I've got a confession. I have a money addiction. My money addiction is partially why I started Financial Samurai in 2009 and have written 2,300+ posts since! I wanted money then, and I still want money now to take care of my family. However, I'm doing my best to try and cure my greed for more money.
At one point after I bought a new forever home in October 2023, there was only about two weeks of living expenses left in my bank account before I go broke. It was unsettling that I may have had to ask for a loan to make ends meet in case something bad happens.
Dad, are you reading this?
Money Addiction And Therapy Needed
In need of some therapy, I discussed my tenuous financial situation with a tennis buddy on the public court one afternoon. He told me to hang in there and revealed a rough patch where he once racked up $50,000 in credit card debt. He felt like he was drowning because he could only afford slightly over the minimum payment each month.
When I asked him what made him go into so much credit card debt, he confessed he has a gambling addiction. Like me, he loves playing Texas no limit hold'em.
But unlike me, he decided to venture into the bigger $10/$20 no-limit games where the average player held roughly $5,000 in chips. He got bad-beat one too many times and resorted to withdrawing cash from his credit card at a 24.99% interest rate to feed his poker addiction.
I don't know how much my tennis buddy makes, but I can't imagine he makes much more than $65,000 a year working at the San Francisco International Airport. It took about two and a half years for him to get rid of his credit card debt after a family intervention made him stop.
What Happened To All My Money?
So what happened between the time I published my Investment Tracker Spreadsheet in January and now? Like most addicts, I couldn't control my urge to invest the remainder of my cash balance in a variety of stocks, bonds, and real estate deals. I went from having a cushy ~$150,000 cash in the bank to less than $3,000 in a matter of weeks!
And part of why I feel like I'm broke is because I treat my investments as expenses. Because I spend almost all my money on stocks, I often face a liquidity crunch.
Here's a weekly spending and investing e-mail update I get from Empower which shows me blowing over $100,000 on investments in December. I ratcheted down spending in the first half of January until I went crazy again with my investments at the end of January and early February.
Ah hah! So at least I wasn't spending recklessly on things that depreciate in value. Instead, I was spending my money on investments with the hopes of making a greater return in the future.
Finding Out Where My Money Went Due To Money Addiction
In the post, The Case For Bonds, I mentioned I wanted to build a $250,000 California municipal bond position over the next 12 months. My goal was to start buying CMF aggressively once the 10-year bond yield hit 2.5%. Well, my target was hit in the second half of December. It ran all the way up to 2.6%, so I decided to press without any regard for my liquidity!
Here's a snapshot from my Citibank wealth management account. Before Trump's victory, I had $0 in California municipal bonds. Now I've got a ~$276,809 position.
I knew from past experience that having much less than six months worth of living expenses starts feeling uncomfortable. I begin to worry about my future. Then I lose some patience. And, I start hoping that no major investment opportunities occur before I replenish my nut. The whole idea of having enough money to not worry about money goes completely out the window once I get into these addictive phases.
But what's more, in addition to my new $276,809 CMF new position, I also invested $25,000 in the S&P 500 and $25,000 in an Austin, Texas multi-family real estate crowdfunding deal since the beginning of the year. The market kept showing signs of strength so I wanted to keep participating.
I basically deprived myself of all spending beyond my mortgage in order to invest. I treat all my investments as expenses to invest more.
Gambling And Investing Parallels To Money Addiction
You may think playing at the poker tables is completely different from investing in the stock market. But you're wrong. The poker player sits down with the mindset that he has the potential to make a return on his capital.
By making high expected value bets, the poker player should win in the long run. This is exactly how I think before deploying any new capital. However, even if you are an 82% favorite to win with pocket Aces against pocket Kings pre-flop, you still have an 18% chance of losing.
A good poker player will realize he can sometimes run bad. He's disciplined enough to protect his bankroll to fight another day. A bad poker player who cannot control his addiction to gambling will overly commit his bankroll until he runs out of money exactly like I have done. An addicted gambler will resort to borrowing money to keep on playing!
And guess what? Borrow money is what I did. I asked my wife to lend me $10,000 to invest in a particularly attractive real estate crowdfunding investment in Austin, Texas.
I barely had the minimum ($15,000), but I borrowed $10,000 from her so I could invest $25,000 instead. If I had more money, I would have probably invested up to $100,000 in this particular deal because I'm all about pressing into the heartland!
