoil it can lead to can certainly contribute to depression and other mood issues.
Then there’s also the treadmill effect to consider. Some people get caught in a cycle where the more the make, the more they spend. They are victims of lifestyle creep and rather than money being the solution to all their problems, it actually leaves them with a more complicated life.
A few of the other reasons that rich people can be depressed include:
Wealth guilt can come in a number of different forms. These include:
If you receive a windfall, you don’t have to fall prey to Sudden Wealth Syndrome. Here are some tips to help stay stable, sane, happy, and healthy in the face of sudden wealth:
Getting rich quickly can be really overwhelming, and I know that from first hand experience. If your net worth has dramatically increased and you’re feeling like you’re in over your head, feel free to reach out and I’d be happy to give you some pointers. Don’t worry, I don’t have an angle here and I’m not trying to sell you anything. I’m just all too aware of how isolating it can feel to jump up a few tax brackets practically overnight.
Simply understanding the potential pitfalls of sudden wealth can go a long way in avoiding the risks associated with a windfall. I feel motivated to share what I’ve learned over the years in the hopes that others will be able to avoid the mistakes that I made along the way.
Who am I to be telling you how to deal with a big influx of cash, anyway? You can learn more about me and my projects here.
When you’re dreaming of getting rich, it’s easy to overlook the downsides of having money. One major risk of having a high net worth is that, once people know you’ve got money in the bank, they’ll try and take it from you. For this reason, wealth protection strategies are essential for anyone who is practicing systematic wealth building.
Are you wondering how to protect your wealth from lawsuits and predators? Are you concerned that once you finally “make it,” you won’t ever be able to relax and fully enjoy the fruits of your labor?
Don’t worry. It really is possible to be rich and have peace of mind. To do so, you’ll likely use a collection of wealth protection strategies to reduce the risk of being sued, having your income stream dry up, or otherwise having your assets dramatically drop in value.
At the end of the day, the more assets you have, the more strategic you’ll have to be to protect what is yours. Let’s dive in and take a look at what I’ve learned over the years about the best ways to protect wealth.
Asset protection refers to various strategies you can adopt to protect your wealth and property from creditors, lawsuits, and predators. You can practice asset protection strategies both at the individual level and for any business entities you operate.
If you’re new to the world of asset protection, the whole thing might sound paranoid to you. After all, who’s going to try and take your money?
Unfortunately, the more wealth you have, the more you can expect that others will try and get a piece of the action. Asset protection should be an essential tool in everyone’s financial planning. When you practice asset protection, you can enjoy the benefits of:
You might think that asset protection strategies are only for the mega-rich. Honestly, though, if you have any assets to your name and plan on building wealth over time, it’s never too soon to start protecting your wealth.
Before we get into the specifics of how to protect your wealth, let’s start with why your wealth is at risk in the first place. I want to mention first and foremost that you should not assume that you are safe from lawsuits and accusations against you because you do everything by the book and aren’t engaged in any shady business. The reality is that people can and do make frivolous, baseless lawsuits. Even if they won’t win, it can still cost you a lot in legal fees, time, bad press, and stress.
If you’re a business owner, you probably already know that there are potential pitfalls and risks just about everywhere you turn. That being said, let's take a look at some of the risks you face when you operate and own your company or work as a business professional:
Again, you don’t have to actually be at fault for predatory people to make these sorts of claims against you. If you don’t have your business and personal finances separated, you might find that your personal assets are at stake when someone comes after you professionally.
Even if you’re retired or generally not concerned about your professional liability, you’ll still want to consider the ways that your personal wealth is at risk:
I’ve said it before, but it’s worth repeating: the more money you have, the more likely it is that predatory people will try and take it from you. The scent of money can make people do strange things, and the apologetic person that was obviously at fault in a car accident might start to sing a different tune when they realize who you are or how rich you are. You can’t necessarily completely avoid these risks in life, but you can set yourself up with wealth protection strategies that make it so your money isn’t unguarded from opportunistic parties.
Now that we’ve looked at why you need to protect your wealth, let’s dig in to the how.
I'm a big believer in the fact that, while money is an incredibly powerful tool, it isn't the only thing that matters. Check out my complete guide to the different types of wealth you need for a meaningful and fulfilling life.
John D. Rockefeller once famously gave the advice that you should “Own nothing. Control everything.” This is an oft repeated quote in the world of asset protection and the offshore industry, promoting the idea that no one can take something from you if you don’t own it.
While it might make the purchasing process a bit more complicated, ensuring that none of your assets are owned in your name can provide serious wealth protection. You also might choose to retitle the assets you already own so that they can’t be taken from you in the case of a legal dispute. Some people also choose (in certain states where it’s advantageous to do so) to title their assets as tenants-by-the-entirety with a spouse.
Depending on the state you live in, your home equity might be safe from creditors through homestead protection. However, how much protection you really have is going to vary a great deal depending on which state you’re in.
There isn’t one go-to strategy for avoiding owning your assets outright in your own name. Here are some of the ways that wealthy people control their assets without technically owning them:
An additional benefit of avoiding owning anything in your own name is the anonymity it provides. If you purchase property with a trust or an LLC, (which, by the way, is definitely more complicated and involved than buying a house as an individual,) you don’t have to worry about the fact that your family’s home address is a part of the public record.
Are you an entrepreneur?
If so, you’ll definitely want to separate your personal assets from the assets, debts, and liabilities of your business sooner rather than later. LLCs are a popular method for a number of reasons, one of the primary of which is that creditors can’t go after an LLC owner’s personal assets in the event of the company going under or a lawsuit. Unless you act in a way that leaves a court feeling justified to pierce the corporate veil, the only assets at risk if your business is sued or creditors pursue it are those that are invested in the business itself.
Depending on the state you live in, you might be able to put some of your assets into a trust that creditors can’t access. However, this isn’t something you should try and start doing when you feel like a lawsuit is imminent. Creating trusts for your assets is something that you’ll want to do years in advance of any judgments or unpaid debts.
There are a lot of different types of trusts out there, and determining which ones are right for you should be a part of your larger estate planning efforts. Some of the types of trusts that might be applicable in your asset protection include:
In any case, I could go on. The short story is that trusts can be a valuable tool in your asset protection strategy, but they’re also pretty complicated and not something to mess around with lightly. It’s generally a good idea to work with a knowledgeable attorney who can make recommendations based on your specific circumstances.
When the name of the game is asset protection, your arsenal should be loaded with insurance, insurance, and more insurance. This is the first line of defense against liability, so this isn’t where you want to try and cut corners.
You should periodically make sure that your policy limits are in line with your current net worth and assets for insurance to serve as an effective method of asset protection. Depending on your situation, here are some of the types of insurance you might want to have protecting you at all times:
It’s also worth understanding deposit and securities insurance. For example, up to $250,000 per depositor, per bank, and per “ownership category” is insured by the Federal Deposit Insurance Corporation (FDIC) for member banks. Using this in your favor can ensure that your money in individual accounts, joint accounts, trust accounts, IRAs, and more is protected to the fullest extent.
No matter what you’re investing in, it’s never possible to completely avoid risk. After all, even if you hide your money under the mattress, it’s just going to get demolished by inflation over time.
That being said, there are ways you can significantly reduce your risk when investing. One of the common tactics used to help preserve your capital is by diversifying your investments.
The more diversified your investments are, the less impacted your portfolio will be by market anomalies. To protect your assets from unexpected events, some of the asset classes you might consider investing in (after thorough due diligence, of course,) include:
In short, you want to invest in several different asset classes and sectors that typically react differently to various types of events. If you’re not diversified, you might not even realize how much risk you’re taking on until something catastrophic wipes out your principal. For example, imagine if you were months away from retirement with all of your capital invested in tech stocks when the dot-com bubble burst. Ouch.
Another important step you can take to protect your wealth is to diversify your business income. As they say, don’t put all your eggs in one basket.
If you have a stable, high-income W-2 job, you might think this doesn’t apply to you. However, diversifying your business income is just as important for 9-5 workers as it is for entrepreneurs.
When you have several different sources of income, it can act as a hedge against income loss, provide stability, and help you systematically build wealth. In these arguably uncertain economic times, having several different irons in the fire can also help to keep you financially agile.
If something catastrophic happens, diversifying your income can mean you don’t have to go down with the ship. If everything continues chugging along as planned, having several sources of income can have a huge impact on your ability to build wealth and fund your retirement.
Diversifying your income is an important strategy that keeps the long-game in mind. Even the most successful companies can lose relevancy and go under, and even the healthiest income streams can dry up over time.
Lastly, having a number of different sources of income can help keep life interesting! It can keep you on your toes, keep you engaged, and help avoid the all-to-common disease of complacency.
