The Podcast is Now Live
After spending the past few months wandering the cold woods of Vermont, I’ve decided to commit more time this spring to thawing out and exploring various topics in greater detail and with appropriate nuance. Bluntly, I’m tired of 60 second videos that can’t possibly consider these financial topics responsibly.
Your Money Guide on the Side is now live on Spotify, Apple, Amazon, and I will be posting new episodes every Monday at 6am EST. (What can I say? I rise early.)
What I ask from all of you: feedback, feedback, feedback. I love nothing more than failing quickly, so I can pivot, adjust, and get better at my craft (for you!), and I can only do that if I get externalized feedback. So please be in touch if there are topics you’d like to learn more about, or if you’d like to be a guest on the show, or if you think there are changes I can make to create as valuable of an experience for YOU as possible. (Note: please know I DO read all emails, and I do my best to respond to as many as possible.)
Now enough about me, let’s talk about YOU!
This week: Why You Should Quit Your Job Today (Kidding…kind of…)
One of the ideas I’ve been wrestling with this week is the asymmetry of opportunity, meaning, most downsides to our choices are far more limited than we fear, and most upsides can be exponentially greater than we ever could have imagined. Yet, too many people focus exclusively on the potential downside, making financial decisions out of fear rather than strategy. Here’s why that happens and how we might be able to break free from it.
We Overvalue the Downside Because Losses Feel More Real Than Gains
Psychologists (see Kahneman and Tversky) call this loss aversion—the idea that we feel the pain of losses twice as strongly as the joy of equivalent gains. This is why people hesitate to invest, start a business, or take a calculated risk. But to extend this idea, I also fear we focus on imagined losses far more than we are able to appreciate and take advantage of potential gains.
The result? We often stay exactly where we are, paycheck to paycheck, stuck in a cycle of playing it safe while never making a big move forward even though we can see that some of that upside could exist. (This is what Thoreau meant when he claimed that the mass of [people] lead lives of quiet desperation.)
Playing Defense Keeps You in the Same Game Forever
Imagine you’re a football team that only focuses on preventing the other team from scoring (despite every Disney movie’s telling you that defense wins championships… they’re lying :))—you might not lose by much, but you’ll never win either. The same thing happens in personal finance:
Most people are obsessed with saving the money they currently make (or complaining about current salaries), without processing the possibility of leaving their job and striking out on their own.
We work hard to cut expenses, but don’t commit the same level of energy to increase income. We build emergency funds to protect against worst-case scenarios, but we don’t build investment funds to take advantage of best-case scenarios. (I won’t get started, as I know many of you don’t love my view on this.) The wealthy understand that financial success isn’t just about avoiding disaster— it’s about maximizing opportunity and attaching the appropriate weight to the upside.
The Biggest Wins Come From Taking Asymmetrical Risks
When Jeff Bezos started Amazon, he described his decision as an “asymmetrical bet.” The worst-case scenario? He’d lose a few years of salary and have to get another job. The best-case scenario? He’d change the world. Now, I’m not claiming we’re all going to run out and change the world, but I am claiming that failing is not nearly as bad as we make it out to be in our minds, and that’s a massive hindrance to ultimate financial (or personal) freedom.
The risks that make the biggest difference in your financial life often have limited downside but unlimited upside: Investing in the stock market, switching careers of starting your own company, committing to that side hustle that has been left on the side for the past four years!
Your Take-Away (maybe):
If you’re constantly in defense mode, you’ll never break free from the paycheck to-paycheck cycle. Start asking yourself:
Am I making decisions based on fear or opportunity?
What’s the actual downside of this risk? (Is it really as bad as it feels?)
What’s the best possible upside?
Is that upside worth the downside risk?
Most people overestimate the downside and underestimate the upside. Flip that thinking, and your financial life can change faster than you ever imagined.
**One final piece of added value (methinks): I am currently reading Robert Iger’s The Ride of a Lifetime, and he shares that when he and Steve Jobs were first toying with the idea of Disney’s acquiring Pixar, the two men sat in Apple’s boardroom drawing up a pros and cons list: the cons list far outnumbered the pros list. Just as Iger was about to cede it probably wasn’t worth it, Jobs said, “Don’t ever let a dozen cons outweigh a few great pros.” Wow. And that my friends, is the thinking we need to adopt right now.
I’ll go into this in more detail in the podcast soon! See you all there hopefully!
Tyler
