If YOU Are 'Saving' Money, You NEED To Stop!

0:00 Could you just give explain to me the high level of what these things are on the table and the different frameworks we're going to go through? >> Sure. So, we have a bunch of things here. Uh this is one of my favorites that I bring up in a lot of my videos. So, this is the the PERMA model, which comes from positive psychology. Psychology is important for investing well, but it's also important for figuring out what your long-term investing strategy should be. >> We'll go through that. What else have we got here? >> This is the top 10 financial mistakes that I think people make. Uh this is the the three steps for investing your first $10,000. >> Okay. And we've got $10,000 there, so you're going to talk me through how we do that as well. >> We're going to talk about all of the unrecoverable costs. Got a whole stack of them. They you incur when you own a home.

0:46 >> Okay. And I I I guess this begs the question, who is Ben Felix? What is your background and what is the education, the reference points, the experiences that you're drawing upon to give us this information today? >> Probably where it starts for for being relevant is I I did a degree in mechanical engineering at Northeastern University. And I say that's relevant because when I came into finance, I wanted to approach it like an engineer. And a lot of finance, a lot of financial services of of investing and wealth management is not approached like an engineer. It's approached like a I feel almost bad saying this, but it's approached like a like a car dealership, like selling selling product. So, I was disappointed in that and and had to find my find my own way. >> So, they haven't got my best interests

1:32 at heart. >> In in a lot of cases, I don't think so. I started spending a lot of time reading through academic literature so that I could be very confident and comfortable that the advice that I was giving to people was good, high-quality advice. >> And where is the best place to start? Is it in the psychology? Is it one of one of these frameworks? Is it somewhere else? Is there a background understanding of the economy one needs to to get going? >> That is a great question. I don't think so. And I think that's where a lot of people get stuck, where they believe that they need to have a lot of background information before they can start investing. Uh they may do research on specific industries, they may look at like the energy sector so they can build out an energy portfolio as one example. But investing the way that I would say is sensible for most people, which is just using low-cost index funds, capturing market returns, the the market returns

2:18 have been there and they're going to continue to be there. They should continue to be there in the long run. Uh doing that doesn't require a lot of background knowledge. I would argue that people who know just a little bit, just enough, they just know that index funds are sensible and they have enough conviction they can stick with that, they will be better long-term investors than someone who knows enough to hurt themselves. >> What would you say to young people that are thinking about their financial strategy? Did Would you say that someone in their early 20s, 21 years old, should adopt a completely different approach to money based on what you've just shown me versus someone that's 51 years old? >> It's going to be different, for sure. I I think, and this is a it's a tricky subject, but a lot of young people feel a lot of pressure to save. And that might be saving for their

3:03 retirement, it might be saving to buy a home, but they feel a lot of pressure from their parents uh and just from society in general that they need to be saving money and that if they're not saving money they're being irresponsible. But again, if we come back to academic research, there is research suggesting that it it's probably suboptimal for young people to save. General point is that you should save more when you have a higher income and save less when you have a lower income. And what that ends up meaning is that young people may not need to save or may not need to save as much as they feel pressured to save. The reason this topic is tricky is that well, what I just said is true, it can cause bad habits. Whereas people spend all of their income and then don't have that shift towards saving at some point, then they'll they'll end up in a difficult position

3:49 later on in life. Someone who's 50, uh it's going to depend on their situation. If they're the person who I just mentioned who never saved, they're in a tough position and then they are going to need to save a lot in order to have some wealth later on in life. But if they've already saved and they have wealth, then they can focus more on some of these topics. >> And you've got the the 10 money mistakes people make here. Can you run me through those ones and just let me know if any of them is particularly pertinent or interesting that we should dive deeper into? >> So this this one's controversial. It's not earning enough money. A lot of people feel like they don't have an option. That they're not earning enough money because that's just the way things are and there's nothing that they can do about it.

4:35 I don't think that's necessarily true. Investing in your human capital and that can be formal education, it can be getting skills, it can be becoming an entrepreneur. Those are all ways to make your your own self a more valuable asset, to increase the value of your human capital and allow you to earn more money. So that's that's a big one. I think people who get stuck in the in the feeling or the thought that they do not have the ability to increase their income and that this is just the way things are, I think that can be very problematic. >> I've always thought of it across these sort of five buckets. The first two buckets that we attempt to fill when we're starting our careers are our knowledge and then our skills. And kind of like when knowledge is applied it becomes a skill. And these two first buckets are so imperative because they can almost never be unfilled.