Related to the need to diversify your business income, diversifying your skills can also go a long way in protecting your wealth.
In Stoic philosophy, one of the main principles is that some things in life are in your control and some things aren’t. Your main task is to distinguish the difference between these two camps. Once you’ve done that, you can work to accept the things you can’t control and focus your energy towards the things that you can control.
Unless you are one of the elite group of people in the world that have the power to directly affect change at a global scale, you likely can’t control what happens economically, politically, or geopolitically. You don’t have the power to start wars or end wars and you don’t have the power to impact the housing market in a meaningful way.
What you can control, though, is what you do. You can control the skills you choose to master.
When you have a diversity of skills, it means that you are all the more able to pivot in the face of unexpected life events or global occurrences. Mastering a variety of skills doesn’t just mean you might have the right skills to call upon in the face of a crisis, but it also means you’ll be more equipped to gain new skills when necessary. If you are constantly pushing yourself to travel beyond your comfort zone and learn new things, you’ll be able to hop back on your horse a lot faster when you get knocked off.
If you’re not convinced yet, let me also just say that building a diversity of skills also helps to keep you engaged and fully alive. It’s easy to go to your 9-5 everyday and let the days slip by without ever pushing yourself to become more. When you invest in your skills, you’ll find it helps to produce a zest for life you might have thought automatically disappears once you reach adulthood.
As you start building your net worth, one thing you’ll want to understand is that the odds of getting hit with lawsuits starts increasing exponentially the more money you have. If it’s common knowledge that you’re doing well financially, the sad reality is that there’s a good chance people will start coming out of the woodwork to try and get a piece of the action.
Don’t assume that you can avoid this outcome by obsessively doing everything by the books, being incredibly charitable with your wealth, and never uttering a harsh word to another soul. It is not beyond predatory people to make frivolous, baseless lawsuits against someone they know has some money in the bank.
For this reason, you’ll want to build an aggressive team that you can call upon at any time to vigorously defend your interests. If someone files a lawsuit against you, no matter how vulnerable you are in reality, you should never be afraid to bristle when someone threatens legal action against you.
In fact, the more vulnerable you are, the more you should fight to look less vulnerable. When someone is threatening to sue you, they are declaring war. In these instances, you’ll want to follow the advice outlined in one of the most influential strategy texts of all time, the Art of War:
“All warfare is based on deception. Hence, when we are able to attack, we must seem unable; when using our forces, we must appear inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.” - Sun Tzu
This isn’t the time to play nice– the more aggressive you are against legal attacks, the clearer you make it that you’re willing to put up a fight. Lawsuits are expensive, and when you start beating your chest like a silverback (metaphorically, of course), it makes it clear that it’s going to be costly to try and take you down.
The goal here is to never appear vulnerable. Asset protection can go a long way in creating that appearance. If you have bombproof asset protection strategies in place (like utilizing management companies to keep your holding companies cash free, avoiding owning anything in your name, and being willing to contest every tiny legal detail,) lawyers will see that the legal battle likely isn’t worth fighting. Through aggressive asset protection and an even more aggressive legal stance, you can swat away anyone that even thinks about opportunistically taking your money.
It would be nice if we lived in a world where you could run around making verbal contracts and assume everything will work out alright. In reality, approaching life, business, and other people that way is probably going to burn you pretty quick.
If you’re constantly saying “I’ll take your word for it,” you’ll learn this the hard way. If you’d like to avoid this, always act from the assumption that it’s best to get everything in writing.
You likely understand the importance of contracts when it comes to business deals, real estate deals, and legal matters. (If you don’t, now is the time to start.) But getting everything in writing can also refer to things that you might not think are that important. Creating a paper trail helps to provide certainty in just about every situation for everyone involved, even if you’re not worried about there being any malicious intent.
Prenups often get a bad rap, but they are an absolutely essential tool for anyone that wants to protect their wealth. When you and your soon-to-be spouse create a thoughtful prenup together, it can help to protect both of your interests in the case of separation, divorce, or death.
However, a prenup really isn’t just a laundry list of who gets what if the marriage doesn’t work out. It can also be a way for you and your fiance to create a financial plan for married life that will actually help to avoid arguments over money and finances down the road. On top of that, it can be an important exercise before marriage to make sure that the two of you are fundamentally on the same page when it comes to wealth building and protection.
In the event that you and your spouse get divorced or one of you passes away, a prenup is a document that lets the two of you stay in control of what happens to your assets. This can save a lot of headache, drama, and stress down the road. In general, you’ll be in a much better position to make level-headed decisions about asset distribution when you aren’t actively embroiled in a divorce or grieving the death of a spouse.
You might not like this one, but the reality is that one of the best ways you can protect your wealth is by building more. Though it’s not the cheeriest news, the truth is that the more you earn, the more you can afford to pay for safety. This is an inherent part of living in a scarce-resource universe– resources allow you to have more options and more security, regardless of whether you’re talking about financial, personal, or political resources.
The more wealth you have, the more peace of mind you can buy. If you’ve ever stressed about money– and let’s be real, we all have– you know just how priceless the ability to relax really is.
On top of that, building more wealth is the most reliable path to having the freedom over what you do. The more money you have, the more ability you have to protect the most valuable asset to your name: your time.
The point of getting rich isn’t so you can spend your days cackling and counting your cash. The point is to allow you to engage with life in meaningful, purpose-driven ways. If you’ve ever lived paycheck to paycheck, you know just how impossible it can be to pursue your life goals when you’re scraping together pennies to fix your car or pay your rent.
What’s one of the best ways that you can protect your wealth from lawsuits and predators? Easy. Don’t let anyone know you’re rich.
For an in depth look at the concept of keeping your wealth a secret, check out my article on stealth wealth here. There are a lot of benefits to practicing a stealth wealth lifestyle, one of which is helping you avoid frivolous, baseless lawsuits from people who have nothing better to do than try and take your money.
When you don’t advertise that you’re wealthy through your home, car, clothes, and Instagram account, opportunistic predators will look right past you. Similarly, you can avoid the whole uncomfortable experience of second-cousins-once-removed and friends from the second grade calling up out of the blue to see if they can squeeze you for some cash.
While researching and putting in place asset protection strategies might not be everyone's idea of a good time, it’s absolutely essential to hedging against future financial disaster. On top of that, you’ll find that once you know your wealth is protected, you sleep a lot better at night.
If you’re as passionate about wealth building as I am, you’re likely also passionate about protecting your wealth from lawsuits, predators, and unexpected events of any kind.
Are you wondering why you should take my advice when it comes to something as important as asset and wealth protection strategies? You can learn more about me and my projects here.
If you crack open the dictionary to the word wealth, you’ll find definitions along the lines of “an abundance of valuable possessions or money.” Most of us strive to build material wealth, but, in reality, you need more than money to be fulfilled in life. There are a lot of different types of wealth, and only focusing on financial success can leave you lopsided, unhappy, and unhealthy.
Just to make myself clear: I believe that everyone would benefit from systematic wealth building. At the same time, I absolutely despise the culture of debt-fueled consumerism.
If you’re able to break free from the societally-sanctioned expectations of mindless purchasing and lifestyle creep, building wealth can be an incredible tool that allows you to live a productive and meaningful life.
So, what does it really mean to be wealthy? What does it look like to live an abundant life without getting caught in the endless cycle of consumerism? What types of wealth exist beyond monetary and material accumulation?
In this article, I’m going to break down my view of the necessary ingredients to live a comfortable, healthy, sustainable, and fulfilling life. If you find that you might be lacking in some of these areas, don’t despair. Every single one of these types of wealth is completely attainable if you are willing to commit some time every day to personal growth and development.
In this article, we're going to review the different types of wealth:
When you think about being wealthy, there’s a good chance the first thing that comes to mind is material wealth. This might conjure images of Lambos, elaborate mansions, and luxury vacations, but being materially wealthy does not necessarily need to mean that you are making extravagant purchases or even living a particularly glamorous lifestyle.
It can be tempting to try and “get rich quick,” and there are plenty of people out there that will gladly sell you their info products with the promise that they will tell you how to do so. While some people might get lucky, your best bet is to become increasingly financially literate and have the right mental framework. Money management is an essential tool in being financially wealthy, but an equally important part of building wealth is recognizing that consumerism is the ultimate scam.
Being rich does not have to be about indulging in every last tech gadget or spending your evenings dining at overpriced trendy restaurants. Consumerism is arguably the number one most societally acceptable addiction, and buying stuff will simply never fill the empty space in your soul.
What will fill your soul, you ask? Being productive. Engaging in meaningful activities. Identifying your purpose in life and pursuing it. Spending time with the people you love.
So why bother building material wealth if you aren’t going to spend it on all that fun new stuff? What’s the point of being rich if you can’t use it to show everyone how successful you are?
