The Chess Match of Personal Finance

In the 2008 housing market crisis, everyday Americans overextended themselves, right? They took out mortgages on homes that they couldn’t afford, and when the bubble popped, they got exposed. Wrong.

In the internet bubble of the 2000’s everyday American’s got “out of their circle of competency,” didn’t they? They got way too hyped up about the new internet companies, and poured their hard earned money into something they didn’t understand. Again, as Mr. Trump would say, WRONG.

So what really happened in those economic crises along with every other major crisis we’ve seen?

Here’s how the system works. Some new narrative finds it’s way into the headlines of newspapers, talk shows, and even cab rides. When your cab driver asks you “how many point up is the S&P 500 this morning?” or your plumber starts investing in real estate because “the real estate market never goes down,” RUN the other way.

Next thing to happen is Wall Street Stock Brokers or Mortgage Brokers get ahold of those headlines and see an opportunity for money. They get paid on commission of the sale, so they start calling everybody and their mother. They use their professionally engineered sales pitches and sell the pawns of the world on the headlines that they read that morning. They collect their checks and go home.

What happens is the market tilts too far in one direction and corrects itself, and it will every time. So that piece of paper that you bought for $50/ share drops to single digits if not $0. You lost your job and need to put food on the table so you’re forced to sell at an extremely under-valued price.

Here come the Warren Buffetts of the world. The investors who live by the saying, “be fearful when others are greedy, and be greedy when others are fearful.” They buy your $5 piece of paper and wait for it to climb back up to $50. They buy your defaulted mortgage from the bank at $500/ month when you were paying $1000/ month.

Like it or love it, this is the best system in the world. Although people get hurt time and time again, our economy always comes back stronger. It has created the greatest economy in history. This is capitalism.

You owe it to yourself to accept and learn the system that your in, so here’s the chess match. The object of the game is to become financially free- able to live of the interest of the investments in your portfolio. The chess moves to get there- increase your principle income (annual salary), avoid debt at all costs, save money for times of opportunity, purchase assets when the opportunity is ripe, build a portfolio of assets that return enough monthly interest for you to live off of. Ba-da-bing ba-da-boom. You never have to answer another phone call or email if you don’t want to. Go live in your vacation home and sip on margaritas while you manage your portfolio.

***Disclaimer*** I’m not a personal finance expert, just someone who’s passionate about playing the chess match. You should consult a financial advisor if you are thinking about making any big financial decisions. This is just the way I see the world, and would like to share my view.

By the way, if you’re curious how I see the current state of the world, here it is. The irresistible headlines that I see are, “you either go to college or serve tables for eternity,” or “I just need to get my degree and I’ll be able to get any job I want.” In my opinion, it’s a very dangerous mindset to think you’ll just graduate from college and the world will come to you. You will ALWAYS have to work your ass off if you want something big in life. And by the way times change. The past generations may have grown up in a world where you college degrees are a must, but there was a time when everyone MUST work on the family farm and going to college was a crazy idea. (I’m not biased though, OK, maybe a little bit)

So the banks are dangling $100’s of thousands in front of artists, musicians, linguists, businessmen, writers, etc. The headlines tell them they have to accept that loan or else they won’t make a career. They go to school and are not immediately offered a job. And it’s once they owe $150,000 to the bank that they realize they actually have to go create their career on their own.

I’m not saying drop out of college. If you’re trying to be a doctor, lawyer, engineer, dentist, etc. then the degree is a must. But if you’re going in debt to get a degree in gender studies, marketing, or music… it may be a good idea to consider if you can create that career path on your own, without a degree. Just food for thought.