Endless Investment Opportunities For The Money Addict
As a money/investing addict, I see an ENDLESS amount of good investment opportunities. Further, once I believe in a winning idea, I sometimes press to the detriment of proper risk management controls. After all, I did borrow $1,220,000 at the age of 28 after putting down $300,000 for a SF property I purchased at the end of 2004. In retrospect, that sounds nuts!
Knowing my tendency to go “all-in” is the reason why I've at least limited most of my public equity and bond investments to large index funds. In the past, I may have bought $200,000 in one stock. Now, I'll buy $200,000 in an index like the S&P 500, with the understanding I may lose 12% to make 12%, instead of potentially losing 35% to make 35%.
I've also become more open to investing in actively managed public or private funds, which do the investing for me. Private funds help with diversification and force me to set aside capital due to my commitment.
Confining myself to index funds is one step in mitigating risk, much like confining myself to playing at the $1/$2 no-limit tables where the average player only has $100 – $200 in chips. But that still leaves my occasional inability to manage liquidity risk.
In my experience, there are two levels of wealth. And the ultra-wealthy don't invest in index funds to get rich.
The Importance Of Liquidity
I've got to be much more responsible now that I plan to start a family. Instead of only thinking about myself, I've got to think about my wife, a helpless baby, my parents and my in-laws.
In the past, if I went broke, I knew I could subsist off of water and ramen noodles while working a minimum wage job for months until a better opportunity came along. With so many people potentially depending on me, it's totally irresponsible to be left with so little cash.
We all know the importance of having enough emergency cash to pay for unexpected medical, auto, and housing expenses. I am pleased that ~98% of you can handle a $400 emergency cash expense without having to go into credit card debt or borrow from anyone.
But the other reason for having emergency cash is to take advantage of massive irrational sell-offs! There's my investing addict talking again. When you have cash, you develop liquid courage. Once you have liquid courage, you can then make better investments.
The Positives Of Being Cash Poor
Despite investing irresponsibly, there are some positives for being cash poor that might help boost your net worth over time. As such, you may consider forcing yourself into cash poor situations from time to time. This is the broke mindset at work as a contrarian strategy to help you build more wealth.
1) Money becomes much more rewarding.
Thanks to my municipal bond purchases, I noticed a nice $1,000 in tax-free income hit my money market account at the end of January because I only had a balance of $3,000. A $1,000 injection is a whopping 33% increase in the balance of my account.
When I had over $100,000 sitting in my savings account, I wouldn't even notice a $1,000 dividend. What's the difference between $167,000 and $168,000? When you aren't excited about money, you start taking money for granted. Now, every dollar that comes in feels rewarding.
Related: Investing FOMO Is Hard To Overcome
2) Sensitive about who owes me money.
After going cash broke, I realized a corporate client still owes me $6,000 from three months ago. I had assumed they were just going to automatically pay me within a month. After all, they have all my deposit information on file from a previous deal. Now I'm going to follow up like a bounty hunter to collect what's rightfully mine!
Here's a list of all the past due money that's owed to me:
Corporate C: $6,000
Corporate S: $5,000
Affiliate F: $450
Affiliate P: $306
Another business parter R: $148
Another business partner Y: $72
Personal Consulting Client: $600
Total: $13,276, or more than 4X what I have in my savings account.
3) Motivation to earn increases.
Having no money reminds me of the days when I had to flip burgers for six hours straight. I only made $4 an hour. My feet were constantly aching and I felt bad sweating bullets on the disgusting burger paddies. But hey, how else was I supposed to make any money to take a girl to the movies?
Thanks to being almost broke, I recently locked myself up in my place in Lake Tahoe for 10 days and wrote 50 articles. 50 is a ridiculous number for me since I only post about 12-14 articles a month. During my solitary confinement, I also had a money making epiphany. This epiphany may very well bring in an additional six figures this year. We shall see!
There is no entitlement mentality now. I want to get a job again after buying a dream house to replenish my liquidity! As the father in the household, it is my responsibility to take care of the family.
I decided to buy a forever home in 4Q2023, but because I sold stocks and bonds to buy the house, I'm technically no longer financially independent. But that's OK! Now I've got the motivation to get a consulting job and build back up our liquidity.
4) More appreciation for what you already have.