Because money is a tool that gives you access to one of the most valuable assets you have: time. What if you created stable passive income streams for yourself that allowed you to go to your kid’s soccer games, spend time with your spouse, and take the weekend to go camping and immerse yourself in nature?
What if you were financially wealthy enough to write a book that you think will help other people improve their lives? What if, instead of being caught in an endless wheel of money-in, money-out, you were able to give back to society in a productive way that really did make a difference in the world?
Sure, there are many well-known figures through history that rejected wealth and possessions and gave their lives to a cause greater than themselves. However, for most of us, being poor is the ultimate thief of time.
If you’ve ever lived paycheck to paycheck, you know that when you aren’t working, your time isn’t really even yours to enjoy. If you aren’t busy trying to figure out how to scrape together some extra dollars for that surprisingly high utility bill, you’re frequently burning your time and energy being worried about money in general.
In my view, material wealth is not in itself a goal. Instead, it is a powerful tool that can allow you to pursue a meaningful and productive life.
One of the most precious types of wealth we can possess as humans is health wealth. Even if you were naturally physically fit and healthy as a teenager despite being inactive and eating poorly, you’ll soon learn (if you haven’t already) that this is typically not a gift that keeps on giving.
Anyone who knows me knows that I try to lift weights and spend some time doing boxing and MMA training every morning. I work closely with a personal trainer and we lift together for 1.5 hours in my home gym. It completely sets the tone for the rest of the day, helps me emotionally, and gives me clarity of thought and focus for my time working on my businesses.
Later on, we’ll talk about emotional health, which is equally important as physical health. In this section, though, we’ll discuss how important it is to keep your body in good shape in order to live a wealthy life. Just like Emerson said, “the first wealth is health.”
If you aren’t taking care of yourself physically, though, you are going to struggle to build any of the other types of wealth on our list.
This is a foundational type of wealth, and we all know that you should build your house on stone, not sand.
So what does it mean to have health wealth rather than health poverty?
Health wealth means that you treat your physical body with compassion and respect. You get regular exercise, you eat nourishing food, you drink plenty of water, and you don’t deprive yourself of sleep. You get outside in nature and let the sunlight hit your skin rather than spending all of your time in some dark nook staring at a computer screen. You understand how important it is to maintain a healthy posture, particularly if you spend a lot of time sitting at a desk. Ultimately, creating a fortune in regards to your health means that you understand that your physical body is the vessel that will help you fulfill your purposes in life, and the better shape you’re in, the better able you’ll be to reach your goals.
Of course, it’s worth noting that sometimes our health is out of our hands. You can certainly do everything you’re supposed to do and still end up stunned in a doctor’s office after receiving news of cancer or some other terrible disease.
In general, though, treating your body well can help to reduce the risk of disease, improve your cognitive health and mood, reduce your stress levels, keep you feeling fit, and ultimately make life feel a whole lot easier.
Taking care of your health and building health wealth isn’t something that you can create overnight, much like the other types of wealth on our list. You create health wealth little by little, every day. It doesn’t come with becoming addicted to exercise or obsessing over never eating an ounce of fat, nor does it come from complete gluttony and over-indulgence. Becoming rich in health is a balance you work to obtain every day that stems from self-respect and the desire to lead your best life.
If you’re like a lot of Americans, you probably think that spiritual wealth is an oxymoron. For fairly understandable reasons, we seem to have a cultural conception that you can be spiritual and poor or materialistic and rich, but you definitely can’t be a spiritual and rich person.
Luckily, this simply isn’t true. You can be both spiritually wealthy and financially wealthy. In fact, the two different forms of wealth can have an intricately intertwined relationship where they support one another.
According to one study from Baylor University, entrepreneurs are more likely to believe that God is personally responsive to them. They also pray more frequently than non-entrepreneurs.
This is a classic example of people having spiritual wealth that directly impacts their financial wealth. After all, when you believe in something larger than you, it’s a lot easier to connect with the notion of having a purpose in life and working towards it.
Having a spiritual fortune inside you doesn’t mean you have to live in a cave carved into the side of a mountain with only a lantern, a knife, and a small clay pot to your name. In fact, if you can manage to build financial wealth without falling prey to the temptation of consumerism, being rich can help give you the headspace and time to really focus on your spiritual growth.
Spirituality is one of those words that’s gotten a little slippery over the years, and it’s definitely going to mean different things to different people. If you’re a materialist, (in the philosophical sense,) perhaps this all sounds like a bunch of hogwash to you. It seems clear to me, though, that there is something deeper going on in life than just “wake up, eat, work, sleep, repeat” that is worth connecting with.
Whether or not you believe in God or deities of any kind, there is a lot to be gained from building your spiritual wealth. This might include:
There are countless potential benefits to incorporating a spiritual perspective into your daily life. Studies have found that people who are spiritual or religious tend to live longer, have stronger immune systems, experience better emotional states, and have a reduced risk of disease. It also often comes along with a strong social support system as well as improved fitness and self-confidence.
In short, spiritual wealth can contribute to your health wealth, emotional wealth, and friendship wealth. When you’re spiritually impoverished, it can mean that you’re making nihilistic life choices, not treating yourself and others with the compassion you deserve, and ultimately not viewing life from a perspective of abundance.
Time is money. Time wealth is one of the original reasons I became an entrepreneur in my teenage years. I wanted the freedom to travel, to explore new hobbies, to learn every day at my own pace - I wanted freedom. And time is freedom.
One of the most often overlooked types of wealth is time wealth. Remember, you can always make more money, but you can’t ever make more time.
When you are time rich, you have the freedom to choose how you spend your time and where you spend your time. There are a lot of people that focus primarily on material wealth and fail to recognize just how valuable it is to have ownership over your time. After all, is it really that great to be making $500k a year if it means you’re regularly working 80+ hours a week and otherwise always thinking about your work when you’re not there? Is it really worth it to build up a fatty investment account if it comes at the cost of being able to do what you want when you want?
You need more than money. You need time, too. In fact, you should look for ways to trade any extra money you have for more time.
Of course, I’m not saying that you should never do anything productive and spend all of your time at the beach working on your tan. The point is that one of the greatest potentials of material wealth is that you can afford to choose which tasks you take on yourself and which tasks you delegate to others. Additionally, when you avoid the trap of consumerism and lifestyle creep, you have a lot more power over what you do with your finite time. After all, owning tons of material possessions or living in an extravagant home aren’t just things that cost you money, but they also secretly cost you a lot of time.
It is all too common for people to sacrifice their time in the present in order to build wealth that they expect to spend decades down the road in retirement. However, if you only focus on building material wealth and don’t allow yourself to engage in meaningful activities in the present, a horrible thing can happen.
It can destroy your soul.
The problem with the strategy of sacrificing all of your time in order to make money for the future is that what you do with your life makes you who you are. If you are putting your dreams and purposes on hold until some future date, you might find that you don’t have access to the wealth of potential you believed so strongly in when you started your wealth-building journey.
Time wealth is also something you want to consider when making purchases. There’s nothing wrong with spending money, but you’ll always want to think about whether a purchase frees up your time or takes your time. Consider whether what you’re buying requires a time sacrifice that you think is worth it, and whether the purchase enhances the time that you get to spend with those you love or on projects that are meaningful to you.
Do you know anyone that seems to have it all, but is ultimately missing one of the most important aspects of life? Bouncing around the globe and posting pictures of your excursions on Instagram might seem like an incredible life experience, but what if that means you end up being 40 and fundamentally alone, without a spouse and estranged from the family you were born into?
When you’re younger, you might think that you’re happy to be a bachelor (or ette) forever. It’s important to understand, though, that it’s possible (and likely) that your priorities will change as time passes. Old friends fade into the ether and you realize you don’t have anyone to call when you’ve got exciting news to share or when you’re lonely. Maybe you’re healthy, happy, and rich, but there will likely come a point when you wish you had found someone to share your experiences and life with.
On the other hand, maybe you have been putting your nose to the grindstone for years now to make a living for your family. Your kids have everything they need, your wife gets to be a stay-at-home mom, and you’ve been building up your retirement account so you can escape to Tulum someday once your hair is gray.
At the same time, you hardly get to spend time with your family. You leave on business trips and come back to find that your kids seem a bit older in a way you can’t put your finger on. Your wife resents you for not being around but also seems inconvenienced when you’re home. You are putting everything into financially supporting the family, but you ultimately don’t have a rich relationship with the people closest to you.
Are you sacrificing camping trips with your kids or evening walks with your spouse because you haven’t left any time for this essential aspect of life? Are you missing out on father-daughter dances, baseball games, piano recitals, and s’mores out at the fire pit?
