Businessman shows a piggy bank
Tae Kim

Tae Kim

Making Money vs. Making It Last | How To STAY Wealthy

Share on facebook
Share on twitter
Share on linkedin
Share on pinterest
Share on email

If you have the motivation to watch personal finance content like this and are implementing the lessons learned into your personal life, it is not IF you will become wealthy, but WHEN.

However, becoming wealthy once and staying wealthy for a long time, are two very different stories.

There are thousands of books that talk about how to make more money. However, I don’t think we talk enough about how to make it last.

So in this post I want to talk to you about how we can stay wealthy for a long time, instead of just getting wealthy once.

Making Money vs. Making It Last

We often blend together people who got rich by making money and those who continued to stay rich by making it last.

And we believe that the skills that allowed someone to become wealthy, will allow them to continue being wealthy.

However, these are two distinct sets of skills.

Making money oftentimes requires taking risks. Being optimistic about the future and having the courage to put yourself out there.

Interestingly, keeping that money last, requires a completely opposite set of skills.

It requires a level of fear and paranoia. Opposite of risk taking and optimism. Recognizing that you can lose your wealth quickly, if you aren’t careful.

Making Money vs. Making It Last In Media

The media loves to highlight sensational financial success stories.

However, many who rose to such prominence quickly, fell just as quickly.

Elizabeth Holmes

Just look at Elizabeth Holmes. In 2015, Forbes named Holmes the youngest and wealthiest self-made female billionaire in America on the basis of a $9-billion valuation of her healthcare company, Theranos.

Three years later, in 2018, the SEC charged Holmes with deceiving investors by “massive fraud” through false or exaggerated claims about the accuracy of the company’s blood-testing technology.

Mike Tyson

Or our friend Mike Tyson. The one of the greatest heavyweight boxers of all time. According to Forbes, Tyson made over $400 million throughout his 20-plus year career through boxing. Ironically, in 2003, Tyson declared bankruptcy and reported having a debt of $23 million. He spent all his money carelessly on luxury items like cars, houses and jewelry. He went even as far as purchasing Siberian tigers to keep as his house pets.

Ignoring Holmes and Tyson’s ethical standards, we have to admit that they were risk takers.

That’s what allowed them to reach the height of their career and financial peaks.

However, they did not have the skills to hold onto that wealth.

Let’s talk about who did have such skills.

Warren Buffet Not Only Got Rich, But Kept Getting Richier

There are literally hundreds of books that dive into Warren Buffet’s investing strategies.

How he selects the best companies to invest in. How he looks at the stock market. How he made smart investment decisions.

However, what we overlook most often is what he didn’t do in all of his investing years.

One of Warren Buffet’s famous quotes is

“Rule Number One: Never Lose Money. Rule Number Two: Never Forget Rule Number One.”

Warren Buffet did take his share of risks in his life. That is how he made his money. However, he also balanced that with a level of fear and paranoia, by being careful.

And you can see it in his 70+ years of investing history.

  • He didn’t overleverage himself with debt.
  • He didn’t invest in businesses he didn’t understand.
  • He didn’t panic and sell when the market was down. He stayed invested through all the recessions he experienced in his lifetime and this allowed him to stay in the game long enough for compounding to do it’s magic.

Like I mentioned in the beginning of this article, if you have the motivation to read this article and are learning how to best manage your money, it is not IF you will become wealthy, but when.

However, if you want to win in the long game, you must learn to make it last and so that you can stay wealthy, not just be wealthy once in your life.

So what can you do? Let me share with you few tips:

1 – Be Financially Bulletproof. Hold Enough Cash.

First, make yourself financially bulletproof. And your biggest shield here is cash.

What do I mean by this?

For those of us who want to make sure our money is always working for us, we might be tempted to invest as much money as possible into the market.

Let compounding work it’s magic and grow our net worth.

This is especially more tempting in a bull market. When the market is going up and we see a pile of cash sitting in our checking account, we feel like we are missing out on all the returns.

However, we don’t have a magic ball and we will never know when the market can quickly turn.

It could be a bull market today and a bear market tomorrow.

The primary reason to have cash is that it prevents you from having to sell stocks in a bear market.

This is crucial because the key to growing your wealth is keeping your money in the market as long as possible.

Once you are forced to sell because you don’t have any cash cushion in a down market, you are preventing compounding from doing its magic.

Compounding doesn’t need big returns to do its magic. It just needs good, consistent returns, uninterrupted for the longest period of time. And this is even more important in times of recession and uncertainties.

If you want to make your money last and continue to stay wealthy, hold cash. It will make you financially bulletproof.

2 – Understand, No Plan Survives First Contact

Number Two, is to understand that no plan survives first contact.

This was a common saying we had in the Army. When I was a brand new Lieutenant, for every mission I remember having to write out a very detailed Operations Order. What route we were going to take. In what order we were going to move in. And the backup chain of command if something happened to one of us.

However, after the plan was vetted and completed, my Company Commander would tell me that we needed to stay flexible. Because, despite how detailed and well thought out the plan may be, no plan ever survives first contact.

I’m not saying that you shouldn’t have a plan. Because planning is crucial to making us think through all the different variables and factors that we can face in a situation. However, we must also be pragmatic. Recognizing that no one really knows what the future holds.

So, as we plan we should incorporate a room for error and unknowns.

When it comes to investing and personal finance, people get too hung up on specific details.

“If I get 8.77% return on my investment for the next 4.2 years and the inflation remains at 1.66%, I will be able to make $34,528 dollars and we can use that as a 14.6% downpayment for the house we want.”

We had a term for this in finance. Called “False Precision.” Finance people love precise numbers, but when numerical data are presented with specific numbers, it can convey a more precise picture than reality.

The thing is none of us have a magic ball and if our financial plans have no cushion and no room for error, the more fragile our financial life becomes. A good plan allows for a margin of safety.

Plan for your financial future, but always have in the back of your mind that things will change and the future will turn out differently than what you planned. However, that is ok because you allowed for that margin in your plan.

3 – Be Optimistic, But Also Be Little Paranoid | Practice Pragmatic Optimism

Third, is to be optimistic about the future, but also be a little paranoid.

I like to say pragmatic optimism.

Blind optimism can actually be dangerous to your mental and financial health.

Vikor Frankl, is a physician and a holocaust survivor, who wrote about his experience in a book titled “Man’s Search For Meaning.”

One of the reflections he made was what differentiated those who survived the camp vs. those who didn’t. In one instance, he saw an increasing death rate before Christmas.

And he believed that the increased death rate wasn’t due to any physical factors – harder working conditions or new epidemic. It was simply that the majority of prisoners had lived in a naive hope that they would be home again by Christmas. And as Christmas came closer and the reality sank in, the prisoners lost hope and the disappointment literally overwhelmed them. Sadly, in this situation, because of their already sickly body, their mind and therefore their body just gave away.

I know this is a pretty morbid example to talk about on a personal finance website, but I give it to highlight the fact that naive optimism can actually do you more harm than good if not balanced with a level of paranoia and pragmatism.

Be optimistic about the future. As regards to the market, it’s fair to be optimistic about the long-term growth trajectory of the market to be up and to the right.

But know that the future will hold its fair share of misery and hardship.

And if for some reason, a tragic event destroys the long-term growth of the market, I think we’ll have bigger things to worry about then our investments.

Practice pragmatic optimism.

Share this post!
Share on facebook
Share on twitter
Share on linkedin
Share on pinterest
Share on email
Notify of

Inline Feedbacks
View all comments