If you think you’re doing all the biggest things you can to build your nest egg, you’re probably wrong. Here’s the system that will prevent you from missing the biggest opportunities.
I am asked often what my biggest mistake was on the road to financial independence. It’s a good question. The person asking is usually asking for a specific instance, so I give it to them. I wish, for example, that I had opened my eyes to the possibility of investing in real estate in a quickly appreciating market. The math looks odd to those who expect positive profit on their rentals each year – indeed, most real estate investment books are focused on that particular type of real estate investing. Less is written about how to evaluate properties in quickly appreciating markets – opportunities which are neutral or perhaps even negative cash flow, but which make all their money on appreciation in the market coupled with leverage from a mortgage.
If I had understood that opportunity sooner in life, given the performance of the markets I would have looked at surrounding NYC I would be richer by several hundred thousand dollars today vs. what I invested in instead. That’s the specific answer I give.
But there’s a broader answer that I think is much more important, and I think our mistakes as a group fall into the same pattern.
Our biggest mistakes are due to lack of knowledge.
If you had really understood how the student debt you took on would compound, run against your expected earnings from your degree, you probably would not have made the mistake of going to an expensive college for a poorly marketable major. If you had known about low cost index investing, you probably would have put your money in the market 10 years ago and be $300k richer for it. The list goes on and on.
Very few self-aware people will, if confronted with a detailed explanation of how their decision will play out by the numbers, say “no thanks, I’d like to go ahead and fritter away thousands in opportunity cost.” Sometimes it’s innocent ignorance. Sometimes it’s deliberate ignorance. It’s still ignorance at work.
So while I kick myself about the real estate thing, the more pressing problem to me is that I know for a fact that there are mistakes out there that are as big if not bigger ahead of me. They are mistakes I’ll only uncover years later, when a friend tells me about XYZ strategy or idea and I think “I should have done that years ago.” And they have the opportunity to snowball my wealth by tens of thousands if not hundreds of thousands of dollars. It is here that I think we should put more of our focus as stewards of our financial wealth.
Forget the one mistake you made in the past. There are seventeen opportunities just like it, and if you can figure them out before the opportunity is lost, you will be incredibly wealthy. Your enemy is your lack of knowledge. I believe strongly that most people are operating at less than 60% efficiency when it comes to money, because those uncovered opportunities add up.
The problem though, is that we don’t know what they are. Wouldn’t it have been nice if someone had explained to you how graduating a year early would have saved you a year’s worth of tuition plus a year of opportunity cost in full-time pay? And how that compounded at market returns could be worth over $500,000 in 30 years, enough to cover perhaps half your retirement with one decision alone? When you bought your last house, did you realize there was an unpublicized mortgage source that could perhaps save you 50 bps in interest every year of your 30 year mortgage, adding up to $50k, $100k, or even $150k+ over the life of the loan? Or how about discovering that those blogs you thought made no money in fact can generate $10k-$25k in their first year, $30k-$80k in their second year, and $150k+ in their third year because monetization is different than the blogs of yore and you had missed the memo? Wouldn’t it have been great to start building a side income doing work you love, if only you had known?
The best solution I’ve come up with to this recurring problem is to develop a system for uncovering new ideas. Left to our own devices, we naturally gravitate to comfortable, familiar subjects. The infrastructure of a system forces new info into our environment, and once you set it up, you aren’t constantly having to expend discipline to put yourself out there.
I have a google doc where anytime I find an interesting article or new subject I add a bullet. Maybe in a reuters article they talk about how mortgage reits are tanking. I don’t know much about mortgage reits, so I open the google doc and I put down the words ‘mortgage reits.’ the list just expands constantly.
Then I select maybe 3-5 things I’m interested in learning about. Maybe on my list is real estate in high appreciation markets. Maybe it’s the idea of expat living to lower my costs in retirement. I have 3-5 of those. Now I look for blogs or top-rated books on Amazon on those subjects. I have a feed (Bloglovin’ – it’s free and you can just make it your homepage so you’re getting regular lazy exposure to the content) where I add a few news/blog sources for those subjects. I usually try to limit it to two, max three. If you read a dozen blogs on the same subject, you’re going to get a lot of redundancy. You really only need to read one post on the merits of meal planning to save money to really understand the concept, so don’t go signing up for 12 budgeting blogs that focus on the same ideas. Now, you sit back and check your blog feed every few days. You’ll see new ideas constantly. As you find something of interesting – say, maybe a blog you follow links to an interview with someone who seems particularly knowledgeable – you can add that new source.
Of course, your time and attention is limited. That is why I institute a rotation policy. Once you have your 3-5 ideas and thus your 6-15 blogs, for every new one you add, you must remove an old one. This ensures that if you were vetting an idea that turns out not to be very relevant to your life, you can release it back into the wild in favor of spending your time with something more promising. In this way you can slowly learn about things like tax loss harvesting (turned out not super relevant for me given the strategies I’m pursuing right now, but maybe later), rental property investing, estate planning, expat living, etc. And as you delve deep into specialties, you will discover all those big, tens of thousands of dollar opportunities you didn’t know existed, and you’ll be able to capitalize on them.
A Few Ideas
If you’re looking for immediate examples of these kinds of ideas, this blog is obviously an excellent place to start. My goal is to catalog as many of these opportunities as I can find. Here are a few to get you started:
If you’re looking for inspiration on what categories to add to your research list, check out this book recommendation list. They will introduce different subjects in real estate investment, passive index fund equity investing, starting a side hustle, etc. General personal finance blogs like The Money Habit often run articles on diverse topics from budgeting to bonds to tax planning, so they are a good launching point for inspiration – just dig through the archives of any generalist site and you’ll find ideas to pursue.
Tracking Your Improvements
You’ll want a way to track all that hard work you’re putting in to build up your nest egg. Are you able to easily see how much your net worth has grown from month to month? My favorite free expense and net worth tracker is called Personal Capital and I show you how I use it over here.
What do you think? Have you come across an idea recently that’s been a big game changer to your money life, and what was it? Do you have your own system for finding new ideas?