Having a healthy and happy family is a very important part of living a rich life. Maybe it’s just you and your partner and a few dogs or maybe you have ten kids, but either way, it’s important to recognize that it’s very common for people at the end of their life to regret not spending enough time with their family. On the flip side, people rarely regret having spent too much time with those they love.
As one final note, I do want to mention that sometimes the family you’re born into can be abusive, neglectful, and all-around unsupportive of the pursuit of your greatest potential. While this warrants an article all on its own, it’s worth mentioning that family wealth isn’t a one-way street. Even though it’s ultimately ideal to have healthy and rich relationships with your immediate family, in some instances, it’s likely better to separate yourself from abusive and controlling family members.
Just like health wealth, emotional wealth is foundational to achieving any of the other types of wealth in a sustainable way. When you lack emotional wealth (or, as one could say, are emotionally impoverished,) it might manifest itself in the form of:
On the other hand, a person who is filled to the brim with emotional health will have healthy relationships, work-life satisfaction, a sense of purpose in their lives, emotional intelligence, and, often, financial wealth. Emotionally healthy people show themselves love and compassion and have a maturity that emotionally impoverished people simply do not.
When you’re wealthy emotionally, you don’t have to put on a persona to convince other people that you’re worthy of their love or to receive their affirmation.
Rather than running around trying to please everyone, you have a sense of an internal compass that you trust to guide you through life. You believe in yourself, you resist distraction, and you believe in the abundance of your own future.
Sadly, many Americans would fall into the category of emotionally poor. There are likely a lot of reasons that this is the case, and lots of people don’t even realize that they are lacking this type of wealth. In our materialistic, consumeristic society, it’s all too easy to get wrapped up in the cycle of thinking that you need more, more, and more, only to be left financially worse off and riddled with uncomfortable feelings of guilt, anxiety, and emptiness.
Additionally, many careerist paths basically demand that you turn yourself into some kind of robot. When you’re climbing the corporate ladder, you’re simply not supposed to have feelings. You’re not supposed to have bad days, you’re not supposed to let your personal life affect your work, and you’re certainly never supposed to express yourself in a way that could make others uncomfortable or, God forbid, make you seem weird.
There’s a common misconception that being emotionally healthy means that you never feel anger, sadness, or any of those other bummer feelings. In reality, though, the healthiest way to deal with emotions is to acknowledge that they are there and let yourself feel them. If you’re new to the world of not suppressing your emotions, this can feel clunky at first, but, over time, you will find that you reach a level of emotional stability and wellness that you never imagined was possible.
You shouldn’t let your emotions control you, but you also shouldn’t pretend you’re made out of stone.
Deceiving yourself to think that you are free from human emotions will not be a costless endeavor. If your father dies, let yourself cry, for Pete’s sake. If you feel anger, find a quiet place where you can hoot and holler and punch a pillow.
Being emotionally healthy (and wealthy) is about having so much compassion for yourself that you’re able to accept the fact that you have emotions. When you reach that point of self-awareness, your emotions no longer have to control you. Emotions are a part of the human experience, and with a healthy outlook on life and often a lot of self-work, it’s possible to get to a point where your cup is running over with emotional well-being.
Without emotional wealth, you will struggle to succeed in building any of the other types of wealth. Even if you do have an incredible morning day-trading on the stock market, you’ll likely let greed or fear get a hold of you soon enough. Even if you’re in decent physical shape currently, emotional poverty can lead to deteriorating health when you don’t have a supportive, loving view of yourself.
If you can identify yourself as being emotionally poor, all is not lost. Not in the slightest! Though overcoming negative and destructive habits and mindsets can take a lot of hard work and time, it is entirely possible to transform your life by changing your attitude. When you cultivate a deep sense of love for yourself, purpose in the world, and an optimistic forward-looking outlook, you’ll be on the path to building all of the essential types of wealth.
According to a study published by “The Survey Center on American Life,” Americans are lonelier now than they were just thirty years ago. About half of all Americans said that they have less than three close friends, and 12% of people say that they don’t have one single friend.
There are probably a lot of reasons why this is the case– people increasingly socializing on the internet instead of IRL, careerist types bouncing from city to city in order to climb the ladder, etc.
If you want to be wealthy, truly wealthy, though, it’s important to understand just how vital social relationships are to our health. If you need scientific proof of this notion, this study examines how the quantity and quality of a person’s social relationships impact their mental health, physical health, health behavior, and even their mortality risk.
When you have friends, it can help you increase your sense of both purpose and belonging, reduce your stress, make you happier, and encourage you to pick up healthy lifestyle habits. If you experience a rough spot in your life, whether it’s an illness, the loss of a job, a divorce, or the death of someone you love, friends are an essential tool in your arsenal.
That being said, it’s arguably better to have no friends at all than it is to have friends that don’t support your best interests. There are, sadly, plenty of people out there that ultimately don’t want the best for you, and it can be easy to get wrapped up in “friendships” with people that take way more than they give, lie, steal, play manipulative games, or want to keep you engaged in a behavior that is unhealthy for you because it benefits them.
If you’ve made it to adulthood with some quality friends still by your side, that’s great news. Be sure to not let those friendships peter out over time, though, because making friends typically gets more difficult as you get older.
That being said, don’t fret if most of your old friends have fallen by the wayside. While the study I referenced above talks about the importance of quantity and quality, I’d definitely suggest focusing more on the latter. Even having a small handful of people that you feel comfortable being yourself around can be life-changing, and, over time, you’ll find that the relationships get deeper and richer.
In our culture, it seems like there is an all-or-nothing attitude when it comes to wealth. On the one hand, you have people that pursue material wealth in order to support their consumeristic lifestyle and to impress others with their success. On the other hand, there is definitely a faction of people that see the destructive nature of consumerism but are unable to separate that from financial success. They believe that rich people are inherently greedy and evil, and they tend to see the world from the perspective of being the victim in their life story rather than the hero.
I started this blog because I know that it’s possible to build wealth without becoming a mindless consumer. Being rich doesn’t have to mean that you’re materialistic or selfish. On the contrary, it can allow you to have the headspace and time to pursue your purposes.
If you feel like there are problems in society that you can help solve, wealth and maintaining a healthy mindset are key weapons you’ll want to have in your arsenal. If you feel like you have something meaningful to contribute to the world, systematic wealth-building can help you coax your ideas and dreams over the threshold into physical reality.
So, why am I telling you all this? I’ve learned a lot of lessons the hard way in my journey to wealth and I want to help others recognize the different types of wealth that they should cultivate and nurture in their own lives. If you’re curious, you can learn more about me and my projects here.
If you’re able to build a foundation of emotional, spiritual, social, and health wealth, you are on the right track to living a purpose-driven life. Over time, it becomes easier and easier to see that material wealth is not an end in itself, but rather an incredibly powerful tool that you can use to live a productive, meaningful, and fulfilling life.
If you’re like most people, the idea of being rich automatically conjures images of infinity pools with incredible ocean views, full-time house staff, elaborate estates, and private jets. Some wealthy people, though, actually keep their fortune a secret from everyone around them. The concept of living below your means even though you’ve got some serious assets to your name is known as stealth wealth.
When I made my first million at 25, I didn’t run out the door and buy a Ferrari. Actually, I didn’t even move out of my tiny, affordable apartment for another two years. When I finally did move, I ended up just moving into a cheap, blue-collar neighborhood. I've talked a bit about my background on the bio page.
You might wonder what the point of amassing a fortune is if you aren’t going to blow through it, but there are actually tons of benefits to living a stealth wealth lifestyle.
I’m not here to brag about the fact that I’ve been financially successful. In fact, I’m actually pretty uncomfortable coming out as “rich.” That being said, I think that taking a stealth wealth approach to life is something that we should normalize in our culture, and I want to help others learn how to gain financial freedom without falling prey to the normal traps that come along with increasing net worth.
So what is stealth wealth, exactly, and how do you spot it? In this post, I’ll explore everything you need to know about rich people who purposefully live below their means.
"Stealth wealth" is a term used to describe when someone doesn't outwardly express the fact that they have a high net worth. They keep it on the down-low. It's not that they aren't rich; it's that they are secretly wealthy because they don't want to drive too much attention or focus on their money.
Let's say you're a wealthy person. Rather than taking your wealth and purchasing status symbols like extravagant homes, expensive cars, and designer clothes, stealth wealth means you keep your wealth under wraps. Some people even go so far as to keep the fact that they’re rich from their family members and closest friends.
Ok, before you google “stealth wealth meaning,” here’s the simplest definition: stealth wealth is when you’re rich but you don’t act rich. You fly under the radar, not drawing any attention to the fact that you’ve secretly been amassing a fortune. Some people take stealth wealth to the extreme, where even their closest friends and family don’t know that they’ve become rich or that they’ve managed to retire early.
