Wealth Philsophy

Warren Buffett, the renowned investor and
philanthropist (and at the time of writing the
3rd richest individual in the world) said,
“Unless you learn to make money while you sleep, you
will work until you die.”

There’s a simple mantra that goes: If
you buy things that you do not need
(liabilities), soon you will have to sell
things that you do need, (assets).
The huge danger on spending is that you buy
things that you want as opposed to things that
you need.
Clearly there is no person on this Earth that
actually ‘needs’ a private jet, but let’s look at
this on a more practical level.
For the benefit of doubt money spent on a
repayment mortgage is an asset – it’s an
investment, whilst rent paid out is a form of
liability; you’re paying somebody else to accrue
an asset.
Of course there’s going to be some middle
ground, like food. Food is neither an asset nor a
liability, but is an absolute requirement. But… if you’re
eating out when you could feed yourself more
economically at home, then it’s a liability (unless
of course you’re networking and creating more
wealth!).

Essentially it depends on what you’re
doing with that item you’ve bought.
Look carefully at what you’re spending your
money on, and assess whether you’re investing
in assets, or you’re frittering your hard earned
cash away on liabilities. How many hours have
you had to work to buy those things you don’t
really need?

That’s not to say you should live the
life of a monk (unless you are actually a monk);
everyone deserves some fun. As a rule of thumb
if you do want to buy things you don’t need it
should only be from surplus, passive income.
Otherwise you’re going to have to liquidate your
assets to pay for your liabilities.
Q: Sky TV an asset or a liability?
A: It’s a liability.
Q: Is spending £5 a day, (£2,000 pounds a
year) on a shop bought coffee an asset or a
liability?

A: It’s a liability.
Q: Is spending money on cigarettes an
asset or a liability?

A: I think you see where we’re going here.
Always ask yourself the question.
“Am I buying an asset or a liability?”
Try this exercise: (WARNING: This may be
uncomfortable – but it’s vital!)

Go through your latest bank statement line,
by line; create two columns and put each
spend into either the asset or liability column.

For the benefit of doubt money spent on a
repayment mortgage is an asset – it’s an
investment, whilst rent paid out is a form of
liability; you’re paying somebody else to accrue
an asset.


Of course there’s going to be some middle
ground, like food. Food is neither an asset nor a
liability, but is an absolute requirement. But… if you’re
eating out when you could feed yourself more
economically at home, then it’s a liability (unless
of course you’re networking and creating more
wealth!).

Essentially it depends on what you’re
doing with that item you’ve bought.
Look carefully at what you’re spending your
money on, and assess whether you’re investing
in assets, or you’re frittering your hard earned
cash away on liabilities.

How many hours have you had to work to buy those things you don’t
really need? That’s not to say you should live the
life of a monk (unless you are actually a monk);
everyone deserves some fun. As a rule of thumb
if you do want to buy things you don’t need it
should only be from surplus, passive income.

Otherwise you’re going to have to liquidate your
assets to pay for your liabilities.

Only Ever Risk What You Can Afford To Lose.

If you’re taking risk, work on the assumption that
you’ll never see that money again. Do not take
any risk that’s equivalent to more than 10% of
your wealth. As human beings, we’re always
tolerant to 10%.
We can cope with that, we’ll find
ways to recover. If we lose 10% of our wealth, it
will not kill us. You have earned the right to take a
risk with 10% of your wealth.


What do I mean by ‘your wealth’? Wealth is the
assets that are providing you with passive
income. That’s the level of risk that you should
take. People say it in various ways. “Don’t test the
depth of the river with both feet” is a well used

expression about ‘going all in’. That is an insane
level of risk which only desperate or foolhardy
people do. It’s gambling pure and simple.
Whether it’s in a casino, or on something like
cryptocurrency feel free to take a risk, but never
risk more than 10% of your wealth.

Don’t put all your eggs in one basket.

Never ever have all your wealth in one asset class as you could end up losing everything. Diversify, and the wealthier you will become. And, as your wealth grows, put your eggs into more and more
baskets; spread your risk with a wider portfolio.

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