People get really stressed out about money.
Money makes people cry. Money causes people to lose sleep. Money causes marriages to hit the skids.
So how to not stress about money? Drink decaf? Yoga? Meditation? None of the above.
Having more money is not the solution either. Lots of times, more money causes more stress, not less.
In the sage words of The Notorious B.I.G., “Mo’ money, mo’ problems.” The people who stress about money with $10,000 in the bank would be stressed with $1,000,000 in the bank.
Let me dispel the myth that the source of money stress is “not having enough.”
Nobody stresses about the fact that they can’t afford the $300,000 house that they want. Or that they can’t afford a $1,200 pair of Rick Owens sneakers. Or a Lexus, or jewelry, or whatever.
People don’t stress about the fact that they have a lower standard of living than they might otherwise want. That isn’t the source of money stress at all.
People stress about the possibility that they might have zero.
And even then, it’s not like they’re worried about having zero. They’re worried about what other people will think of them when they have zero.
There are two primary sources of stress about money: debt and risk.
Debt causes stress in two ways.
People borrow too much—mortgages, car loans, etc. And then they have a big monthly nut.
All the free cash flow goes to paying debt. There is not much left over, and not much savings.
If you lose your job, the merry-go-round stops. You get hurt in a car accident, the merry-go-round stops.
People in this precarious situation are acutely aware of their precarious situation. It is stressful, knowing that it could all end at any moment.
The other way to stress about debt is that you go upside-down on it. Like when you owe more on your house than it is actually worth. And you will have to pay the bank to move.
That is a big source of stress. People feel trapped. They are trapped.
I know people in strong financial positions who were moved to tears over debt—and the fear that something might go wrong.
That is a pretty terrible way to live. Debt is the source of stress. So if you want to eliminate stress, eliminate debt!
It really is that simple.
If you are sick and tired of being sick and tired, here’s what you do. Instead of just passively paying the minimum on your debt every month, bring some austerity to your life. Set aside some cash and start hacking at the principal.
It will make you feel better, I assure you. It will make you feel like you are taking action on the problem.
And if you work at it, you will eventually be free of debt. More important, you will be free of any debt-induced stress.
The goal is not to get rich. The goal is to not feel stress!
Again, there are billionaires who stress about money—usually because of debt. If you have no money stress, then you are doing better than the billionaires.
The other source of money stress is risk. Often having too much of it.
If your portfolio lost 50% of its value, would it cause you stress?
It happened to me during the financial crisis. My net worth got cut in half. My LEH stock went down to zero. And I lost some money on other investments. It caused me stress.
I was still wealthy by most people’s standards. But it is a kick in the nuts when you get cut in half. It didn’t feel good.
I could do nothing about the LEH stock. But if I had a more conservative portfolio, I would have had less stress.
Take a look at your portfolio. Try to compute the chance that you will get cut in half. If you think this is even remotely possible, then it is time to take action to reduce risk.
This is the main reason I recommend the 35/65 portfolio. Not because it will provide you with any kind of amazing returns. Instead, it will allow you to sleep soundly at night.
If your portfolio is 100% stocks, you have too much risk.
If your portfolio is 80% stocks, you have too much risk.
If you’re speculating in crypto and cannabis, you might have too much risk.
Let me ask you a question: was there a moment you were worried during the recent 20% correction? Were you a tiny bit scared?
If the answer is yes, then you have too much risk.
My Goal Is to Be Happy
Believe it or not, I’m not in the money business. I’m in the happiness business.
If you make a lot of money, but you are miserable, it’s not a success. If you eliminate debt, and you minimize risk, you will be happy. That is all I care about.
Getting rich is great but is simply extra credit.