People who practice stealth wealth might look like completely average people from the outside. They drive regular-looking cars, don’t have flashy clothes or jewelry, and generally don’t engage in the culture of overconsumption. Rather than living in a multi-million dollar ocean-front mansion that they could technically afford, the stealthily wealthy opt for homes that are modest and unassuming.
If you’ve never heard of stealth wealth before, you might wonder why someone that had amassed a fortune in their life would go to the trouble of hiding their wealth from the people around them.
However, there are actually a lot of good reasons to practice stealth wealth. While living a luxurious lifestyle and enjoying your extreme wealth can certainly be pleasurable, these are usually short-lived benefits. When you are rich and you let everyone know it, you’ll soon learn that there are some serious downsides to advertising your wealth.
People might choose to practice stealth wealth for a number of reasons. One of these is that it helps to avoid the reality where other people will expect things from you because they assume you have more spending power than they do. If you let others know that you’re rich, you’ll soon find that some of the people around you start expecting you to pick up the tab at a restaurant for a group of 20, loaning them money when they fall on hard times, and more.
Of course, the point of being wealthy isn’t hoarding your money stingily without ever spreading the love. The point, though, is that others don’t always understand that you still have to manage your money and make smart financial decisions even when you have a high net worth.
When you practice stealth wealth, it can also help you avoid some of the judgment that comes along with being rich. If you start flaunting your deep pockets, you’ll soon learn that lots of people have opinions about rich people and they won’t think twice about judging you for your wealth. These people might think that having money means that you are inherently greedy or exploitative, that you amassed your fortune simply through privilege, or they might simply resent you for having what they want but don’t have. Even if the people around you don’t have a negative perspective on wealth, you’ll likely find that the more money people know you have, the more they seem to know exactly what you should be doing with it.
If you’re curious to know if someone secretly has more wealth than they let on, there are some common stealth wealth signs you can keep an eye out for. People who practice stealth wealth won’t be showing off their riches in an obvious way, but if you pay close attention you can notice some indications that they are very comfortable financially.
Someone that has worked to become wealthy is typically very goal-oriented. They understand how much attention and focus it takes to build up wealth over time. These individuals aren’t likely to just go with the whims of the crowd– instead, they have a sense of where they want to go and they stay on their path.
While people who are secretly wealthy might not flaunt it, they also understand at a deep level just how valuable time is. Someone who is rich might realize that they know how to make more money, but you can’t make more time. However, you can choose how you spend your time, and a stealthily wealthy person is going to be much more inclined to pay others to do time-consuming activities like dealing with a plumbing problem, mowing their lawn, or clearing snow from their driveway.
When a person is financially secure, they often have unique confidence in themselves. They have worked hard to get to where they are. They believe in themselves and the path they have chosen in life, and they are proud of what they have accomplished. At the same time, they are not falling prey to the ego boost that comes from flaunting one's wealth, which is another signifier that they are secure in themselves and don’t need the approval of others to believe in themselves.
If you have a neighbor that seems to live modestly but really doesn’t seem to sweat the small stuff, they might be secretly wealthy. When there are issues that need to be dealt with, whether they can be fixed with money or not, people who practice stealth wealth are often able to stay calm under pressure and keep problems that crop up in perspective.
While people who have stealth wealth don’t show off their riches by definition, there are a few material signs of someone’s secret fortune. You might know someone who wears simple, unbranded clothes, but they seem to fit them incredibly well and be made of high-quality materials.
Rich people that don’t feel the need to flaunt their wealth often do recognize the importance of comfort and quality when it comes to clothing. While they feel no need to plaster brands all over their body like a walking billboard, they definitely understand that high-quality clothes can help you feel your best and will last longer than your average Walmart t-shirt.
Another stealth wealth sign is when a person’s house and car, even when they are very modest, are always impeccably maintained. This is because people who have amassed wealth and keep it to themselves often understand the value of the investments they make. Not only can they afford to maintain their house and their car, but they also understand that it is more affordable in the long term to stay on top of maintenance rather than deferring it and eventually having to make pricey repairs.
While this isn’t always the case, there is a tendency for people with stealth wealth to be loners. These people have led very focused lives, and they are protective of their wealth, their time, and their personal lives. To those outside of their close family and friends, it might appear that they prefer to keep to themselves.
People who practice stealth wealth also tend to value activities with more depth rather than those that produce immediate gratification. You likely won’t find them spending big bucks at the bar or partying on a yacht. Rather than having a huge social group, these people tend to have a small circle of close friends and family with whom they feel they can genuinely relate.
If you don’t have money stacked up, there’s a good chance you have to think about a short time frame just to make it through each day. When problems crop up, they have to take priority. You are driven by your immediate needs rather than your long-term goals.
People with stealth wealth, though, can afford to think on a longer timeline. In fact, being able to perceive their lives in this way is exactly how they managed to amass wealth in the first place.
A person that is secretly wealthy isn’t eager to brag about how much money they made this year or how successful their investment portfolio has been. They have a sense of confidence and self-assuredness which means they don’t need affirmation from other people. This means that you won’t find them dropping hints about their wealth or trying to get pats on the back from other people for their accomplishments.
What does a stealthy wealthy lifestyle include?
Being secretly wealthy doesn’t have to mean that you live in a dangerous neighborhood in a run-down, rat-infested house. You aren’t necessarily trying to convince people that you’re poor. You just don’t want them to know that you’re rich.
Basically, this means masquerading as someone who’s somewhere around the middle class.
You can have a nice house, a nice car, and nice clothes, but just not too nice.
When it comes to cars, you want to choose something that is practical, not too flashy, reliable, and offers a good value for the money. Warren Buffett famously drives a Cadillac XTS, which is a car that retailed at the time of purchase at around $45,000. Mark Zuckerberg is often seen driving the $30,000 Acura TSX, and the wealthiest woman in the world, Alice Walton, drives a 2006 Ford F-150 King Ranch which retails for about $40,000.
When I made my first million in 2014, I didn’t trade my tiny apartment for a luxury penthouse. Instead, I stayed in that little apartment for another two years before “upgrading” to a home in a small working-class neighborhood in Arkansas. Even though I reached a point where I had a seven-figure income, I chose to maintain a modest lifestyle because I didn’t see money as a part of my identity.
Though it can be tempting to buy an MTV-Cribs-style house when you strike it rich, there are a lot of secret costs to living that type of lifestyle. On top of the downsides of having others know that you are wealthy, living in a 10,000+ square foot home isn’t all it’s cracked up to be. It can feel like you’re living in a magazine instead of a home, it costs a lot to maintain, and you’ll likely find you need to manage a full staff to keep the place in good working order. Ultimately, it’s rarely worth it.
When it comes to family, there are some major benefits to practicing a stealth wealth lifestyle. Rather than letting your sweet children grow up with a bad case of affluenza, you can pass on all of the valuable lessons you’ve learned about building wealth in a smart, healthy way. This way, when it comes time to pass on your wealth to your children, you know that it will benefit them rather than destroy them.
Rich people know that a key principle to getting wealthy and staying wealthy is having your money work for you. Rather than “investing” your money in flashy cars and obscenely expensive dinners, people with stealth wealth invest their assets in a healthily diversified portfolio. This can mean some combination of real estate, mutual funds, stocks, bonds, precious metals, small businesses, futures, options, and more. When you take your hard-earned money and invest it rather than living a lifestyle focused on consumption, you can increase your wealth and buy yourself the most valuable asset of all: time.
People hide their wealth through a number of different avenues. You can keep your wealth a secret from the people around you by living in a modest home, driving a regular car, and avoiding dressing in luxury-brand clothing. You don’t splurge on eating out at trendy restaurants or advertise your opulent vacation on Instagram. In the same way that many people who aren’t wealthy are able to curate an image of being rich, you can curate an image of being average.
Rich entrepreneurs might choose to create anonymous LLCs for their businesses to help separate their personal information from their successful businesses. There are also a number of tax-avoidant strategies that can be used to help reduce your tax burden, but, for obvious reasons, you should be sure to work with a CPA to ensure that everything you’re doing is above board.
When we think of wealth, we often think of mega-celebrities that are constantly in the public conversation. People like Elon Musk, Jeff Bezos, Mark Zuckerberg, Tom Cruise, Oprah, and Warren Buffett are the types of people that typically come to mind first.
However, there are plenty of people that are very wealthy that fly under the radar. If you are pursuing a career that puts you in the public eye, though, it becomes much more difficult.
While your income and ability to invest can have a big impact on your ability to build wealth, you don’t have to make a seven-figure income to get rich over time. Some tactics secretly wealthy people have used to build their net worth include:
Lots of people think that getting rich is just a matter of luck, but that’s usually not the case. Even if someone seems like an overnight success, there’s likely at least a decade's worth of hard work lurking in the background. Becoming secretly wealthy is definitely within reach, but it takes dedication, focus, drive, and a solid plan. There are a lot of different ways to make money, but the most important thing to recognize is that loud consumption doesn’t make people wealthy. What makes people rich is economic productivity.