5:20 Whereas the other three buckets, which is your resources, your network and your reputation, you can have career fluctuations and earthquakes that cause those buckets to unfilled. So as like you were saying earlier on about young people, one of the things I've always thought is like when you're young just like optimize for filling your knowledge and skills as much as you possibly can. And actually I guess that the level of nuance there is acquiring a rare but complementary stack of knowledge and skills that the market values. And I think over the long term, you know, this doesn't apply to everybody cuz things happen in life and bad things can happen, but over the long term, I think life tends to land you pretty much in and around the value of and the rarity and the comple- complementarity of those knowledge and skills as it relates to the market's demands. >> That's absolutely true. There's data on

6:06 this, too, where we know that there is a mechanical relationship, at least historically. We can talk about the future, but historically there has been a mechanical relationship between formal education or trade education and lifetime earnings. And we also know that certain degree types, like engineering, finance, uh business, some other sciences have higher lifetime earnings than other degrees. So, it's your I think you're absolutely right. There are And the hard part is we don't know what exactly those degrees and skills that are going to be the highest paying in the future are going to be. 10 years ago we might have said software developers, today we might not. >> But even you as an example, so you did engineering and then you did finance. And now you've added this other string to your bow, which is you know how to make content on YouTube. And that makes you as a finance expert and professional

6:53 and CIO so extremely rare. It almost makes you like one of one 100 on planet Earth, maybe. And this is what I mean by rare and complementary skills. You could have just learned more finance. And I don't think that would have moved you up this sort of earning ladder, but because you added this really rare skill of being able to make content to the your other skill stack, I'm guessing it made you money. >> It did, it has, and I I continue to be paid well, and you know, it was Please don't, but if you were to go back and watch my old videos, which are still up, I'm so rigid and nervous and I what I was. And it took probably years of recording and we do a podcast, too, so just being in front of the camera for me to feel pretty good. I mean, it probably

7:38 took me 3 years to smile on camera. >> Really? >> [laughter] >> So, yes, that was skill that I acquired through just practice, I guess. >> So, I say this because I really want people to think about how rare their skill stack is. It's not something we're taught. And then also, one of the things I noticed I used to work in a a biotech company for a little while while I was in between things. And we were looking for a writer, a biotech writer. Now, the other writers that we'd hired at our other companies might have been paid I don't know, $50,000, whatever it is. For a biotech writer, we would pay them a quarter of a million. And all the The only difference is the biotech writer had like some base They didn't have to go to medical school. They just needed experience in writing about biotech. >> Yeah. >> And it 5x their earnings. So, this other point is you might have a skill stack, but are you selling them on the right

8:25 market? And even me, first part of my career was marketing. I was helping Uber and fizzy drinks company and dress seller company sell their dresses. As I just said, the second little stop I took in my career was helping biotech companies with marketing that are about to IPO. >> [laughter] >> My first contract with one of those companies was worth 8 million, 6 months work. And I It may It was a real pivotal moment in my career where I go, "It's not just the skills you have. It's like where you the the market and industry where you sell those skills can wildly change your your as you say on that card, your earning potential." >> Yeah. And as you say, this is something that you don't have full control over because you could do all of those things and not find work as a biotech writer. But putting yourself in that position I think does increase the odds.

9:11 >> What's the second one you've got there? >> Second one is not saving enough. Touched on this a little bit. Young people maybe don't need to save, but at some point you do have to start saving. And the tricky thing about saving is that wealth compounds over time. And if you're not saving enough, you're missing out on compounding and it gets a lot harder to catch up with the amount of savings you would have otherwise had if you'd started earlier. Uh so, that that's a big one. And some people will wake up when they're 50, 55, maybe even 60 and realize they haven't saved enough. But by that time, there's nothing that you can do about it or very little that you can do about it. There's a lot of parallels with health here where if you eat poorly and don't exercise, you can wake up when you're 55 and you can have heart disease. That is very difficult to reverse. And

9:57 it's the same effect. It's compounding over time. I think health and wealth have a lot of parallels. Anyway, so not saving enough can be very problematic because it is so hard to reverse the effects of it once you've realized it's a problem. >> Interesting. I read a book on called The Slight Edge by I think it's Jeff Olson when I was 18. It talks exactly about that. I think it uses one of the analogies it uses is like brushing your teeth. Don't brush them today, it's fine. Don't brush them every day this week, you're fine. Don't brush them every day this month, you're fine. But in 5 years, you're >> That's right. >> And [laughter] then in 5 years' time, you can't like start brushing them then. Yeah. You're on a dental chair having them ripped out. And I think finance is the same in this regard. >> Exactly. Yeah. Number three is not setting financial goals. >> Okay. >> And that's what we we talked a little bit about this earlier as well. If people don't set goals, they will do things like think they need to earn more

