A personal financial identity crisis – a wealth of common sense

On our inbox every week The compound Is full of questions from our YouTube viewers, podcast listeners and blog readers.

I wanted to share a handful of questions that we received this week with some thoughts about each:

I have a continuous personal financial idenity crisis. I tell my children that we are poor, I tell my wife that we are the middle class. I say to myself, we do better than others. The truth is: I want to buy a Porsche 911-Well, a used and not one of the limited edition really expensive. Your 3 messages in recent months bind this question very well. (Below) I have been a ‘car’ for years, but otherwise your classic ‘millionaire next door’, I have difficulty wasteing money on the value of assets. I shop for clothing (and everything else) at Costco. I drive modest vehicles. I have in possession of cheaper toy cars that are fun to drive, but otherwise not serve a certain goal. I don’t have a boat, plane or second house. However, issuing about six digits for a mid-life sensation seems to be a huge waste of money and invitation to future headache due to maintenance, insurance and other car costs while I fight against classical logic versus emotional purchase. I realize that you cannot take it with you and this is far from an impulse purchase, but something that I wanted to do for years. How do you give yourself permission to spend after a lifetime saving?

The millionaire next door Types Drive normal vehicles and brands:

There are not many Uber-Luxe brands.

When it comes to developing good financial habits – budgeting, saving, investing, etc. – it takes time and you have to work on it.

The same applies to splashing and enjoying your money. You don’t go from the bank to running a marathon, so why would you ever go from overly economical to freely spend money?

You cannot change who you are at night.

Give yourself 1-2 categories where you go crazy to see how it feels.

Maybe you fly first class on every flight that is more 2-3 hours.

Perhaps it is a form of self -care such as a weekly massage.

Maybe it’s a nice bottle of wine every time you go out for dinner.

Maybe you wink a while for products at Whole Foods instead of Aldi and not obsessed with the costs.

You have to sort out things that are important to you. Just choose a few categories, items or services and try it out.

You can also rent a Porsche for a week to see how it feels. It is possible that the novelty wears out, but you may fall in love and decide that it is worth it.

Just talk to your family about the areas they want to spend. It is nicer if everyone has their own expenditure priorities.

I always tell my children that they can get every book they want whenever they want. That is one of our spiels categories.

The entire point of delayed satisfaction is that you allow yourself to feel satisfaction at a later date. In some areas you can still be selectively cheap while you are exhausted in others.

Maybe a 911 is where you let go with your money.

Here there is another:

After the university I used some of my (very limited!) Savings to buy Apple shares. This was in 2008/2009, around the time of the crash. It is clear that they have risen enormously in the following years and I am very grateful for that. I sold a bit when my wife and I were younger and we needed cash for a number of large editions, but for the most part I held the shares while it went up. Now I feel a bit stuck, even if it is a good problem to have. The Apple shares form a relatively large part of my power, maybe 25% or so, which I know it is not great from a concentration perspective. Yet I hate the idea of paying the 15% tax on my profit if I sell something; I’m not sure what a better investment would be; And also, if I’m honest, I have a bit of an emotional bond with the shares, because they have done this phenomenally good for me. How would you think about what you should do next?

I would be more concerned about “an emotional connection with the shares” than the concentration risk here.

Adam Smith wrote one of my favorite passages about this in his book The money game:

A stock is for all practical purposes, a piece of paper that is in a bank vault. Most likely you will never see it. It can or may not have an intrinsic value; What it is worth on a certain day depends on the confluence of buyers and sellers that day. The most important thing to realize is simplistic: The stock does not know that you own it. All those great things, or those terrible things that you feel about a share, or a list of shares, or an amount represented by a list of shares, all these things are not recipated by the shares or the group of shares. You can be in love if you want, but that piece of paper does not love you, and not -recepted love can become in masochism, narcissism or, even worse, market losses and non -recipated hatred.

If you know that the stock does not know that you own it, you are at the forefront. You are at the forefront because you can change your mind and your actions without taking into account what you did or thought yesterday.

You do not have to decide completely with your stock to separate yourself from this emotional connection. Maybe you just go on a Ross and Rachel break with a part of your allocation by cutting it back to something like 10-15% and seeing how that feels.

Paying taxes is never fun, but it means that you have won the game of investing and it is much better than the alternative.

It is not healthy to develop an emotional attachment to a stock that will not love you. And if Apple is left, it will make it all the more painful.

See how it feels to sell some shares.

Another:

My wife and I achieved $ 1 million net value last year. Our annual income is just over $ 200k/year. We will have a baby in the next 1-2 weeks. We are both 36 years old and think of the planning of university and retirement. Bought our house 2.5 years ago for $ 487K with a mortgage interest rate of 4.85%. This is not all to scoop. We live in Atlanta. We do not know what our next financial milestone is or should be. What do you think we have to do afterwards or what should our next financial goal be after achieving seven digits that have the next value?

This is impressive for a household in their mid -thirty.

Here are some ideas for what could come:

• Increase your savings speed.
• Allow some lifestyle in your budget.
• Plan for an early retirement.
• Saving for the children (529, HSA, etc.)
• Travel.
• Think of a holiday home.
• Home Renovations.
• Give charity.
• Life insurance.

Getting a child can also change the way you think about your goals and desires, so you might give yourself a small safety margin by saving more for an unknown future. Children are expensive.

It is impressive to be worth 7 figures at such a young age, but not hung on the figures.

The same things apply at a high level, regardless of your assets – defining your goals, risk profile and time horizon.

Your goals can and will change over time, especially when you become responsible for a new person.

I have answered these questions and more about the last episode of Ask the Compound:



Continue reading:
Different types of rich