In lieu of fancy cars and opulent houses, what does one gain from their wealth when they don’t flaunt it? For many people, the benefits of stealth wealth far outweigh the short-term gains of being openly rich.
When you live below your means, you can step outside of the rat race and work on the things that are truly meaningful to you. Whether you retire early or you keep your day job, you have more freedom to decide how you spend your time.
One of the craziest things that can happen to wealthy people is that they often still feel a sense of insecurity that drives them to make more money, even when they already have plenty. One of the reasons for this is lifestyle creep. Basically, for some people, the more money they have the more they will spend. As their net worth increases, so do their expenses.
When you practice stealth wealth, you can keep more of what you make. Rather than continuously trading in your perfectly suitable house for something that screams “I’m rich!”, you choose to purposefully live below your means. This allows you to have the comfort of knowing that you have a huge financial cushion if you were to fall on hard times, and you also aren’t taking on huge monthly expenses that could leave you bankrupt if the tides turn against you.
If you are open about how much money you have, people will start to expect you to pick up the bill. When you keep your wealth to yourself, you can avoid these expectations.
Unfortunately, some people see the wealthy as an opportunity to get more than their fair share of a job. Whether it’s a contractor, an auto mechanic, or another quote-based profession, being clearly wealthy is likely going to have some people charging you more than usual for a job because they think you won’t notice or bat an eye. When you keep your wealth on the down low, you’re less likely to get ripped off in this type of scenario.
When you’re rich and people know it, you’ll find you have plenty of friends. However, how do you know they really like you for you and don’t just want a taste of that opulent lifestyle?
You can avoid this entirely by keeping your riches under wraps. You’ll know that the friends you make just want to be around you because they like you, not because they’re hoping you’ll loan them money or buy them something shiny.
Rich people are constantly being solicited for donations, loans, and gifts. When people don’t have wealth, they often don’t understand that it isn’t an infinite pool of money. You have to be selective about where you spend money in order to stay wealthy.
In fact, if it becomes publicly known that you’re rich, you’ll be surprised by who pops up out of the woodwork. Relatives and acquaintances that you haven’t heard from in years will all of a sudden call “just to see how you’re doing.” Soon enough, it will become clear that they’re actually looking for a handout or even just the ego boost of being in touch with someone wealthy.
At the end of the day, the fewer people know that you have deep pockets, the less you’ll be put in a position where you have to say no.
One of the biggest dangers of wealth is letting it get to your head. It can reinforce some negative traits because you have more options. There are good and bad sides to everything, including having wealth and living luxuriously. When you live an opulent lifestyle, you’re increasingly surrounded by people who are just telling you what you want to hear. You can lose touch with the rest of your society and you can lose touch with who you really are underneath it all.
When you practice stealth wealth, it reminds you to stay humble. You are reminded to be grateful for what you have accomplished and what you have gained. You remember what it was like to have less and you want to help others succeed rather than fear being tossed from your golden throne.
Through this practice, you are building up a cushion that will catch you if the tides turn against you. Rather than spending all your money as if you’ve tapped into an infinite stream, you keep a good head on your shoulders and remember to value all of the best things in life– the things that money simply can’t buy.
“It is neither wealth nor splendor, but tranquility and occupation which give you happiness.”
-Thomas Jefferson
“Wealth is the ability to fully experience life.”
-Henry David Thoreau
“Time is more valuable than money. You can get more money, but you cannot get more time.”
-Jim Rohn
“If you don’t find a way to make money while you sleep, you will work until you die.”
-Warren Buffett
“…Not doing what we love in the name of greed is very poor management of our lives.”
-Warren Buffett
“Too many people spend money they earned to buy things they don’t want to impress people that they don’t like.”
-Will Rogers
“He is the richest who is content with the least, for content is the wealth of nature.”
-Socrates
“Wealth is a tool of freedom, but the pursuit of wealth is the way to slavery.”
-Frank Herbert
I’m a huge proponent of the stealth wealth lifestyle. So, if you’re asking me “should I practice stealth wealth?” I’m probably going to answer yes.
There really are very few downsides to this lifestyle. Sure, you don’t get all of the affirmation and ego-boosts that come along with flaunting your wealth, but deep down you know those are superficial gains anyway. While there are plenty of benefits of stealth wealth, one of the biggest pros for me is that I know that accruing money isn’t what makes me me. Being economically productive is meaningful to me, and that’s why I do it.
Our culture is one that largely centers around consumerism. In lieu of more meaningful things, we often look to material objects and signifiers of wealth in pursuit of some kind of satisfaction. Ultimately, though, we all know at some level that these things typically produce more emptiness rather than taking it away.
The point of wealth doesn’t have to be to consume, consume, and then consume some more. What if at the end of your life you produced more than you consume? What if your time on earth was a net gain rather than a net loss for your society?
When you build wealth, it gives you the opportunity to climb up the hierarchy of needs and participate in work you truly find meaningful. Whether that means building wells for Pygmies in the Congo or offering the best darn landscaping services in all of Oklahoma, stealth wealth lets you focus on your true purposes without getting weighed down by all of the potential distractions of being rich.
So there you have it– a thorough dive into the world of the secretly wealthy. As you now know, there are tons of benefits of stealth wealth that allow you to live the life you want without getting dragged down by all of the negative aspects of being known as a rich guy. When you live the stealth wealth lifestyle, it means you can focus on the things that really matter to you and live the life you want without falling prey to lifestyle creep or other unfortunate side effects of being wealthy.
I’m only talking publicly about my path to wealth and my choice to live as a secretly wealthy person because I think it would be a genuinely good thing for our culture and our society. Being rich doesn’t have to mean that you’ve just graduated to a higher rung of the rat race. If more people chose the stealth wealth lifestyle, it could mean that more people have the time and headspace to meaningfully contribute to society.
It's tempting to see a major drop in the stock market and believe that you have enough information to make a fast profit.
Right before I started writing this article, the stock market dropped well over 4%, leading to social media exploding with small-time investors saying things like, "Buy the dip!"
It sounds like sound advice. If anything, it almost sounds obvious.
After all, if you buy when stocks dip, that should, if you're guesstimating things correctly, mean that you're getting stocks just like normal over time - but at a slightly better deal.
This makes you more money, right? If stocks were a good investment yesterday, and today they're 4% cheaper, then you're just grabbing a 4% better deal, right?
Not quite.
In fact, this tempting approach is statistically more likely to cost you than earn extra. In fact, since investors started saying "buy the dip", stocks are down another 4% - and we could be on the verge of a substantial correction.
Fundamentally, "buy the dip" is a bad strategy based on an economic illusion.
As they say, "If it's too good to be true..."
"Buy the dip" has a lot of built-in assumptions that you can't statistically assume over time without getting seriously burned.
Let's break them down:
The ideas discussed immediately above are the basic assumptions of the "buy the dip" strategy. They might seem innocent but they can literally wipe out decades of savings because of several extremely important economic principles.
Let's look at the main principle that shatters these bad assumptions: the efficient market hypothesis.
Even if you find this to be mind-numbingly boring (most people would agree that it is), if you have any desire to save for retirement or find almost any level of financial independence, it's an idea you need to understand as much as possible.
This is the kind of financial and economic concept that every high-school student and college student should be deeply familiar with before they graduate. As I've written before, teaching financial concepts like this would change society completely. Unfortunately, the ideas are largely ignored.
Think of articles like this as the broccoli of self-help content. They're not fun to consume but you'll be better off if you do.
So grab a cup of coffee or tea, read the article, and feel free to contact me to discuss it further - or browse around the Internet to read some more. It's important and about way more than just "buy the dip" analysis.
Let's back up a bit.
To understand why you can't beat the market with tactics like the ones discussed above, we need to understand a concept called the "efficient market hypothesis (EMH)."
Effectively, the efficient market hypothesis (EMH) is the idea that asset prices fully "account" for all "known" information.
Without getting lost in the weeds, the hypothesis claims that, roughly, the market is already accounting for everything we know about the market.
In other words, if you think a downturn is coming, the market is already priced for what it believes is the likelihood of one - so gambling on a future bear market will probably not make money, because the market has already accounted for that prediction as well.
There's a reason Google is priced higher than a failing grocery store chain. The market is already pricing in the gamble that Google has better long-term growth likelihood than the failing grocery chain, to put it simply.
This notion of the market already pricing predictions is confusing to people.
Most tend to think that investing is about picking winners more often than picking losers. This isn't remotely true.
