When you are younger, say in your twenties, it is very easy to feel like you are doing a good job financially if you simply have enough money to pay your bills, have enough food and a roof over your head. But as life gets more complex and you begin to have a family, a mortgage, you need to send the kids to college, things can soon mount up. It can be very overwhelming and then as you approach retirement a reality for many is that they simply are not in a financial place to retire. Most people are simply in survival mode and this is why surveys all around the world show that the majority of people are not able to retire. But this can be avoided if you are smart with your finances. Even if you only ever earn a relatively low salary, you can ensure you eventually have the ability to be financially free if you make the right decisions. This is the premise of Tony Robbins book “Unshakeable.” So, what can we learn from this book?
Focus on retaining wealth not getting rich quick
The truth is that it takes time to build wealth, but with compound interest it means that anyone can build enough wealth to sustain them over the course of their lifetime. The catch of course is that in order to build wealth, you need to keep a proportion of your money to one side and having it working hard for the long term. Often, we are seduced into some sort of get rich quick scheme or panic when the market fluctuates and all of a sudden, we have lost money, providing of course we haven’t already spent it anyway! Worse, we are spending all of our money and often more as it comes in and so we can never put anything aside. As Warren Buffet has said on multiple occasions “rule number one is to never lose money and rule number two is to never forget rule number one.” This mindset is important to begin to build wealth, it may mean living more humbly and maybe having a slightly older car or maybe a slightly smaller house, but over the long term it is a winning strategy. After all, Warren Buffett is one of the richest people in the world and he has lived in the same house for 50 years and its current value is less than the cost of an average property in London.
Diversify your portfolio
A diverse portfolio will help protect your finances against changing trends and market crashes. This is an important and well-known rule among finance professionals. It is the financial equivalent of not putting all your eggs in one basket. In 2008 with the global financial crisis many people had put all of their eggs in to one basket, real estate and when the market crashed a lot of people lost a lot of money very quickly.
You only lose money if you sell
A lot of people see investing in the stock market as incredibly risky. But the truth is that it has averaged more than a 10% return annually for the last century or so. This is despite World War 2, The Great Depression, Dot Com bubble burst, September 11, 2008 Financial Crash and Covid-19. Markets fluctuate on any given day, week, month, or year, but the long-term trends have existed for centuries. Businesses make money, create more jobs, hire more people, more people have money to spend and businesses make more money, and the circle continues. This has been the story of humanity for millennia. But when the market crashes, people’s instinct is to sell, but the truth is you only lose money if you sell. Since 1920, the S&P 500 Index has, on average, recorded a 5% drop three times every year, a 10% drop once every 16 months, and a 20% or more plunge every seven years. Despite this, the market still averages a profit of more than 10% every year. The only ones who lose money are those who sell and take their money out in the aftermath of one of these drops.
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