10:43 money because because that's what you do. Or they'll think they need to buy a house because that's what you're supposed to do. But they won't step back and reflect on what are the components of a good life for them, what do they want their life to look like, and what would they need to do to achieve that? And if you don't go through that exercise, you can end up spending years or dollars achieving things that don't really matter to you. And again, because of compounding, by the time you realize those things didn't matter, that's time and money that you can't get back. >> So how do I go about setting good financial goals? What is the process there? >> So this is the the process that we created is three steps. List your goals. >> Okay. So what does that look like? >> So you're going to sit down

11:29 with a piece of paper or we we built an app for this that we use with with clients. Uh you just list out your goals. >> So, I could say I want to be a dad. I you know, I want to buy a Ferrari. >> Yep. >> We want to go on holiday to Cancun. >> Yep. >> I want to be able to retire at 50. Those kinds of goals. >> Yep. That's step two. So, you've got your list of goals. You're going to double the list. >> Double it? >> Yep. >> Why? >> came up with I think four goals just now. You're going to write down eight goals because this forces you to think harder about what other important what other goals might be important to you. And that research does show that this elicits more goals that people later identify as being at least as meaningful as the initial goals that they listed. And then the last thing, we're going to come back to the PERMA model. So, the PERMA model is a five-factor model of human flourishing. If you have these

12:17 components contributing to your life, there's a very good chance that you'll live a good satisfying life. I think you've you've lived through this experience where you've seen that wealth does not lead to a good life. >> Mhm. >> And so, what does? Well, there's there's a whole bunch of really good research on this and it does suggest that positive emotion is one big piece of it. What does that mean? It's a literally enjoying what you're doing and feeling good throughout the day. Engagement, you could probably argue that we're getting some of that right now where you're doing something that you enjoy doing that's maybe a little bit challenging, but it's at your skill level. It's the idea of getting into flow. I know I get that when I do podcast interviews, when I do research, when I'm sitting down and writing a video scripts. >> Mhm. >> Relationships is is having good strong

13:03 relationships with with people who are close to you in your life and that can be friends, it can be family members, it can be colleagues. Meaning is being part of something that is bigger than yourself. That can be a lot of different things. For some people, it's religion. For some people, it's community. For some people, it's their own business. >> Mhm. >> And accomplishment is achieving hard things, setting goals and achieving them. You're going to look at the items of the PERMA model, you're going to look at those as categories and think about what other goals you may have that fit into those categories. That's called a categorical prompt and again, there's evidence behind that helping people elicit more meaningful goals. >> So one of the things I said is buy a Ferrari. Again, these aren't my goals. I don't care about Ferraris, but in case they want to sponsor the podcast, then I care about Ferraris. Um but say the Ferrari thing,

13:49 do do I have to find where it sits with in terms of positive emotion, engagement relationships meaning accomplishment? >> It would be wise to and this is why I think this framework is so important because you might realize that a Ferrari does not contribute to any of these things. It might though. Like maybe you take it to the track and you spend hours racing it. >> And that would be engagement. >> be engagement. Maybe you have a bunch of buddies who have Ferraris and you want to be part of that friend group. >> So that's relationships. >> Yeah. >> Okay. I mean positive emotions, but that might only last a couple of days. >> Yeah, what's the hedonic treadmill idea? That's [laughter] exactly it, yeah. >> And then accomplishment, I mean it's not really an acco- >> If it was a goal that you've had since you were 5 years old, maybe that you could call that accomplishment, maybe. >> Okay, so I fit my my financial goals, my life goals into the PERMA model as a way to understand what my financial goals should be.

