Hey friends! Today I’m going to talk with you about how to be a financial badass.
When I talk to people in their 20s, 30s, and 40s about their finances, two things become clear: 1) we don’t really have a culture of talking about money, it is still fairly taboo and difficult to be open about, and 2) our educational systems have failed us (in my opinion) by not having given us comprehensive financial education to make us badasses already (for example, by the time we graduated high school). It’s all left to parents, and many of us - maybe most of us - got precious little financial education from them. So, we have to self-teach and forge our own path. I’m here to support you in that.
I often hear things like, “I don’t know what I’m doing” or “I should really get on that” when people reflect with me how their financial lives feel for them. And so - if you’ll indulge me, I’d like to help you simplify, clarify, and prioritize.
To do that, there are two metaphors that I’m going to propose to help make sense of our financial lives. One is a sports team. The other is a house. (I’ll plead ignorance on the finer details of both - I’m neither a sports coach nor a builder. But I think they both will be universal enough to be useful here.)
Personal finance as a sports team
Sports teams usually have two parts - the defense and the offense. Let’s organize some of the major financial pieces of your life into “playing defense” and “playing offense”. Defense is important - you need to prevent things from working against you, and efficiently funnel the ball to your offense whenever possible. Offense is important because even with a stellar defense, you need to eventually score points to win.
Some things that I might categorize as playing financial defense:
Making a budget and tracking spending every month
Keeping costs low
Shopping around and comparing costs (for any purchase that's not small or infrequent)
Paying off high-interest debt (like credit cards)
Having a rainy day fund / emergency savings
Protecting yourself with insurance
Building up your credit score and history
Any behavior that minimizes your risk of incurring huge costs now or later: driving safely (cuts down on car crashes AND insurance cost), taking care of your health (including mental health), not angering the wrong people (avoiding lawsuits), etc. etc.
Reading financial books and blogs, talking with financial planners and advisors
Some things that I might categorize as playing financial offense:
Buying stocks in tax-sheltered retirement accounts like a Roth IRA, 401k, or 403b
Buying real estate (to live in, rent out, fix and flip, etc.)
Any activity that gives you ownership of an asset that gives some percentage return each year (this is compound interest, the secret sauce of financial offense), usually in exchange for taking on some risk
Financial defense makes you well-rounded, knowledgeable and confident, and agile enough to take advantage of opportunities. It mitigates your weaknesses and helps you leverage your strengths. While defense sets the stage, financial offense is very important to your financial health, as ownership of assets is the actual driver of your wealth in the long run. When sustained over many years, this offense gives you a ton of "points" to work with, winning you the financial game. Playing offense takes you from eating ramen when you’re young, to being “comfortable” when you’re older. You need both defense and offense, and they work together. Me personally? I am OK at defense, but really my passion is to play good offense.
Personal finance as building a home
The house metaphor is essentially the same idea - except let's replace defense with structure, and offense with finishes. In this mental model, you might do some things before others. You lay a foundation by making a budget and sticking with it. You build a frame by keeping your costs low, reading up on the basics of personal finance, and paying off your high interest credit card. You build a roof over your head by getting the right insurance and automating your saving. Finally, after all the core structural pieces are in place, you design a great luxury kitchen and a zen bathroom by maxing out your Roth IRA and 401k company match and doing index investing. This is awesome - everyone loves a great kitchen! But what’s harder to see is the massive concrete slab that’s holding it all up.
Wrapping up
It can be daunting to start your financial journey. Or to reconnect with it after some time away. It can be easy to get lost in the details, to feel stuck. I’ve been there! That said, there are many paths to becoming a financial badass that are well-worn and mapped out for you. You don't need to reinvent the wheel. (But you can customize to suit yourself.) Learn to play solid defense and offense. Take the time build up your house. Your future self and your family will thank you!
If right now you’re thinking that that’s incredibly simple, you’re absolutely right. I’ve only written about a page and a half, some 750 words. But it can be a fairly simple formula. Get out of high interest debt (if you have it), build up emergency savings, and then, as aggressively as possible, put extra money to work in the highest-return places you can find. Be mindful of risks and costs - but also know when to gladly take them. This is simple financial advice, just like “eat healthy, be active, and have positive relationships” is simple wellness advice. Just because it’s simple doesn’t mean it is easy, or that it is accessible to everyone all the time. It’s bloody hard. It requires discipline and regular attention, and even luck. If you’re willing, able, and even lucky, your finances can can snowball and translate into some of most coveted things for yourself and your loved ones: stability, time, and options. For me, that’s what “winning the financial game” is all about. It’s an opportunity to be generous with myself and others, and hopefully, to do some good with the funds in the meantime.
The point of this writing is to inspire you, and to offer a mental model to help simplify an incredibly complex world. So I’ll end it here for now. I want you to be the hero of your own financial story. I look forward to hearing that story. And supporting you in whatever way I can. -Neil
Thank you very much for reading - if you’ve enjoyed this post, please share it!
Thanks Neil, this is super helpful! I hadn’t really considered playing financial offense before and it’s giving me some food for thought.
Great article! Nailed it!