In fact, this isn't true any more than the idea that sports gambling is about just picking winners - if you pick winners of football matches 75% of the time, you will probably still lose money because a bunch of other gamblers made those same predictions - meaning the odds aren't always going to be 50-50. If anything, after fees, you're effectively going to almost always lose money gambling over time.
The same thing goes for stocks. You think Coca-Cola is a good bet? So do billions and billions of investor dollars. You think Google is a good bet? So do billions and billions of investor dollars.
Market prices reflect market predictions, effectively. So whenever you are gambling on the basis of a prediction you are making, so are all of the other people buying, selling, holding - or considering those things - that asset.
It's not enough to get a prediction right. There's a lot more going on. That simplistic "good prediction" understanding of investing is tempting and destructive.
No one person or organization decides what something is priced in the market. The stock market, in particular, is just a large collection of people buying and selling identical assets to other investors via bidding.
This means that prices simply reflect whatever supply and demand for the priced asset reflect at the time - if people suddenly stop selling, prices might go up - assuming there's the same number of people trying to buy with the same intensity as before.
This means that prices go up and down for individual assets on the basis of the investors trying to buy, hold, or sell the assets. So the prices reflect the desires being acted upon by the investors - market prices respond to what all of the investors think they are worth.
This understanding that markets reflect the beliefs of huge number of investors is important. Markets don't reflect random people or the average investor - they reflect the applied beliefs of investors with the most money being gambled on the asset, as well. The more exposure to the asset one has, the more one's acted-upon beliefs impact its price.
Market prices reflect what investors know about the market. Information being released impacts prices. Prices reflect known information - not just information, but known information. Or, more technically (and philosophically accurate, for lack of better word), prices reflect believed information.
This makes markets brutal, powerful, and very fast responders to events, analysis, and the learned experience of the most powerful investors. In other words, markets are elaborate social pricing machines based on known information about the assets in question.
Put simply, prices are the market's reflection of the known information about the asset at that particular time. This is important. If anything, understanding this is key to understanding everything else discussed on this page.
As information continues to spread faster and faster with innovations like the Internet, being able to have an "information edge" becomes increasingly difficult to the point of being impossible.
It would have been easier to outperform the stock market in 1940 than it is in 2018. Information simply spreads too fast and is too widely available to beat everyone else. Having an information advantage is difficult when insider trading is illegal and Indonesian street vendors have more information than the Library of Alexandria in their pocket computers.
Even Benjamin Graham, the father of value investing, (which Warren Buffet based his life work on), eventually came to concede to the efficiency of public markets. He wrote in 1976, literally 42 years ago and well before the Internet made things worse:
“I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors.”
If Graham thought it was tough then, he would have been a vigorous supporter of the efficient market hypothesis now. As everyone should be.
Understanding markets as nothing more than an incredibly massive, incredibly comprehensive series of pricing mechanisms is the first step towards financial humility.
People who misunderstand the EMH almost always misunderstand the first step: the market is just a big pricing machine accounting for nearly all known information. So unless you have some massive, massive information advantage (like insider trading, or some kind of elaborate expertise in a particular industry mixed with the ability to understand utterly in-depth financial valuations), you won't outperform the market. Period.
So you won't do better if you buy the dip than if you don't. You won't do better if you refuse to invest during a dip. You won't do better no matter what you do - not risk-adjusted.
This doesn't mean you're helpless. Make sure to read the end of this article if you'd like to skip to the more optimistic interpretation of these concepts.
You and I aren't nearly as smart as we'd like to be. Our comically tiny ability to comprehend the Universe pales in comparison to countless investors using countless unique angles coming together in the total capital markets - with almost everyone looking for the slightest advantage.
You can't beat the stock market, risk-adjusted.
Even if you predict all kinds of things correctly, that's not the point - you'll eventually get a couple wrong and those will ruin your numbers - putting you back where you started, or worse. If you do get lucky, you didn't get lucky on a risk-adjusted level - meaning, well, you were lucky, not better informed than the market at large.
And getting lucky isn't the same thing as having a superior strategy.
Studies repeatedly confirm this EMH framework. So do surveys. So does, well, almost all known evidence. And, it's even getting worse.
This bleak conclusion makes sense - after all, the market is nothing more than a pricing machine, so the more efficient (ie, the more informed the market is - which during the Information Age is going to be pretty damned informed) the market, the less likely you are to beat it.
For anyone keeping score on how well information spreads these days, you have effectively no chance of beating the market, risk-adjusted. Period. Sorry. End of story.
'Buy the dip' sounds good, but like I wrote earlier, it's based on some assumptions that don't make risk-adjusted sense. The biggest one is that you're assuming the dip isn't the beginning of a crash. Imagine if instead of "buy the dip" we said, "buy the stocks right before the bear market wipes you out for about 10 years." Doesn't sounds as clever, does it?
Of course, almost never will the dip end up a bear market. Nine times out of ten, you'll avoid that. But it's that one out of ten that wipes out your statistical advantage. That's the part that confuses people. You're not trying to usually beat the market - you're trying to beat the market on a risk-adjusted level - which is economically impossible.
The same concept applies to the other assumption: the notion that if you can "buy the dip" then you're buying it with resources that supposedly you had access to beforehand, otherwise you would just say "buy" and not "buy the dip." The reference to taking advantage of a specific opportunity in the market and not just buying consistently suggests you've been sitting on the money.
If you sit on money you want to invest in public markets at some point because you want to outperform it, you're missing the economic point - you're never going to perform better sitting on the sides. Think about how many people thought the market was "too" expensive a couple of years ago - they've lost an incredible amount of wealth because of that view.
I spent a lot of time writing about these concepts, but i want to make sure what I'm saying isn't misunderstood as another set of arguments. Here's a quick clarification. I'm not saying anything bolded in the section below:
Avoiding mistakes is 99% of investing. But enough about the bad news. Let's look at some interesting applications of these ideas that will make you money.
Now here's the cool part. You can invest better than almost every financial genius on earth in a couple of surprisingly simple steps.
You can invest better than the billionaires, the stock-market gurus, the bankers, the college endowment investment managers, the financial planners - you can outperform almost all of them over time.
The way is simple. They're all trying to outperform the market. This, on average, causes nearly every last blasted one of them to dramatically underperform the market for the reasons explained above.
So if you just hook up your portfolio to track the market as cheaply and as consistently as possible, you'll outperform the experts - by default.
All you have to do:
Do this and you'll outperform almost every mutual fund on earth over time. You'll outperform almost every equity hedge fund. You'll outperform almost every individual investor.
And you'll do it because of your humility.
Vanguard is an organization that exists so that any 'profits' get passed back to the funds themselves, meaning they are as low fee as is legally and economically possible - in general. Their index funds just try to not beat the market - they're based on the assumption that the market is essentially always priced the best possible way based on all known info.
And it works. Vanguard slaughters the competition easily. It's almost embarrassing for the experts. I'll be writing about this more down the road. Make sure to sign up for my newsletter if you'd like to read more. It's boring, but it's powerful because it's true.
Don't try to buy the dip. Don't try to make financial gambles on the basis of your market predictions. Build a simple portfolio like the one described above. Don't fight the market - let it carry you itself.
Buy the market regularly regardless of the news. Sometimes, you'll buy while the market is rising. Sometimes, you'll buy while the market is falling. Sometimes, you'll buy while the market is flat. Regardless, over time, your portfolio will get better, and your returns stronger.
Most importantly, perhaps: use economic literacy to avoid big mistakes that you'll regret for the rest of your life.
If you're looking for a legitimate excuse on which to blame everything going wrong in your life, I've got some great news: there's definitely a legitimate excuse for your situation.
In fact, I've never met a person yet who didn't have at least a few major external reasons they weren't wherever they wanted to be with their finances, health, fitness, and/or relationships.
I'm serious. Almost everyone I know has perpetual, legitimate excuses on hand useful for rationalizing every missed goal, every dropped ball, and every small flaw in their life. Excuses on tap.
Almost everyone has major areas outside of their control which consumes their time, energy, and mental bandwidth on such a level that using those areas as excuses would be honest, understandable, and even respectable. Let's review a few common ones.
Here are some extremely common excuses that you might have access to right now:
These are just the major excuses. Smaller ones are even more plentiful and just as legitimate.
Late for something? There was someone in front of you going too slowly. Miss a morning deadline? Your computer was giving you problems for a full 20 minutes. Ignoring the emotional needs of your significant other? They were rude earlier, and it's drastically easier to just give them the silent treatment like you were raised. Going into debt every month? Eating out a few times a week is not unreasonable.
If you have a somewhat normal life, then you're probably going to have a couple of mental health issues, a couple of kids, an emotionally needy spouse, and a lack of money. These are major excuses that, if you use them, nobody will blame you for the problems they will cause. If anything, your friends will bring them up to help you rationalize things whenever life goes south.
