Three Things to Do with Your Money
Author: Dave Ramsey
Why build wealth? If you think wealth will answer all life’s questions and make you trouble-free, you are delusional. I have had wealth twice in my life, and I don’t find it to be trouble-free; as a matter of fact, most of the troubles have zeros attached to them. Wealth is not an escape mechanism. It is, instead, a tremendous responsibility. After years of studying, teaching and even preaching on this subject across America, I can find only three good uses for money. Money is good for fun. Money is good to invest. And money is good to give. Most anything else you find to do with it doesn’t represent good mental and spiritual health on your part.
Having Fun
The kid in us likes the fun part of this equation. If you’ve reached the point of wealth building, you have made the kid inside you behave for a long time with promises of ice cream. So if you’ve made it to this point, the kid should get some ice cream. Should anyone wear a $30,000 watch? Should anyone drive a brand-new $50,000 car? Should anyone live in a $700,000 home? Absolutely, they should. The problem with people is they buy those things when they can’t afford them.
Taking your family, even the extended ones, on a seven day cruise, buying large diamonds or even buying a new car are things you can afford to do when you have millions of dollars. You can afford to do these things because, when you do them, your money position is hardly even affected. If you like travel, travel. If you like clothes, buy some. I am releasing you to have some fun with your money, because money is to be enjoyed.
Taking your family, even the extended ones, on a seven day cruise, buying large diamonds or even buying a new car are things you can afford to do when you have millions of dollars. You can afford to do these things because, when you do them, your money position is hardly even affected. If you like travel, travel. If you like clothes, buy some. I am releasing you to have some fun with your money, because money is to be enjoyed.
Investing
The grown-up inside us likes investing money because that is part of what makes you wealthy. In the movie Two Weeks Notice, Hugh Grant plays George Ward. The character of George is a very wealthy and spoiled corporate figure. His character isn’t one we want to imitate, but he has a great line in the movie about his wealth. He is telling Sandra Bullock’s character that he lives in this luxury hotel, when he says nonchalantly, “Actually, I own the hotel; my life is a little bit like Monopoly.”
Investing can feel like that after a while—“a little bit like Monopoly.” When you play Monopoly, you can be up, or you can get behind. Sometimes the market fluctuates, but as mature investors we ride out the waves and stay in for the long term. Sometimes I meet people who arrive at this step and are scared because just as they reach retirement age, their investments are heading down. Never fear; if you have quality investments with long-term track records, they will come back. Besides, you don’t need all the nest egg at once to retire on; you just need some of the income from it. So since you don’t need it all right then, it would be silly to cash everything out while the market is at the bottom. “Buy high; sell low” is not the formula to wealth. Be patient with the market while living off the income the nest egg produces.
You can choose to be a little more sophisticated, but until you have more than $10 million, I would keep investing very simple. You can clutter your life with a bunch of unnecessary stress by getting into extremely complex investments. I use simple mutual funds and debt-free real estate as my investment mix—very clean, simple investments with some basic tax advantages. As you arrive at this step, if you want to own some paid-for real estate, it can be fun.
Always manage your own money. You should surround yourself with a team of people smarter than you, but you make the decisions. You can tell if they are smarter than you if they can explain complex issues in ways you can understand. If a member of your team wants you to do something “because I say so,” get a new team member. You are not hiring a daddy; you are gathering counsel. God did not give them the responsibility over this money. He gave that to you. Celebrities and pro athletes often lose their entire fortunes because they give up the responsibility of managing their own money. The money manager who loses your hard-earned investments won’t live with the regret and pain that you will. A good estate-planning attorney, a CPA or tax expert, an insurance pro, an investment pro and a good Realtor are a few of the essential team members you should gather around you. I endorse the use of financial planners if they are team members and not the sole captains of their teams.