Like many Americans, I have too much stuff. Greed and inflation are hurting families the most. I've been actively giving away things to the Salvation Army and Goodwill for five years in a row. Despite this, I still have too much! It's like having a bottomless stomach at an all-you-can-eat buffet table.
As a cash broke guy, I began to appreciate the clothes I haven't worn by wearing them again. Instead of spending money going out to eat a $60 dry-aged rib-eye, I decided to cook myself some vegetable soup to not only save money, but to eat more healthy. Instead of paying $20 to go watch Rogue One in the movie theatre, I opened up an old picture album. Then I began reminiscing about the good ‘old days.
What I couldn't believe in the album was that I have pictures of myself and the co-creator of the hit HBO show, Westworld, hanging out in Beijing in 1997! Such a small world.
She's now married to a famous producer/writer and they're probably one of the most in-demand creators today. Maybe she'll be willing to do an interview here.
The Return To Riches
What drives my money addiction? I think it all started when I was 12 years old living in Kuala Lumpur, Malaysia. The dichotomy in lifestyles between my rich friends and my poor friends was astonishing. It seemed completely unfair that one friend lived in a mansion with three housekeepers and a chauffeur, while another friend lived in a 300 sqft studio with his parents and sister.
I also remember giving one ringgit to a beggar at a Buddhist temple in Penang. As soon as I did, I was swarmed by 15 other women and children who almost dragged me to the ground in order to have whatever was left in my wallet. At age 12, my money addiction gripped my mind because I feared poverty. As an adult, I fear that without enough money, I'll somehow become a deadbeat father.
I forgot what it was like to live paycheck-to-paycheck, and I'm sorry to all of you who have to go through this experience more frequently. I'm always focused on sending the message of abundance, but sometimes bad things like gambling, accidents, medical emergencies, theft, and robbery have a way of beating us down through no fault of our own.
With a lot of introspection, I hope to gradually ween myself off of this never ending desire for more. But now that the Fed is cutting rates, I fear being unable to beat back my addiction for more money again. I am on a path back to financial independence, however, I need to be careful not to overdue things. The desire for more money can really drag a man down.
Steps I've Taken To Beat Money Addiction:
1) Admit my problem to myself and to others.
2) Write things out in a series of posts such as this one.
3) Left my well-paying job to make 80% less for two years.
4) Focus on work that I enjoy, not work that pays me the most.
5) Try to understand the root cause of the addiction.
At the end of the day, we all have a little bit of money addiction in us. The key is to regulate it so it doesn't get out of control. The less we desire things, the happier we will be.
Invest In Private Growth Companies
If you're a money addict, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out Fundrise's venture product, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
Stay On Top Of Your Money With A Free Tool
The best way to grow your net worth so you can eventually be free is to track your net worth. I've been using Empower's free financial tools and app to optimize my wealth since 2012. It is the best free money management tool on the web.
Just link up all your financial accounts to measure your cash flow, x-ray your portfolio for excessive fees, calculate your retirement income, and more. There's no rewind button in life. Therefore, you need to do your best to optimize the wealth you have now.
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Wow, so much in this post really resonates with me. For the last year, I’ve been cash poor in order to maximize investment capital. I want to build up cash reserves, but I obviously don’t want it badly enough, because I always end up with about a two week cash reserve because I dump as much as possible into investments instead. The idea of selling investments to pay for expenses just kills me, so I end up never doing it and continuing the cycle.
100% of my Bonus is invested immediately.
I max out my 401K and HSA, and never touch a penny from either account.
RSUs are liquidated immediately and I put 100% of the value into other investments.
ESPP contributions (maxed out at $25K) and corresponding profits have previously been liquidated immediately and then 100% reallocated into other investments. For my last batch though, I’m trying a new technique of setting a long term stop loss order with the goal of hopefully holding for 12 months in order to get the (60% and still growing) profit to a state of long term capital gains (15%) instead of the regular income bracket (33%) before I liquidate and reallocate to non company stock. If successful, the tax savings will also be reallocated at 100%.
I guess most of this behavior is based on the idea that investments feel more untouchable, while cash feels too accessible and therefore easy to spend. By being cash poor, it forces an extra level of scrutiny before I make any unnecessary purchases. It does however, lead to added stress, and forces me to manage things a little closer so I don’t get stuck. As you mention, it also provides less flexibility for unplanned big expenses or investment opportunities.
