I've got a confession. I have a money addiction. My money addiction is partially why I started Financial Samurai in 2009 and have written 2,300+ words since! I wanted money then, and I still want money now to take care of my family.
There's only about two weeks of living expenses left in my bank account before I go broke. It's very unsettling that I may have to ask for a loan to make ends meet in case something bad happens. Dad, are you reading this?
In need of some therapy, I discussed my tenuous financial situation with a tennis buddy on the public court one afternoon. He told me to hang in there and revealed a rough patch where he once racked up $50,000 in credit card debt. He felt like he was drowning because he could only afford slightly over the minimum payment each month.
When I asked him what made him go into so much credit card debt, he confessed he has a gambling addiction. Like me, he loves playing Texas no limit hold'em. But unlike me, he decided to venture into the bigger $10/$20 no-limit games where the average player held roughly $5,000 in chips. He got bad-beat one too many times and resorted to withdrawing cash from his credit card at a 24.99% interest rate to feed his poker addiction.
I don't know how much my tennis buddy makes, but I can't imagine he makes much more than $65,000 a year working at the San Francisco International Airport. It took about two and a half years for him to get rid of his credit card debt after a family intervention made him stop.
What Happened To All My Money?
So what happened between the time I published my Investment Tracker Spreadsheet in January and now? Like most addicts, I couldn't control my urge to invest the remainder of my cash balance in a variety of stocks, bonds, and real estate deals. I went from having a cushy ~$150,000 cash in the bank to less than $3,000 in a matter of weeks!
And part of why I feel like I'm broke is because I treat my investments as expenses. Because I spend almost all my money on stocks, I often face a liquidity crunch.
Here's a weekly spending and investing e-mail update I get from Empower which shows me blowing over $100,000 on investments in December. I ratcheted down spending in the first half of January until I went crazy again with my investments at the end of January and early February.
In the post, The Case For Bonds, I mentioned I wanted to build a $250,000 California municipal bond position over the next 12 months. My goal was to start buying CMF aggressively once the 10-year bond yield hit 2.5%. Well, my target was hit in the second half of December and ran all the way up to 2.6%, so I decided to press without any regard for my liquidity!
Here's a snapshot from my Citibank wealth management account. Before Trump's victory, I had $0 in California municipal bonds. Now I've got a ~$276,809 position.
I knew from past experience that having much less than six months worth of living expenses starts feeling uncomfortable. I begin to worry about my future. I lose some patience. And, I start hoping that no major investment opportunities occur before I replenish my nut. The whole idea of having enough money to not worry about money goes completely out the window once I get into these addictive phases.
But what's more, in addition to my new $276,809 CMF new position, I also invested $25,000 in the S&P 500 and $25,000 in an Austin, Texas multi-family real estate crowdfunding deal since the beginning of the year. The market kept showing signs of strength so I wanted to keep participating.
I basically deprived myself of all spending beyond my mortgage in order to invest e.g. “you spent $42 this week” per the e-mail above.
Gambling And Investing Parallels
You may think playing at the poker tables is completely different from investing in the stock market. But you're wrong. The poker player sits down with the mindset that he has the potential to make a return on his capital.
By making high expected value bets, the poker player should win in the long run. This is exactly how I think before deploying any new capital. However, even if you are an 82% favorite to win with pocket Aces against pocket Kings pre-flop, you still have an 18% chance of losing.
A good poker player will realize he can sometimes run bad. He's disciplined enough to protect his bankroll to fight another day. A bad poker player who cannot control his addiction to gambling will overly commit his bankroll until he runs out of money exactly like I have done. An addicted gambler will resort to borrowing money to keep on playing!
And guess what? Borrow money is what I did. I asked my wife to lend me $10,000 to invest in a particularly attractive real estate crowdfunding investment in Austin, Texas.
I barely had the minimum ($15,000), but I borrowed $10,000 from her so I could invest $25,000 instead. If I had more money, I would have probably invested up to $100,000 in this particular deal because I'm all about pressing into the heartland!
As an money/investing addict, I see an ENDLESS amount of good investment opportunities. Further, once I believe in a winning idea, I sometimes press to the detriment of proper risk management controls. After all, I did borrow $1,220,000 at the age of 28 after putting down $300,000 for a SF property I purchased at the end of 2004. In retrospect, that sounds nuts!
Knowing my tendency to go “all-in” is the reason why I've at least limited most of my public equity and bond investments to large index funds. In the past, I may have bought $200,000 in one stock. Now, I'll buy $200,000 in an index like the S&P 500, with the understanding I may lose 12% to make 12%, instead of potentially losing 35% to make 35%.
I've also become more open to investing in actively managed public or private funds, which do the investing for me. Private funds help with diversification and force me to set aside capital due to my commitment.
Confining myself to index funds is one step in mitigating risk, much like confining myself to playing at the $1/$2 no-limit tables where the average player only has $100 – $200 in chips. But that still leaves my occasional inability to manage liquidity risk.
The Importance Of Liquidity
I've got to be much more responsible now that I plan to start a family. Instead of only thinking about myself, I've got to think about my wife, a helpless baby, my parents and my in-laws.
