👋 Hey there! FYI, this post is part of our First Principles series.
About the series…
When most people talk about money management, they discuss tactics. Occasionally, you’ll encounter someone who elevates the discussion to strategy, rather than simply scattershot tactics.
But what’s missing from both conversations — both tactics and strategy — is a wider-lens look at how to become a better thinker; how to become a crisp, clear decision-maker.
How to think from first principles. How to better your brain. How to cultivate the wisdom to know the next move.
This series is an attempt to bring first principles thinking into the conversation around money. Welcome to the inaugural post.
Welcome back to our new series, First Principles, which explores how to think clearly about money and life, make wise decisions, and better your brain.
It’s hard to separate what you think you want vs. what you genuinely want.
We’re taught that we “should” desire certain things. The sprawling, trophy house. The sleek car. The snazzy clothes (does anyone besides me say “snazzy” anymore?)
Those are mainstream examples. But in hidden pockets of internet communities, we’re also subject to that same pressure.
The community of nonconformists will pressure us to conform to their flavor of nonconformity. We learn that we “should” want to quit our jobs, to travel the world, to #tinyhome and #vanlife.
Figuring out what you want = figuring out what YOU want.
Not what mainstream society wants for you.
Not what any internet community (and that includes this one!) might influence you into thinking that it’s what you want.
First Principles thinking means rejecting the temptation to embrace “copy/paste goals,” a phrase coined by a friend of mine.
This leads to the question – how do you know if what you think you want … is what you want?
The solution comes from flipping the question on it’s head. Don’t ask yourself, “what do I want?” Ask yourself, “what pain am I willing to endure?”
If you want something badly enough, you’ll sweat for it.
You’ll make sacrifices. You’ll embrace pain. You’ll stay up late, wake up early, and dive in with full force.
You might think you want [insert aspiration here]. But do you want it enough that you’re willing to become obsessed, at least temporarily?
Do you want it enough that you’ll endure the pain and sacrifice that it demands?
It’s easy to convince yourself that you want something, even when that dream isn’t in your soul.
The better question: what’s your flavor of pain? How bad do you want it?
Have you been interested in real estate investing for years, sitting on the sidelines watching the market go up and wishing you’d gotten in sooner?
I have a secret for you: it’s not too late.
Even though parts of the US market are crazy, there are still good deals to be found; you just have to know where to look.
To date (and even in this crazy market) real estate investing is my favorite way to shorten your early retirement timeline, because of the cash flow it generates through monthly rent payments.
If you want a step-by-step, comprehensive guide, enrollment is open for my flagship real estate investing course, Your First Rental Property, for a limited time.
We talk about “risk tolerance” as though it’s a singular, one-dimensional, linear concept.
The reality is that risk exists along a variety of spectrums, and each are connected, like spokes on a bicycle.
This concept (multiple dimensions of risk) applies to all investing: stocks, bonds, index funds, crypto.
But I’ll use an example that comes from the world of real estate investing, to illustrate the point.
In real estate, you’ll encounter risk levels — low to high – associated with:
- The age of the property
- The condition of the property
- Neighborhood quality
- Economic stability of city/state location
- Population growth of city/state location
- Tenant screening criteria
You’ll also grapple with risk levels across your personal life, such as:
- Career choice [stable occupation vs. seasonal or low-demand occupation]
- Job security
- One income vs. two income household
- Number of dependents, both children and aging parents/grandparents
- Cost-of-living in local area
- Flexibility and willingness to move
- Health costs
- Debt load
- Volume of recurring monthly bills
When the students in Your First Rental Property ask “should I finance a property?” or “how should I split my portfolio between index funds and rental properties?,” I zoom out and walk them through exercises in which they think about risk across multiple dimensions.
If you’re dialing up the risk in one dimension, I tell them, counterbalance by dialing down the risk in others.
This framework applies to thinking through risk in all types of investments. And it highlights why the phrase “risk tolerance” implies a one-dimensionality to risk that doesn’t flow with reality.
My goodness, all I can say is that you HAVE to look at this.
I mean, seriously. It’s beaaauuuutiful. 😍
I don’t care if you’re planning to enroll in Your First Rental Property or not… just look at that. I’m DAMN PROUD.
I’ve been running Afford Anything for a decade. Ten years ago, I never would have imagined that one day, this little website which I grew from my kitchen table would have such a robust team, an incredible product, and a … well, I never imagined that one day we’d build this.
Wait. Let me correct myself.
I say “one day we’d build this,” but it’s taken five years of well-researched, thorough, painstaking construction. Three years of development. Two rounds of beta. Custom software. We gathered thousands of data points. We tested, iterated and improved relentlessly. And we’ve watched our 1,821 alumni experience amazing success.
If you’ve been thinking of investing in real estate, I’d highly recommend you take a look at Your First Rental Property. I’m confident it’ll help you.
You’re familiar with the concept of “circle of influence” and “locus of control,” right?
Essentially, this framework states that there are many factors that might concern us — the weather, the economy, the stock market – but many of these worries are not within our control.
If we want to be maximally effective, focus on issues that we can directly control.
We can’t control the weather, but we control whether or not we carry an umbrella.
We can’t control the stock market, but we can control our contributions.
My theory is that the appeal of entrepreneurship is that it’s a wealth-creation strategy that’s within our locus of control.
We enjoy more control, effort, influence, and decision-making authority over an entrepreneurial project than we can, say, over an index fund.
And that feels damn good.
(One of the aspects of real estate investing that appeals to me most is that it’s a hybrid between an investment and an entrepreneurial activity. In other words, it’s an investment – like an index fund – that gives us direct control over the revenue and expenses – like a business.)
Hope this third issue of First Principles spurred you to think deeply about what you really want – and how to get it.
I’ll see you in the next issue. Until then!
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See you soon!