Overall, it’s not a terrible problem to have, but it is a problem if not managed correctly over the long term. I was hoping it would get easier to let go as I hit more of my targets, but your article has me thinking that’s likely not the case. Great post, really thought provoking, thanks for sharing your situation.
Ooh Sam this is a tough one for me! Being in my position (“starting out” at 25, having student loans and now a mortgage), I definitely feel like I do have an addiction to money only because it’s my “means to an end” – a life of total freedom over what I have now.
I have been told by several readers and people who know me that they think my only concern now is accumulating money. I have a sense that they are right and I find it hard to think otherwise – although some days when I’m most grateful about my life are easier than others. I think that the closer I get to my goal, the easier it gets to take the focus off of money and I was hoping to follow that plan. Do the best I can to be grateful while still hustling towards my dream lifestyle. What do you think?
Great article Sam. I struggle with the same money addiction, every cent of disposable income gets allocated to investments before my wife has a chance to see it.
I even took it so far that I opened a HELOC on my primary residence with a 100k limit. With rates so low, plus the seemly never ending promotional rates on 1 year cash advances (1.99%), I’ve been using my HELOC to feed my addiction for more investments. With it I’ve managed to fund multiple notes netting ~12%, a development Syndicate investment (preferred return of 15%), and a land entitlement Syndicate investment (preferred return of 25%). All these deals I would have had to pass on given I didn’t have the cash at hand. ive been using the promotional rates for the last 3 years, taking a new one out to pay of the unpaid balance and fund the next deal. Even with rates on the rise, I’m still able to get sub 3% rates.
Of course, both my wife and I are salaried and have a stabile bimonthly income that we can count on showing up right on time. So for us, I only hold a small buffer of cash. If something major did come up, we could easily liquidate our stock holdings to cover the emergency.
One additional benefit to feeling cash poor that you didn’t mention, we live like we are on a tight budget day to day because we don’t see the money sitting there to spend. Which just gets us to our goals that much faster. However, once we reach that goal, I’m going to need to train myself how to spend and enjoy!
You know…I love this post.
I actually have gone through this plenty of time in my ~10 year journey in Entrepreneurship. Been super flush, super crushed, and 90% of the time somewhere in the middle.
For me, the last 6-9 months have been really good number wise but the feeling behind the “money in the bank” was wayyyyy more empowering.
I realized with a background in finance ( I didn’t get to enter the field upon graduation back in 2008) that I am more focused on thinking of “business and investments” in monthly cash flows.
Big “windfall” type profits make me nervous and while I love money’s energy in getting what I want…these always add more work b/c then I feel like I have to convert the windfall into cash flow.
So, I decided to focus on creating business assets and instead of saying “this will make $XYZ per year” as the goal…I converted everything into “monthly dividends.”
So now, I design stuff where I can say “hey this work this week will lead to $200 a month every month for years” and start letting those accrue.
This has completely shifted me away from worrying about what’s in my account at any given moment and more toward thinking in “how can I create a cash stream?” with my operations.
Even when we do large sales and bring in a lot of sales in a relatively short period, I always convert that into a monthly amount. So…let’s say in a weekend special promotion for our business we bring in $10,000 in sales. That is an “$833.33 per month” income stream (as an example).
That way, I “feel” like it’s cash flow even if it isn’t. It’s a bit of a mind trick but helps me to always be focused on those “dividends.”
Even though they’re not “dividends” by saying that instead of “profits” when I analyze my goals for some reason it just becomes a “game” rather than measuring up or worrying if I will have enough to do whatever.
Just a lot more freeing from that beast of “money.” I enjoy the game and feel a lot better than I did years ago when I had tons of cash laying around and would get slightly lazy for a few months then boom…money would dwindle and I would be back on the chase. Now it’s just “work and do these 3 things this week to add $400 a month in ‘dividends’ to your portfolio”.
I convert all my businesses into “investments” as if they were high paying dividend stocks then it’s just a video game in real life.
Weird but it’s been a lot more fun building :)
Sam-
We are in a similar position. We had about 80k in cash, 100k in 401ks, and owed 400k on a house that appraised for 800k in So cal. My wife and I are both 30, with no kids. We have been looking at rentals and found a deal too good to pass up on, 297k on a condo that had an existing tenant that wanted to stay, renting for $1900 a month.