In the past, if I went broke, I knew I could subsist off of water and ramen noodles while working a minimum wage job for months until a better opportunity came along. With so many people potentially depending on me, it's totally irresponsible to be left with so little cash.
We all know the importance of having enough emergency cash to pay for unexpected medical, auto, and housing expenses. I am pleased that ~98% of you can handle a $400 emergency cash expense without having to go into credit card debt or borrow from anyone.
But the other reason for having emergency cash is to take advantage of massive irrational sell-offs! There's my investing addict talking again. When you have cash, you develop liquid courage.
The Positives Of Being Cash Poor
Despite investing irresponsibly, there are some positives for being cash poor that might help boost your net worth over time. As such, you may consider forcing yourself into cash poor situations from time to time.
1) Money becomes much more rewarding.
Thanks to my municipal bond purchases, I noticed a nice $1,000 in tax-free income hit my money market account at the end of January because I only had a balance of $3,000. A $1,000 injection is a whopping 33% increase in the balance of my account.
When I had over $100,000 sitting in my savings account, I wouldn't even notice a $1,000 dividend. What's the difference between $167,000 and $168,000? When you aren't excited about money, you start taking money for granted. Now, every dollar that comes in feels rewarding.
2) Sensitive about who owes me money.
After going cash broke, I realized a corporate client still owes me $6,000 from three months ago. I had assumed they were just going to automatically pay me within a month. After all, they have all my deposit information on file from a previous deal. Now I'm going to follow up like a bounty hunter to collect what's rightfully mine!
Here's a list of all the past due money that's owed to me:
Corporate C: $6,000
Corporate S: $5,000
Corporate Q: $700
Affiliate F: $450
Affiliate P: $306
Affiliate R: $148
Affiliate W: $72
Personal Consulting Client: $600
Total: $13,276, or more than 4X what I have in my savings account.
3) Motivation to earn increases.
Having no money reminds me of the days when I had to flip burgers for six hours straight for just $4/hour. My feet were constantly aching and I felt bad sweating bullets on the disgusting burger paddies. But hey, how else was I supposed to make any money to take a girl to the movies?
Thanks to being almost broke, I recently locked myself up in my place in Lake Tahoe for 10 days and wrote 50 articles. 50 is a ridiculous number for me since I only post about 12-14 articles a month. During my solitary confinement, I also had a money making epiphany that may very well bring in an additional six figures this year. We shall see!
There is no entitlement mentality now. I want to get a job again after buying a dream house to replenish my liquidity!
4) More appreciation for what you already have.
Like many Americans, I have too much stuff. I've been actively giving away things to the Salvation Army and Goodwill for five years in a row and I still have too much! It's like having a bottomless stomach at an all-you-can-eat buffet table.
As a cash broke guy, I began to appreciate the clothes I haven't worn by wearing them again. Instead of spending money going out to eat a $60 dry-aged rib-eye, I decided to cook myself some vegetable soup to not only save money, but to eat more healthy. Instead of paying $20 to go watch Rogue One in the movie theatre, I opened up an old picture album and began reminiscing about the good ‘old days.
What I couldn't believe in the album was that I have pictures of myself and the co-creator of the hit HBO show, Westworld, hanging out in Beijing in 1997! Such a small world. She's now married to a famous producer/writer and they're probably one of the most in-demand creators today. Maybe she'll be willing to do an interview here. That's an example of how new post ideas keep on popping up on Financial Samurai.
The Return To Riches
What drives my money addiction? I think it all started when I was 12 years old living in Kuala Lumpur, Malaysia. The dichotomy in lifestyles between my rich friends and my poor friends was astonishing. It seemed completely unfair that one friend lived in a mansion with three housekeepers and a chauffeur, while another friend lived in a 300 sqft studio with his parents and sister.
I also remember giving one ringgit to a beggar at a Buddhist temple in Penang. As soon as I did, I was swarmed by 15 other women and children who almost dragged me to the ground in order to have whatever was left in my wallet. At age 12, my money addiction gripped my mind because I feared poverty. As an adult, I fear that without enough money, I'll somehow become a deadbeat father.
I forgot what it was like to live paycheck-to-paycheck, and I'm sorry to all of you who have to go through this experience more frequently. I'm always focused on sending the message of abundance, but sometimes bad things like gambling, accidents, medical emergencies, theft, and robbery have a way of beating us down through no fault of our own.
With a lot of introspection, I hope to gradually ween myself off of this never ending desire for more. In the meantime, I'd like to ask for your understanding when I sometimes go off the rails and seem clueless about the plight of others.
Steps I've Taken To Beat Money Addiction:
1) Admit my problem to myself and to others.
2) Write things out in a series of posts such as this one.
3) Left my well-paying job to make 80% less for two years.
4) Focus on work that I enjoy, not work that pays me the most.
5) Try to understand the root cause of the addiction.
Invest In Private Growth Companies
If you're a money addict, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
Stay On Top Of Your Money With A Free Tool
The best way to grow your net worth so you can eventually be free is to track your net worth. I've been using Empower's free financial tools and app to optimize my wealth since 2012. It is the best free money management tool on the web.
Just link up all your financial accounts to measure your cash flow, x-ray your portfolio for excessive fees, calculate your retirement income, and more. There's no rewind button in life. Therefore, you need to do your best to optimize the wealth you have now.