14:36 >> Yeah. >> Okay. How many people in the general public do you think have actually thought about what a good life for them looks like? >> Not enough enough, not many. I think everyone's people are so busy with their day-to-day lives and I know this is true for me and my family, too. It's really, really hard to step back and have this kind of thoughtful discussion about what you actually want your life to look like. >> Cuz I was just thinking about that. I was think- thinking I don't even know if I've got um really clearly defined life goals for myself. Like I think most of us just kind of act on how we feel. >> Yeah. >> And that can somewhat dri- drift us towards the short term. Like if I just what what's going to make me feel good today and do that every day. I don't know. Some might argue that you have to be a bit more long-term thinking. >> It can help It can help, right? Cuz it it it can help you from making decisions

15:23 that you might regret in the future. >> Mhm. Yeah, cuz when I look at this PERMA model, there's some things on here that I've optimized for, which have sacrificed the other things that I want. >> That's it. That's it. Yeah. >> Like I might I might have over-indexed on this like achieving things, but might have cost me some relationships. So, what's the fourth mistake people make? >> Yeah, so this is related to what we were just talking about, but it's it's overspending on the wrong things. >> Okay. >> When you think about what is a good life for you and you realize if you realize that you're spending on things that are not contributing to that, which is resulting in you not being able to save toward things that would contribute to what you want your life to look like, that's probably not a great position to find yourself in. So, that could be spending $12 on a an iced coffee every morning and not enjoying it, cuz you could get positive

16:09 emotion out of that. But you're like rushing to work, chugging down the $12 coffee every day. That's probably not contributing to a good life. >> Mhm. >> Number five might be one of the bigger ones, which is not taking investment risks. And that's really the stock market has delivered these incredible long-term returns, and on expectation, it should continue delivering strong returns for investors. Not participating that in that is a huge mistake, and it's a mistake that many many people make. A lot of people don't invest in stocks at all. And a lot of people who do invest in the stock market don't invest enough in stocks. They have very conservative portfolios. And that has a very large implicit cost. By not participating in

16:54 the stock market when you could be, you're giving up a huge amount of of economic gain. >> How do you quantify that for the average person in terms of what kind of gain they're giving up, or the size of the gain they're giving up? >> Well, you can look at the historical returns on stocks, uh and you can also look at the expected returns on stocks. So, let's say it's uh let's say it's 7% that we expect stocks to to earn in the in the long run. And if you could get 2% by sitting in cash, that 5% difference is your opportunity cost of not investing in the stock market when you otherwise could be. And 5% compounded over the long term is enormous. >> So say I have $10,000 uh and I invest it in the stock market and I'm getting what

17:41 did you say, 8%? >> Seven, say 7%. >> Much money is that? Let's have a look. So I've done $10,000, which is what we have here. >> Mhm. >> Invested in the stock market at 7% return over 40 years, that would be $150,000. Do you know what's um Do you know what's quite scary when I think about that is does that that kind of means that today if I spend $10,000, I'm actually spending $150,000? >> Yes. >> Which makes me not want to spend any money on anything. >> Yeah. >> Cuz if you buy I don't know what cost 10 What does what cost $10,000? Like a a car, small car? >> Yeah, maybe, yeah. >> You're actually spending $150,000 when you factor in the fact that if you put that $10,000 into the stock market,

18:27 you could have made 7% a year and it would have turned into $150,000. >> Yeah, that's that's one side of the coin. Yeah, I think you also have to think about any enjoyment or utility that you get out of that car. If that car lets you drive to a job you couldn't have otherwise done, it may have a significant economic value to you in the long run. That's one example. >> You know, I've got a coffee here. Some people spend $10 on a cup of coffee with frappa-chappa toppings and all that stuff. Looking at that over the long term, in 40 years, if you'd not bought that coffee and put it into the stock market and got just 7% return, you would have had $150. So when you buy that $10 coffee, you're actually theoretically spending $150 in 40 years' time. >> So you better really enjoy the coffee.

19:13 >> Is there a bit of a fear that it makes us not want to spend money on anything and therefore we end up having a shitty life in the near term? >> No, I I I think that's why this this framework that's why the the PERMA framework for thinking about these decisions is so important because you do want to have positive emotion and engagement, relationships, meaning and accomplishment. Those are all really really important and yes, that money could be worth more in the future, but it can also be worth a lot today if you're optimizing on the right things. >> What else? Number six. >> It's another big one. So, not taking enough risk is is important. Taking the wrong risks with your investments. So, I we we just ran some numbers about a 7% stock market return. You can basically get that using an index fund. The problem is a lot of people don't invest in index funds. They pick individual stocks hoping to

20:01 earn really high returns. They trade individual stock options. Uh they trade crypto tokens and all that kind of stuff. And a lot of those types of risks have negative expected returns or they have high costs if you're doing a lot of trading. And that can really erode long-term investment growth. >> If you love the Diary of a CEO branding and you watch this channel, please do me a huge favor, become part of the 15% of the viewers on this channel that have hit the subscribe button. It helps us tremendously and the bigger the channel gets, the bigger the guests.