Initially we intended to purchase it with 25% down, on a 30 year 4.12% loan. Got into escrow and owner occupancy rate came back screwed up.
Took a 6.875% loan on the rental for 5/1 arm to get the deal done with 20% done. Yes a horrible rate, but we had managed to get an accepted offer before two all cash offers came in at 10 and 15k higher than we paid.
The day we close on the rental we opened a Cash out Refi on our house, and locked a rate of 4% (locked the day before the election). We were at 3.875% prior to the cash out Refi.
In short, here is where we ended up at:
Paid off (only made 1 payment on the crazy loan before paying it off) Rental Property worth 310k that produces $1900 a month of income, net of about $1350 after taxes, HOAs, etc
640k loan on our primary residence that is worth about 800k
100k in 401ks (un touched)
Paid all property taxes on our house and rental
4k in cash.
Like you, this scares the s$&t out of my wife and I.
We have no debt besides mortgage and $500 a month in total car payments. Between the two of us we make about 21k a month plus the rental income. So we will replenish quickly, however it is a very uneasy feeling.
Did we plan on spending 300k a month before the election? No. However, sometimes you have to go “all in”!
That’s a great rental income for the value of the property. Why did the sellers sell so cheap?
Great question! I can tell you that the similar properties in the complex are now going for 320-330 for a similar unit. We got this deal during the election “uncertainty”. I do think that played a part in getting a quick deal done, the seller was a foreign investor overseas in the Middle East. Never know where your next opportunity will be!
I actually think that some greed is healthy…
BTW I too think its insane to invest over $150k in one month…. Kuddos! You’re crushing it.
I once threw about 95% of my cash into a real estate deal, leaving next to nothing in emergency funds. Unfortunately, major repairs came up and at the same time the tenant in my other property stopped paying.
I ended up borrowing about £3k from my Dad to cover the costs, then forced myself to make no further investments fort 6 months whilst I fully replenished my emergency fund. It’s been full ever since!
As a side note I once heard Elon Musk spent so much money on his new venture post PayPal sell-off he too had to borrow money for rent – so at least we’re in good company!
Sam
I hope I’m wrong but I think you might have enter the stock market at its high.
I love tools like spending trackers, or if you are like me and buy most of your items on Amazon, even the order history is helpful. I perodically look through my order history over the past year and ask myself – Did I really need this item? Did I use it? How many? Did I get my money’s worth? When I first started doing this, I was shocked at how many I was spending on things I ultimately didnt end up using much. It’s gotten much better over time. Do I still make the occasional frivilous purchase? Absolutely. Sometimes I think I will have more free time to enjoy that new video game, when I never end up having the time. But my spending has become much more efficient.
While I do think you need a nice big fat cash reserve as an aggressive investor (as I do, because I also am) – I wouldn’t say you are “blowing” money investing. It’s an investment, not an expense. Do be careful with the liquidity though until you’ve built up some nice cash reserves.
Liquidity is why most businesses fail. Companies which make profit but because they don’t maintain liquidity can quickly fall into troubles.
Same goes for personal finance. Have some cash together and when the right opportunity come along invest. You can also get better deals with cash instead of on credit. Cash is king.
hey Sam, you still play poker? Saw some live vids of the Silicon valley rich tech dudes playing, Chamath, Calacanis, with phil hellmuth. probably too big stakes for you though!
Sam could always have a Financial Samurai Meet and Greet at Lucky Chances….LOL
Gambling isn’t “no fault of your own.” It’s precisely a fault of your own. Apparently, it’s a genetic fault too. Hope you don’t pass it on when you start your family.
But what do you expect in a society that cut itself adrift from value production and is now totally organized around financial parasitism and speculation (which of course is simply another form of gambling)?
You’re right. I hope I don’t pass it on. I realize I have a problem and am trying my best to get better. Step 1 is to admit I have a problem.
Do you have any tips for me and any other people with gambling tendencies? Any wisdom you can provide is much appreciated. What’s your background? Thanks
Sam – of course you are addicted to money! That’s why you are the Financial Samurai and write this blog! If you weren’t nobody would take you seriously and read all this wonderful content.