When selecting and working with your wealth team, it is vital to bring on members who have the heart of a teacher—not the heart of a salesman or the heart of an “expert.” The salesman is always chasing a commission and thinking short-term, and the “expert” can’t help being condescending, which is humorous because they likely have less money than you. Also, when taking advice, evaluate whether the person giving the advice will profit from it. If your insurance pro is coming up with more great insurance ideas every week, you may have a problem. That is not to say everyone who makes a commission off you is out to get you. There are plenty of commission-only financial people who have extreme levels of integrity. Just be aware of possible conflicts of interest.
When your money makes more than you do, you are officially wealthy. When you can comfortably live on your investment income, you are financially secure. Money is a hard worker—harder than you. Money never gets sick, never gets pregnant and is never disabled. Money works 24 hours a day, seven days a week. Money gets its job done, and it asks only for directions and a firm master.
Investing can feel like that after a while—“a little bit like Monopoly.” When you play Monopoly, you can be up, or you can get behind. Sometimes the market fluctuates, but as mature investors we ride out the waves and stay in for the long term. Sometimes I meet people who arrive at this step and are scared because just as they reach retirement age, their investments are heading down. Never fear; if you have quality investments with long-term track records, they will come back. Besides, you don’t need all the nest egg at once to retire on; you just need some of the income from it. So since you don’t need it all right then, it would be silly to cash everything out while the market is at the bottom. “Buy high; sell low” is not the formula to wealth. Be patient with the market while living off the income the nest egg produces.
You can choose to be a little more sophisticated, but until you have more than $10 million, I would keep investing very simple. You can clutter your life with a bunch of unnecessary stress by getting into extremely complex investments. I use simple mutual funds and debt-free real estate as my investment mix—very clean, simple investments with some basic tax advantages. As you arrive at this step, if you want to own some paid-for real estate, it can be fun.
Always manage your own money. You should surround yourself with a team of people smarter than you, but you make the decisions. You can tell if they are smarter than you if they can explain complex issues in ways you can understand. If a member of your team wants you to do something “because I say so,” get a new team member. You are not hiring a daddy; you are gathering counsel. God did not give them the responsibility over this money. He gave that to you. Celebrities and pro athletes often lose their entire fortunes because they give up the responsibility of managing their own money. The money manager who loses your hard-earned investments won’t live with the regret and pain that you will. A good estate-planning attorney, a CPA or tax expert, an insurance pro, an investment pro and a good Realtor are a few of the essential team members you should gather around you. I endorse the use of financial planners if they are team members and not the sole captains of their teams.
When selecting and working with your wealth team, it is vital to bring on members who have the heart of a teacher—not the heart of a salesman or the heart of an “expert.” The salesman is always chasing a commission and thinking short-term, and the “expert” can’t help being condescending, which is humorous because they likely have less money than you. Also, when taking advice, evaluate whether the person giving the advice will profit from it. If your insurance pro is coming up with more great insurance ideas every week, you may have a problem. That is not to say everyone who makes a commission off you is out to get you. There are plenty of commission-only financial people who have extreme levels of integrity. Just be aware of possible conflicts of interest.
When your money makes more than you do, you are officially wealthy. When you can comfortably live on your investment income, you are financially secure. Money is a hard worker—harder than you. Money never gets sick, never gets pregnant and is never disabled. Money works 24 hours a day, seven days a week. Money gets its job done, and it asks only for directions and a firm master.
Giving
The most mature part of who you are will meet the kid inside as you learn to involve yourself in the last use of money, which is to give it away. Giving is possibly the most fun you will ever have with money. Fun is good, but you will tire of golf and travel. Investing is good, but going around and around that Monopoly board eventually loses its appeal. Every mentally and spiritually healthy person I’ve met has been turned on by giving as long as it didn’t mean his own lights got cut off. I can promise you from meeting with literally thousands of millionaires that the thing the healthy ones share in common is a love of giving.
Summary
Someone who never has fun with money misses the point. Someone who never invests money will never have any. Someone who never gives is a monkey with his hand in a bottle. Do some of each.
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