How to become financially indestructible

How to Become Financially Indestructible Benet from future volatility  At some point, you will face daunting economic challenges you never could have predicted.   Which Would You Be?  —something that breaks when exposed to chaos, disorder, and stressors. • A simple example: a porcelain cup falling from a table.  —something that stays exactly the same when exposed to chaos, disorder, and stressors. • A rubber ball, maintaining its structure when thrown.  !—here, we equate this with “indestructible.” Something that gets stronger when exposed to chaos, disorder, or stressors. • Your muscles, which rebuild themselves even stronger after lifting weights. "# The concept comes from Nassim Taleb’s best-seller Antifragile: Things that Gain from Disorder. Ideas presented here are either loosely or directly based on Taleb’s ideas. D r a g p i c t u r e t o p l a c e h o l d e r o r c l i c k i c o n t o a d d Photo: Sam Beebe, via Flickr A Working Denition ! Not only being protected from personal or systemic nancial stressors, but positioning one’s self to actually benet from them. "$%& %$  '( ) Remember, this isn’t about maximizing your returns in the short-run. It’s about surviving and thriving in the long-run. D r a g p i c t u r e t o p l a c e h o l d e r o r c l i c k i c o n t o a d d Two Key Ways to Limit Downside Emergency Cash Make sure you have enough cash set aside to cover all of your family’s costs for six months without any forms of income. This will provide a cushion to prevent you from having to sell other assets. Insurance Beyond basic health insurance, investigate if you or your family would benefit from life, auto, home, renter’s, disability, or supplemental insurance. Though writing these monthly checks can be painful, they limit your downside should significant life stressors occur. '!%) In times of uncertainty and distress, nothing is more constraining than the burden of debt. D r a g p i c t u r e t o p l a c e h o l d e r o r c l i c k i c o n t o a d d #* +, (mortgage): This would prevent you from quickly moving for a new job, and you might be forced to either go through foreclosure or sell the house for less than you paid for it. !For new cars, you’re immediately “under water” when you drive your car o8 the lot. If you lose your job, auto payments will need to continue, or you’ll be forced to sell your car. And since you were under water, you’ll lose money in the process. -Even if you declare bankruptcy, student loan debt stays with you. This can be a signicant burden, and force you to take jobs (with higher pay) you ordinarily would avoid. You can also have your wages garnished for failure to repay. [...]... one-two punch that leads to financial independence and antifragility: 1 You have more money left over to save and invest, which brings you closer to selfreliance 2 You don’t need to save nearly as much, as you know you don’t need all the bells and whistles of life to be happy to add holder or click icon Drag picture to place 4) Have Redundancies in Place Planning for things to go wrong means that you’re... working to make sure Plans B, C, and D are in place: Plan B: We were both teachers in a former life Neither of us plan to go back into the classroom However, we keep our credentials up -to- date should we need to apply Plan C: We’ve always had a farming itch We now spend our winters on a farm to learn more about it We have also borrowed plots of land and picked the brains of those at farmer’s markets to get... idea for what it would take to succeed if we wanted to start our own farm Plan D: We will likely be building a very small home in Costa Rica this winter Should we need to, we could move there and live on very little money for many years before it became absolutely necessary to re-enter the workforce to add holder or click icon Drag picture to place 5) Use Convex Optionality to Your Benefit Tinker with...In the end, you may not be able to totally avoid debt If that’s the case, repay it as soon as possible to add holder or click icon Drag picture to place 3) Live Frugally The less you need to be happy, the freer you are! One of the key tenets of Antifragility is that smaller is beautiful—but also less fragile • If you need more things in your life to make you happy, that will require more... to have redundancies in place It often means spending money for things that we may never use Are Your Redundancies In Place? If you lost your job tomorrow: Do you have a different employer in your field you are familiar with that you could call? Is there another field you’d like to get into that you’ve already started tinkering with? Have you done the requisite research to see what it would take to. .. (speculative) Blogger Glennon Doyle Melton started Momastery.com (speculative) while teaching kindergarten (safe) Her book is now a New York Times best-seller Photo: Amazon.com to add holder or click icon Drag picture to place A Quick Review 1 Limit Your Downside 2 Avoid Debt 3 Live Frugally 4 Have Redundancies 5 Embrace Convex Optionality If you find that it’s too late in the game to adopt this strategy, check... Your Benefit Tinker with ideas that have limited downside and unlikely— but unlimited—upside What is Convex Optionality? This graph shows what convexity looks like • The potential downside is limited to something manageable • Upside, however, is unlimited • One thing to understand: the upside usually has a small probability of occurring—you have the “option” of continuing or trying something else The . How to Become Financially Indestructible Benet from future volatility  At. working to make sure Plans B, C, and D are in place: /0We were both teachers in a former life. Neither of us plan to go back into the classroom. However, we keep our credentials up -to- date. call? Is there another eld you’d like to get into that you’ve already started tinkering with? Have you done the requisite research to see what it would take to make such moves? An Example From