Seriously though, many of us suffer from the same problems whether we are constantly invested, or have everything in cash or whatever. We worry about money, whether we have enough for today and the future. I have found the only way to tackle this problem is to take desire, materialism and try to achieve contentment. Why do we need big houses with 6 bathrooms each with a direct ocean view? Why do we need a Range Rover to drive around in? There is no end to how we can spend money. But there can be a point where we can find contentment.
You are about to start a family and will soon realize that your greatest assets are not in some real estate investment or ETF or bank account! Kids change everything. All the math, all the priorities and all your goals in life, but in a wonderful way! Enjoy.
Love the Poker Analogy.
I have daydreamed about playing poker for extra income. Maybe hit up my local casino and play in the 1/2 no-limit games on weekends…
Am I being foolish?
1/2 will kill you for the rake, depending on where you play. Live poker at those levels is pretty much gambling, no one folds anything!
Honestly I stopped playing poker as soon as I became interested in investing. You can make a lot more money over time investing compared to poker.
I used to grind out a ton of poker in my college days, when I calculated how much money I was making per hour, it was very low. Poker is very streaky!
At certain levels of net worth & proper allocation strategy & diversified income stream, one doesn’t really need an emergency fund, in the traditional sense.
For ex, many people have large stock and bond portfolios in after-tax account. So, if things get really bad, to the point that you can’t use a credit card with 0% interest for 1 month to get by, you can always sell some bonds and/or stocks to get buy for a month. Of course, there is the risk that you sell during a crash (although that’s why bonds are helpful as they don’t crash as hard usually). However, if someone has 10 yrs of assets in these liquid accounts, selling 2 months of assets will not change anything drastically, particularly if you have another 20+ yrs in illiquid assets as well.
Also, if you have income coming in from 5 different sources and can get by on more than 1 or 2 of them, it also makes the odds rare that you will experience any real hardship.
On the flipside, I like cash because if the markets crash, I get a better deal. I think this is the more critical issue for people with lots of wealth. It’s also why there are people with $30m that always have maintain cash positions up to 20-25% of their wealth.
It’s true. The more income streams you have, the less of an emergency fund you need. This particular episode of getting down to less than 2 weeks of living expenses feels a lot like gambling to me. It’s like living on the edge, hoping there is no massive downturn or personal financial calamity.
In a way, I also feel more financially ALIVE. I’m super aware about my expenses and accounts receivable now b/c I need to be. It is thrilling….. which is EXACTLY how it feels to gamble at the tables!
Maybe what I’ll do is this…… force myself to be cash poor once a year at least for 2-4 weeks. Perhaps sort of like a money fast.
What’s stopping you from selling $100k of your after-tax bonds in a crisis?
Discipline. Once you start withdrawing principal that’s meant to pay for life/retirement, it’s a slippery slope. Leave retirement money alone. This way, you’ll always be motivated to work hard to generate cash flow.
Related: The Ideal Withdrawal Rate In Retirement Touches No Principal
I understand, I have never touched mine either.
But my point is let’s say you need heart surgery and your insurance doesn’t cover it. And they send you the bill and expect payment in 30 days. Are you going to claim bankruptcy for a $200k bill? If not, then the concept that you don’t have emergency funds is a bit different than the traditional notion.
Although I suspect you know this (and it makes for less exciting/interesting writing, prob why I still haven’t started a blog yet lol).
True. Anything is possible. You just have to draw the line somewhere.
Tell me about your liquidity situation and how you are currently investing.
I am about 1/3 cash, 1/3 stock/bond (~40:60), 1/3 real estate cash-flowing properties (some of the deals don’t flow currently because we are repositioning for refi). In the cash bucket, it’s much larger than usual because I’ll prob finally buy an apt in NYC this year or the next. After that is purchased, I will keep ~2 years of expenses in cash on hand going forward. I’m not including my private businesses as I value them as 0, but they are where the majority of my NW is.
I think going forward, after accounting for safety cash, I will be investing every new dollar approximately 50% real estate, 30% public funds (prob just VINFX or VT) and 20% bonds (likely munis, for tax reasons). I will sell bonds to buy real estate or stock if there is a crash. I am also willing to go down to 1 yr in cash if something great turns up. If something exceptional turns up, I’ll go to $0 in my savings and checking account, because worst case, I can always sell something in an extreme circumstance. I haven’t touched capital or investments in 20 yrs though so barring any crazy scenario, I would be ok. Although I like having safety cash around just in case. If the market dropped 20-30% in 3-6 months, for ex, I’d like to have some $ on hand to buy.
