I hate making speeches – and for good reason. I don’t prepare for them. I ignore them until a week or two before the event. Then I suffer anxiety that rises in a crescendo until the speech and then, afterwards, drops me into a slough of regrets.
To make matters worse, I’m always asked to talk on the same topic: money. Gets boring after a while.
Right now, I’m on an American Airlines flight to a conference in Sao Paulo to talk to several hundred people about money. I asked the host of the conference what, exactly, I should speak about. He said, “Talk about anything you want. These people know who you are and they love you. It doesn’t matter what you tell them.”
That – the idea that this anonymous mass of people “love” me – helped. I felt validated. And gratified for the opportunity. So what could I say to them about money to reciprocate their good feelings?
Then it came to me. Feelings. I would talk about feelings. About the way I feel about money.
As I said above, I find the topic of money boring. But that wasn’t always so. When I was very young and very poor I was very interested in money.
I wanted it. Lots of it. And like many others, I believed that if I acquired enough of it, my financial fears and insecurities would be gone. My self-esteem would rise up. I would be happy.
I’ve told the story many times so I won’t tell it again here. Suffice it to say that one day I decided that “getting rich” would be my top priority in life. And that set me on a fast path to making lots of money.
In less than a year I was making low six figures. By year two my income was north of half a million. A year or two later it hit a million and then two million. And by the end of seven years I had a net worth of more than $10 million.
I retired then, thinking retirement would make me happy. And I was happy for about nine months… until I realized that having a net worth of $10 million was not enough to pay for my lifestyle.
So I went back to work and to making lots of money. But the happiness I sought by making lots of money eluded me. It eluded me because I was – and always had been – a very bad investor. And every time I lost money by making a bad investment, it made me feel foolish and insecure.
The first investment I ever made was a disaster. Again, I’ve told the story many times. Briefly, it was a one-bedroom condominium that my then landlord assured me would make me a lot of money.
The property was overpriced by about $15,000, which I didn’t know because I knew nothing about the local real estate market. It came with a reverse amortization mortgage that ballooned every three years. This meant that despite dutifully paying my monthly mortgage and tax bills, my debt to the bank actually increased as time passed.
If that were not enough, I naively rented it to a charming young woman who after the first month desisted from paying her rent. And thanks to tenant protection laws, it took me nearly a year to evict her.
It was after that that I moved to Florida, got a new job, and, as mentioned above, decided to become “rich.”
As I said, I managed to increase my income enormously thereafter. But I continued to be a bad investor. I invested in gold stocks and penny stocks and clever business schemes. I invested in just about anything that came with a big promise of financial gains.
Of course they all flopped. Every single one of them. Despite a rising income, I was becoming poorer, not richer.
I was on a financial roller coaster without guide rails. I wanted to get off before I crashed, but I didn’t know how.
Then one day I had a thought. What if, instead of chasing after financial windfalls – instead of going for becoming a lot richer as fast as possible – I made it my goal to slowly and gradually become just a little bit richer.
I pictured how I could track a steady increase in my wealth on a spreadsheet. And I imagined how good it would feel to look at that spreadsheet every day.
But how would I do it? The formula I came up with had three objectives:
- To continually increase my income
- To continually increase my net worth
- To continually increase the % of my income that I put into savings
My income had been growing for a while, but there was no guarantee it would continue indefinitely. What if I lost my job?
My net worth had been steady and or declining. The obvious reason was those long-shot investments. But even if I invested more conservatively my net investible worth would still be subject to market deflations.
How could I pursue all three of my wealth building objectives at the same time? Here’s what I decided:
* I would continue to become more valuable as an employee and see my compensation rise.
* I would create secondary sources of income by (a) doing some consulting work and (b) starting side businesses that could be run by friends.
* I would no longer speculate – invest in anything that could drop in value for reasons I did or didn’t understand. I would accept the long-term average returns of every investment class. And I would invest only in assets that are fundamentally safe from crashing. Those are:
- Guaranteed and collateralized debt instruments – municipal bonds, tax liens, mortgages, bridge loans
- “Forever” stocks (i.e., big, dividend-paying stocks that I’m happy to keep and never sell) – at the right price
- Income producing real estate – at the right price
- Gold – at the right price
- Businesses I understood and had control over
The slow, steady wealth building began to happen almost automatically. By the time I was 40 I had an income of more than $1 million, a net worth of $10 million, and I was saving 50% of my after-tax income. By the time I was 50 my income was more than $2 million with a net worth of $50+ million and I was saving 70+% of my net income.
Since then it’s only gotten better.
More importantly, I started to enjoy the emotional benefits of what I was doing as soon as I put my plan into action.
The anxiety that I had always felt about money was gone. It was replaced with a sense of optimism and a confidence in my ability to make financial decisions.
I was no longer chasing unrealistic returns, and I was getting steadily richer. It didn’t matter whether it was by a little or a lot. Just knowing that I was moving in the right direction banished my doubts and fears.
For the first time, my wealth building efforts were actually making me happy.
So that is what I am going to talk about in my speech at that conference in Brazil – and it is my suggestion to you today. Make yourself a promise to forget about chasing extraordinary returns. Instead, work to steadily increase your income, your net worth, and the % of your income that you save. If you are serious about doing that, you will make wise financial decisions and your wealth continue to grow. Best of all, you will begin to reap the emotional benefits of being on the right path almost the moment you begin.