The Assassin of Wealth

Pull up a chair, friend, and let me draw on the back of our virtual napkin.  Since this is a blog about money, we’d better dive right in to the good stuff, right?  Consider something for me:  Lebron James if rich.  But, the guy who writes Lebron James’ paycheck is probably wealthy.  Who would you rather be?

Notice, I have absolutely no idea who “the guy who writes Lebron James’ paycheck” is.

Wealth is easily one of the most misunderstood topics in personal finance because most people invest more time analyzing their underpants than analyzing their default accounting decisions.  Just so you know, you’re constantly making accounting decisions even if you’re perhaps only dimly aware of it.

The Whole of Accounting in 2 Paragraphs:

I’m going to throw it atcha:  Assets = Liabilities + Stockholder’s Equity.  That’s right, I went there.  Master this basic concept and keep it always present in your mind, and you’ll be on your way toward building real wealth.  (And to think, the average salary of a CPA is in the $60k – $85k neighborhood.  You’re welcome.)

In our equation, we’ll use “stockholder’s equity” as a synonym for wealth — for now.  Since Assets – Liabilities = Wealth (please don’t notify the GAAP police), there are two very basic methods to achieving financial independence:

  1. Maximize Assets
  2. Minimize Liabilities

But, wait — not so fast.  Fist we have to deconstruct what both of these things really mean, and not what you necessarily think they mean.  The term “asset” is generally used incorrectly when speaking to amateurs and even many professional money managers.  Assets are a very narrow class of finance, in fact.

What are assets? defines it like this:

In personal finance, current assets are all assets that a person can readily convert to cash to pay outstanding debts and cover liabilities without having to sell fixed assets.

Read more:

Blah, blah, blah.  I’ll say that assets are something that repeatedly put cheddar in your back pocket — without you being there.  So, by either definition – is your car an asset?  No.

Is a motorcycle an asset?  No.

Is your home of residence an asset?  No’

Is your JOB an asset?  Absolutely not.

We could keep going, but do you get the picture?  What most people as well as most BANKS consider assets on your personal balance sheet or statement of net worth are not really assets!  The reason a bank would call your home is an asset, is because it’s something that puts cheddar in THEIR back pocket.

Securitizing a piece of property with the intent to collect interest is a fantastic way to generate wealth, so long as you’re the one doing the collecting.  Bottom line:  don’t let it happen to you!

Here’s a big, bold statement that many people either forget, don’t understand, or don’t want to understand.  Are you ready?


Income is something that you use to pay expenses in the pursuit of maximizing asset growth, but very few items are true assets.  Here are a few:

  1. stocks
  2. bonds
  3. income producing real estate
  4. real estate investment trust
  5. personal, profitable business
  6. receivables

What are liabilities?

Most likely, you’re much more well-versed in the topic of liabilities because Americans LOOOOOVE them some liabilities.  Back to our buddies at Investopedia:

Essentially, these are bills that are due to creditors and suppliers within a short period of time. Normally, companies withdraw or cash current assets in order to pay their current liabilities.

Read more:

I’ll call a liability anything that costs you money.  This is not to say that there is no value in the expenditure — there are many things that must be purchased in order to function within a modern economy.  However, I’ll submit that we are generally addicted to liabilities that make absolutely no sense and have absolutely no hope of returning let alone retaining a single dime.

And why not?  Liabilities are very easy to understand (sign here….).  There are countless ways to spend your precious income, yet virtually no outlets to appreciate the impact magnitude of wasting your money.  This is a consumption based economy.  Yeah – surprise.  What you choose to consume will either nourish you or make you sick and poor.  This is the spectrum of our daily decision-making.

Temptation and Distraction are the Assasins of Wealth

Temptation and Distraction are everywhere.  Just today, I have already passed on 6 opportunties to spend money, and I have a very structured lifestyle that is engineered to avoid temptation and distraction.  The way I see it is that we can either choose the long, boring route of methodically devising a strategy and accumulating assets that lead to financial independence… OR, we can start practicing our free throws, hoping to land a NBA contract.