I’ve had the unfortunate experience of living paycheck to paycheck the majority of my adult life. Only recently have I started making enough money to not have to worry about making ends meet. I guess the one benefit of living a paycheck to paycheck life for so long is that I’m very cognizant of my spending, so much so that I don’t have to use a budget anymore.
I have been sorely tempted to invest too much but have recognised the temptation and managed to resist. I think it’s fair to draw parallels with gambling because it is addictive when you get bitten by the bug.
We got addicted to paying down our mortgage. I don’t know if that was necessarily a bad thing, but some months I left our account much lower than my comfort levels, in favour of a bit more towards the mortgage capital. Right now, it was worth it, but something could have happened that made us regret it. We’ll all make mistakes I guess, you just gotta bounce back if you do :)
I have an article idea I would love you to tackle with an open mind: whether husbands and wives should share finances and how it affects the marriage. I will state flat out that I think everything should be shared and that I am a bit alarmed that you ‘borrowed $ from your wife’ although I don’t know your situation, I just want you to succeed, marriage and all, especially with all the baby talk on this blog as of late:) I hope you don’t take offense, as I have never looked into any surveys or studies on the subject, but I know several people whose marriages have ended and many of them kept seperate accounts. It just seems like (to me) the two becoming one should mean everything! Anyways, I know if you took on a subject like that you would approach it scientifically and interestingly and it would probably generate a ton of comments and maybe some traffic to your blog. If it does adversley affect marriage in general, then it doesn’t seem worth it to me, as people who make their marriages last have a huge financial advantage (I have seen studies to this affect). Anyways, I would love to see a post on it!
Sure, it will be a fun topic. We have a master joint account and two separate accounts. The goal is to make her independently a multi-millionaire (without me) so that no matter what happens, she and her family will always be taken care of, even if the master account, my accounts, insurance policies, etc go away.
Hypothetically speaking, let’s say you have $3 million in your individual account and $10 million in a joint account. What do you think are the downsides of trying to create another $3 million for your spouse’s account so that s/he has a feeling of financial independence beyond the feeling of financial independence with the joint account? I would think that providing a spouse the sense of financial independence is a gift.
I’ve interviewed A LOT of women who’ve had husbands who were responsible for 80%+ of the family wealth tell me they’d love financial independence and feeling like they DON’T have to rely on their husbands for anything. Many have revealed guilt for spending money on something, and the annoyance of asking for permission. Instead, they’d rather just spend money they’ve earned. Gives them a sense of pride as well.
See: Poor Little Rich Women by The New York Times
I can see the advantage of having a little money to do what you want, as my husband is the breadwinner, but most people don’t have that much $. Isn’t a lot of your readership working towards these goals? We for one, don’t have even close to a small percentage of what you listed. And I think if you have that much, what is stopping either spouse from doing what they’d like with it? The one point, at least from my perspective, would be in case one spouse got sued, in order to shelter assets, and there are probably others, I just don’t have the kind of assets that would neccesetate looking into it. But I would still love to see an article on the marital side of things for people that still worry about money and have not reached FIRE. In the case of divorce, unless there is a pre nup then one spouse’s assets wouldn’t be completely sheltered, and having one of those in place seems to be a pretty distrustful way to start out to me.
Debbie,
The thought process is the same with: $100,000 in each individual account, and $500,000 in the joint account.
The biggest gift one spouse can give another is the feeling of financial independence. To be supportive in his or her endeavors to build his or her own wealth. There’s a tremendous sense of satisfaction that goes with knowing one created their own wealth.
Glad you enjoyed the article. I’ve spoken to literally 100+ women over the years who’ve felt money guilt and annoyance they don’t have their own financial accounts.
Sam
Wow! That article doesn’t even closely relate to the past 8 uears of being a sahm or any other women I’ve met! You should do a survey!
Hi Sam,
I know I couldn’t sleep at night with such a low cash position!! I currently have 10 years of expenses in cash or cash equivalents. My expenses also include a 50% savings rate so I guess in reality I have 20 years of expenses put away. I will save till the day I die so I always include savings into my expenses. Yes I know that I could make far greater money than the 1 – 2% I’m currently making on this cash.