Heck, if you called me right now and told me your situation, I'd probably even go along with the excuses. They're legit. You have tons of them. Everyone will agree.
This is why the whole social justice movement is growing so quickly with young people. Because they're right about the oppression, kind of. This is true even on the smaller level we're talking about. In almost every negative situation, something else - outside of your direct control - is causing the problem on a major, fundamental level.
In fact, the general narrative behind excuses is all wrong. Most people believe that the default is things going correctly and that when something bad happens, that's the unknown variable that caused things to go south - that's why it's the excuse. Excuses are seen as exceptional events outside of one's control.
The truth is the opposite. In the same way, some people see "privilege" everywhere, the other side of that coin is to see legitimate excuses everywhere. Bad things happen to you constantly for legitimate reasons outside of your control.
That said, the purpose of this article isn't what it might look like right now. In fact, the real lesson is the opposite of how most people take these lessons.
Obstacles are inevitable, but excuses aren't.
When something goes poorly and you have the choice to blame the external cause or find some flaw or area of potential improvement with yourself, err on the side of choosing yourself - while also learning about the external source as well.
This puts you in a perpetual position of learning from failure rather than a cycle of repeating failure.
There is no strategic value in excuses - even legitimate excuses. There is a strategic value in understanding your disadvantages. Understanding your disadvantages is good, but an excuse is when you reject understanding the disadvantage in favor of surrendering your personal narrative to the disadvantage.
That distinction is the difference between an obstacle being a problem you overcome or the defining characteristic of your ruined, wasted life.
Think of your daily life like a general who surveys a potential battlefield: only a fool would ignore the terrain, but only a bad general would see the terrain as either good or bad without considering his options for navigating said terrain. You're the general of your life. So act like it.
An excuse is when someone surrenders their entire identity of being a strong, independent, strategic human being in exchange for telling their boss someone was driving slightly slower than normal in front of them. Excuses are pathetic, strategically useless, and are, ironically, a major personal flaw that causes major life harm.
This bears emphasis: excuses - surrendering to legitimate obstacles - is a reflection of your flaw. That means that the wrong mentality takes the understandable blame and shifts it from that external cause and points it right back at you: the foolish general.
It's important to understand the obstacles you face, yes. But that's not the same as surrendering to them and believing that those obstacles are the unmovable, unchangeable catalysts of the inevitable undesired outcome.
Scroll up and look at that list of excuses. Now, look at it as a list of possible disadvantages that one can overcome. Now one's entire outlook on life shifts drastically. You become more powerful when you realize you have the power in the first place.
The point of this article isn't to somehow suggest that you should ignore when you are, in fact, being oppressed. The concepts described don't mean you shouldn't care about things like unequal pay, abusive parents, or any other situations where you truly are being victimized. That's not the point at all.
It's also not the point of this article to shame you for not "overcoming" every situation. I wouldn't have been as successful if I'd grown up as a black female in 1930s Alabama. Some things are beyond our control. That's just a fact.
It's not a mental "trick" to suggest people should blame themselves over situations for which they aren't responsible. Sometimes structural, and macro changes are necessary.
"Victim blaming" and "blame yourself first" aren't remotely connected.
In "victim-blaming", you blame the innocent person for the actions of the guilty - and entrench the problem.
In "blame yourself first", you seek to understand the catalysts of the unwanted final result, and then act to minimize the unwanted final result as much as possible - and prevent it from happening again.
That's why it's "blame yourself first" and not "blame yourself only."
If you're only partly to blame, focus on what can be done on your end to change the outcome. But don't ignore the problems caused by external sources - and don't accept blame for what is not within your control.
Of course, if you aren't to blame at all, then don't blame yourself at all. Sometimes, there's nothing we can do and we can't fix a broken situation. These ideas are about empowering you, not enslaving you to unjust blame.
Let's look at a real-world example.
If you're the CEO of a company and someone running a department makes a series of horrible decisions that severely damages their department, then you should immediately figure out what you could have done to prevent the problem, what you did to cause the problem - if anything - and what you can do to minimize the current damage.
You begin by asking yourself the following questions:
That might mean realizing that you made a mistake in hiring for the position. It might mean you didn't put the right processes in place. It might mean you should have communicated better with the department head. It might mean many things.
What it shouldn't mean is that you should just blame the department head and ignore all culpability - direct or indirect. Blame yourself first weaponizes the fact that you can only, in the end, control your own decisions - and that's where the brunt of your analysis should be for fixing problems.
Even when someone else is to blame, "blame yourself first" results in a more comprehensive, total awareness of what occurred and how to minimize the damage.
In business, this really is an effective "hack" for almost every situation.
An excuse is when someone driving slow made you late for work. An obstacle is when someone drove slow in front of you - but your day was so organized that you still made the deadline because you (almost) always have the ability to arrive a little early through good planning.
In plain English: just because there's an external cause for something negative in your life, that doesn't mean that you don't have options for getting around that cause - even if the solution might seem "extreme" to others.
Just because you're poor doesn't mean you have to stay poor. Just because you're poor doesn't mean you can't compete against wealthier people. Just because you're poor doesn't mean you can't use that experience as a leverage point when dealing with others.
Just because you didn't have a father doesn't mean you have to have the "daddy issues" of someone who didn't have a father - sometimes, those who were fatherless become the best fathers because they trained themselves to use that pain and emotional vacuum as an energy source.
Sometimes, your biggest disadvantages and obstacles can become your biggest advantages and strengths. But you have to blame yourself first in order to rule over your life well. This is the beginning of a good personal strategy.
With a good personal strategy, even our weaknesses become untraditional advantages.
A fundamental part of a high-school education in America should involve understanding personal finance, the true cost of credit, and how delaying consumption for a few years can be the difference between financial hardship and an early retirement.
I don't mean a class or two of textbook information about how credit works. I mean actually teaching the principles of financial discipline.
We need a producer society focused on creating value - not a consumer society focused on taking as much as possible. Think: thrift and productivity as a culture.
Consumerism has become one of the most destructive quasi-religious elements of modern culture. People identify themselves on the basis of what they consume - not what they do or who they are.
That's why the following should be taught as a comprehensive part of high-school - and heck, college - education. Not just a single class, but as a fundamental approach to finance whenever it comes up, referenced throughout curriculum, branding, and materials.
For example, here are some thoughts that could be developed either through in-depth explanations or specific tutorials and hands-on guidance:
Building a culture of thrift is possible, but it requires focusing on just that - culture. Finance isn't just about math. People have to begin, as early as possible, to understand that not all consumption is "reasonable." We should view consumption with suspicion.
I say this as someone who was a millionaire for years before I bought a new vehicle. I live in a small house that I renovated. My biggest luxury is an occasional $15 cigar. This doesn't mean I don't live well - I live like a king. I just don't mindlessly consume.
The crazy thing is that basic personal finance teaches us to reject consumerism and ironically helps us achieve a much better lifestyle. Rather than spending money on things we don't need, we find freedom - and more money down the road to spend on experiences and a good life.
Good personal finance turns money around so that rather than us being enslaved by the economic system, we're using the economic system to maximize our own options, happiness, and legacy. It's incredibly powerful.
Consumerism is one of the most destructive forces in modern society. It takes potentially free people and enslaves them to empty consumption, constantly increasing their standards for what they believe "normal" people should be able to consume. The end result is an impoverished society... surrounded by material wealth.
Good finance is critical to a good life. That's why so many philosophies - from the book of Proverbs to Stoic thought - emphasize contentment, self-control as something to practice like any other skill, and a lifestyle of discipline.
What better place to develop a strong culture than educational institutions? What use is an educational institution that doesn't educate on the fundamental ideas, concepts, and identities that are key to every other part of society's prosperity?
Imagine every high school student becoming intimately familiar with these concepts. It would transform the world.
The Clipper Ship Strategy: to make money during a gold rush, focus on supplying a secondary demand created by a primary boom. Chances are, it'll have drastically less competition while being just as lucrative.
Cryptocurrencies have a similar situation unfolding. Everyone is trying to get rich buying the 'coins' in order to sell them to someone else later. This is extremely risky, and just as many people will get wiped out as will make money. It's one thing to buy bitcoins if you're worried about a paradigm shift (like I described in my 2013 article on Seeking Alpha). But it's another thing to buy Bitcoins hoping it's your personal gold rush.
Trying to strike gold - or its digital equivalence - is for suckers or extremely skilled speculators. Chances are, you're not one of the latter.
Here's the real way people are making money with cryptos:
Either way, whenever you see a gold rush, don't fall for the trap. Don't go for the bait. Don't become a miner. Find a way to build wealth by looking for the second opportunity - it's probably being overlooked by others and there's more room to grow and profit.