Truth is, you don’t need this lesson.  You already know all this, right?  What you need is perhaps a compelling reason to maximize your wealth creation or a nice, wholesome kick in the ass.

I can do both.


8 Amazing Ways to Mess up your Finances


Yeah, yeah… it’s tough out there, but there’s lots of times we’re not making it easier on ourselves by making some rookie errors.  Here’s some things to consider NOT doing: 

1.  Don’t check your credit score.  Less than half of Americans don’t know their credit score which means that it’s either because they are not living in the modern financial world, or they believe that Denial isn’t just a River in Egypt.  Get it?  Denial… The Nile.  Oh, whatever.  Bottom line is that checking your credit score is sort of like stepping on a scale if you know you need to lose weight.  The more information you have, the sooner you can do the work to fix it.

2.  Let the Universe take care of you.  I call this the “zen method of personal finance” because these are the people who typically believe that things happen for a reason, that there’s always something to be learned (without really learning it), and that the Universe will provide.  The Universe will not provide – you will, so get to work, you filthy hippy.  And, take a shower for God’s sake!

3.  Choose the wrong partner.  Your maritial status and stability is a strong indicator of long-term success, and divorce or separation can be absolutely devastating to your financial independence.  You need to talk about money with any prospective partner and form a plan.  According to The Millionaire Next Door, a strong indicator of wealthy people is that typically one spouse plays exceptional offense, and one plays exceptional defense.  It can be difficult to do both really well.

4.  Set it on autopilot.  Autopilot is great.  It lets a machine handle all the mundane crap that can distract you from more important stuff.  The problem is complacency or trusting a flawed model.  You need to make periodic checks to your system and ensure that there are no errors being committed on autopilot.  Think of it this way – do you want autopilot to engage multiple hostile enemy planes?  If your answer is “yes,” please form a fist now and smack yourself in the face.  Thank you.

5.  Not set it on autopilot.  The business of You is the same as any business — there is revenue, expenses, assets, and liabilities to address.  Sucessful business is a system that can be operated by the dumbest person you know, which is typically you.  Now add lack of sleep, terrible doubt, and unforseen circumstances that will inevitably arrive, and your autopilot system will save your ass while you can scramble to either threats or opportunities.  Your autopilot system is going to get you 80% of the way there so long as you regularly reference #4.

6.  Invest without homework.  This is a close cousin to the Zen Method of Finance.  Here’s a red flag… if you “feel” like something is a good investment, stop what you’re doing and open a freakin’ spreadsheet.  You should not be feeling anything except the sensational joy of flipping the double rods to The Great American Waste of Time (most jobs) at the end of your accelerated journey through the Financial Forest of Doom.  In short, if you feel like you don’t know what you’re doing, you don’t know what you’re doing, and you need to spend 80 more hours crunching numbers until you vomit.  Then proceed.

7.  Don’t pay yourself first.  In my book (yes, there’s a book), this is the most powerful tool in the financial freedom fighter handbook.  It goes something like this:  do your homework, figure out exactly what you need to do to achieve financial freedom given your income and time horizon, pay yourself first.  Then – repeat.  There will always be dozens of methods to waste money, and if you’re not disciplined the best thing in the world is to keep your money away from You.  I keep my most liquid accounts as close to zero as possible because it forces me to be constantly aware of what’s going on.  As soon as dollar soldiers enlist – send them to battle immediately.

8.  Pay the wrong debt.  Paying debt and being debt-free is an awesome feeling, but you also need to take some investment risk in order to grow which generally means using leverage in the most meaningful way.  The only time it’s okay to borrow money is if doing so will achieve a pre-determined financial goal.  By the way, going on vacation with a credit card is not a financial goal.  Sorry.  Many people like to pay the lowest debt balance first, but the most savings/return is realized when you pay the highest interest first.  Sure, if you’ve got piddly (technical term) debt balances, go ahead and clean them up, but the biggest impact will be to reduce and eliminate your highest interest debt.  All other debt should be constantly subject to very best refinancing terms in order to boost your cashflow and keep your money soldiers engaged and attacking.