I do this for a couple of reasons. First, at one time I had 90% of my net worth tied to my business. The stress was unbearable. Second my cash position is roughly 30% of my overall net worth so I do have a substantial amount in investments. Third, and probably most important is that I’m content with what I have. That doesn’t mean I’m not always on the lookout for new investments. Indeed I am, but knowing I have enough cash on hand to cover anything life throws my way more than makes up for anything I’m leaving on the table.
P.S. My stomach size has definitely increased with my cash position. A person definitely gets lazy when they have no sense of urgency
Thanks, Bill
The thing that strikes me most in this post and the subsequent comments is how there is no discussion as to returns on all this money?
No calculations, no stratagy – it seems like rampant finance consumption.
“blowing over $100,000 on investments in December”… LOL man you’re so irresponsible FS!!
But it is so true that you realize the value of $$$ when you don’t readily have access to it and it does motivate you to acquire more. By the way, I’ve given away more stuff in 2016 to Goodwill too. You get a tax break and I KNOW I won’t be using these items (new VCR printer and a ton of clothes).
It’s funny you write this. We were cash poor in December for a number of unusual reasons (mostly caused by Volkswagen) and I’m planning to write about that soon. I’ve never been in that situation and it was incredibly stressful. I can’t imagine living that way all the time, but I know that’s how a whole lot of people operate, which blows my mind.
The other thing I found interesting in this post is that you mentioned borrowing money from your wife. My wife and my finances are completely merged, so the concept of borrowing money from her is ridiculous. Have you written about how you and your wife deal with finances and why you do it that way?
Not yet! But perhaps one day. Why not build three fortunes? A fortune for each spouse and a combined fortune so that no matter what happens, each spouse will always be financially independence. It’ll be a fun topic to discuss!
For me, the main reason to combine everything was for simplicity sake. It’s easier to manage one big fortune than three smaller ones.
I think how couples manage their finances says a lot about their relationship, but that is a complicated topic.
Cool. I definitely look forward to the judgements the article will produce about how people should live their lives, manage their finances, have X amount of kids, etc.
Can you imagine not building up a nice nest egg for your spouse so that no matter what happens, she’ll always be OK? I know some guys who retire way early with less than seven figures to their name because they are selfish. They’re just thinking about how to enjoy their own life and don’t have the patience to continue working. They put their family at risk in case something happens to their finances, or there’s a divorce, an accident, etc.
It’ll be a great discussion!
Related: The Dark Side Of Early Retirement
Thank you so much for sharing this story. My brother has been a gambler his entire adult life. It has caused many people around him heartache and it’s difficult to help someone with an addiction, unless they’re willing to be helped. He now does well for himself, but needs his fiance to control his money. Otherwise, he won’t have any and worse, she wouldn’t have any.
I’ve been fortunate to not have to deal with any addictions like gambling or alcoholism, but I do go through obsessions. I believe my FIRE journey is part obsession with accumulating a ton of money. I have lived paycheck-to-paycheck before, but only because I was supporting myself, my daughter, and my mother. Now things are much better, as I’m married to a wonderful man and we are focusing on becoming debt-free and building massive wealth.
I also obsess over the accumulation of real estate. Our plan is to have paid off rentals that provide enough passive income to replace our working income. Why rentals? Because I grew up in a trailer and all I ever wanted was a house. So now, I collect them. Thankfully, my obsessions are pushing us in the right direction, financially. But are they healthy? Not sure I can say yes to that question.
Very insightful about all you’ve ever wanted was a house since you grew up in a trailer. I can totally understand the desire! Everybody needs to do some reflection to figure out why they are doing what they are doing. What is the root cause of the obsession? Find out, and it makes things a little easier to deal with.
Perhaps visiting a friend’s mansion and then another friends shack the next week is one trigger that made me want to own a place of my own so early on as well. Just seeing so much abject poverty growing up in Asia scared me straight in school.
Hey, long time reader here…I can relate to this feeling of being cash-strapped, albeit on a smaller scale than spending $150K in a month! We cash-flowed our kitchen renovation 6-months ago (dahliasanddimes.com/2017/01/07/how-we-saved-10000-on-our-kitchen-remodel/) and definitely had a few “you spent $42” weeks ourselves.
Personally, I did not handle the anxiety that accompanies a low cash balance and was happy to get back to a 6-months safety. For me, the benefits whether that’s motivation etc. did not outweigh the worry of living cash poor.