Author:: [[Tony Robbins]] DateFinished:: 09-11-2023 Rating:: 7 Tags:: #🟥 [[Finances MOC]] ## 🚀The Book in 3 Sentences - ### 🎨 Impressions - ### 📖Who Should Read It? - ### ☘️ How the Book Changed Me - ### ✍️ My Top 3 Quotes - # Summary Finance... The very term sparks anxiety. But why? It's because finance is one of the most needlessly complicated fields one can get into. And many of the big players in finance want it kept that way so they can profit off your mistakes. As soon as you dive into the finance world you are hit with loads of jargon terms like bonds, stocks, Index funds, retirement accounts, day trading, asset allocation, portfolio, and more. It's exhausting. This needless complexion kept me running from finance like it was the bubonic plague for 20 years of my life. **But after reading Money Master The Game, I finally have some clarity on how to achieve financial freedom.** What's financial freedom? **Financial freedom is when we have so much money in passive income that we can have autonomy over when we work, how we work, with who we work, and what we work on.** How would you like to achieve that? Imagine sitting in a coffee shop in Bali in the morning, read a book or take a course on any interest you had, ordering anything you want, having a surf lesson in the afternoon, all while not having to worry about how you are going to pay the next months bills. **That life is possible for you if you can learn and apply the principles taught in this book.** In this book summary, I'm going to share with you the first principles I have learned. Simply. With none of the bullcrap attached you usually get when diving into finance. Hopefully by the end of this article you will: - Have a solid understanding of finance first principles - Have a game plan for setting up your first automatic investment account - Begin your journey to financial independence To summarize the book I will first be outlining some of the key misconceptions and needed mindsets to reach financial freedom, then explaining the methods for reaching financial freedom, and finally moving onto some helpful tools. Let's go! ### The Biggest Money Misconception **The biggest mistake people make is confounding being rich with being wealthy.** Being rich means you have lots of money. Being wealthy means you have enough money for your wanted lifestyle *without having to work for it.* You can be super rich but working ten hour days in agony. The goal of this book is to become wealthy, not to become rich. **Knowing the difference is crucial.** ### Money Can Absolutely Buy Happiness The classic saying goes “money can’t buy happiness.” Tony Robbins believes money can absolutely buy happiness. **If you know how to use it wisely.** Most people with lots of money simply buy more stuff. Material possessions that won’t make them any happier. Those that use it as a vehicle to give more in the world become happier. **The secret to getting more is paradoxically giving more.** Giving more can come in the form of using your money to fund charities. It can come in using the extra time you have from not *having* to work for giving more through something like content creation. Whatever the case is, money gives you the means and the buffer to do more giving activities. There are three ways Money can make you happier: 1. Investing in experiences 2. Buying time for more things you live 3. Investing in others ### Look For Asymmetric Risk/Reward The best opportunities are ones in which you risk little but have a to gain. This applies not only to investing but anything in life. For example, if you build a personal brand but after two years haven’t succeeded. It’s not wasteful. You learned a ton of valuable skills in the process. High reward, low risk. ### Starting Your Freedom Fund: Leveraging The Power Of Compounding So we know we want to become wealthy, not rich. And that money can help us become happier. The next question becomes how do we separate our money from our time? The answer is through the power of compounding investments. The secret to reaching financial freedom is in automatically allocating a small portion of our money to investments every year, investing our earnings back into investments, and then riding the wave of compounding to financial freedom! Here's the three step process to financial freedom: 1. Flesh out your financial goals 2. Start a freedom fund (investment account) 3. Flesh out a portfolio using the principles from this book 4. Set up automatic monthly investments of a portion of your income (say 10% yearly) into your freedom fund 5. Re allocate your assets every year Some of these terms might be jargonny right now, but don't worry, I'm going to explain what they all are in a moment. First, let's start with step one and figure out what your financial goals are in the first place. These will serve as a foundation for the rest of the steps. ### Goal Setting My Financial Dream Absolute financial freedom is the ultimate goal, but there are a number of steps along that road including: - Financial Security: Your mortgage, utilities, rent, insurance, and food is paid forever without working. - Financial Vitality: You can afford to buy some extravagances you don’t need without working. - Financial independence: you make a decent bit more money than you need without working - Financial freedom: you can afford everything for your lifestyle on passive income and 2-3 luxuries you don’t need. - Absolute financial freedom: you don’t have to worry about money ever again. You make more than enough in passive income. I'm willing to bet you think you need much more money to achieve each of these than you actually do. Before going on, guess how much money you need to be completely financially free. What is it? 1 million? 5 million? 100 million? Let's calculate out each of your goals! For each of the goals below I went through and calculated them for myself. I encourage you to go through and calculate them alongside me. I didn't include taxes in the below calculations cause I don't know how to do them yet, lol so keep that in mind. Financial Security: my mortgage, utilities, rent, insurance, and food is paid forever without working. Monthly Rent: $1500 Monthly Utilities: $289 Transportation: $500 Monthly Food Cost: $400 Insurance Monthly Cost: $300 Monthly cost: $3000 Yearly Costs: $36,000 Emergency Fund: $18,000 Financial Vitality: You can afford to buy some extravagances you don’t need but have to work to do so Clothing Costs: $50 Subscription Costs: $75 Gift Costs: $50 Business Costs (outsourcing and subscriptions): $1000 Course Learning Costs: $250 Extravagance Costs: $1425 Total Financial Vitality Costs: $53,100 Financial independence: you make a decent bit more money than you need without working For me I would be having to make $73,100 in passive income to make this a reality. Financial freedom: you can afford everything for your lifestyle on passive income and 2-3 luxuries you don’t need. My luxuries might be: - Studio for recording videos ($100,000) - Donating $1000 to charity per month - Buy Dad land next to other land ($150,000) I didn't really know how to incorporate one time costs like wanting to buy land for dad into my yearly earnings. So I just raises my earnings to $100,000 per year and called it a day. I would likely be able to start saving to be able to buy him such a thing over a few years in that case. Absolute financial freedom: you don’t have to worry about money ever again. You make more than enough in passive income. Honestly, I don't have any idea what I would spend my money on past $100,000 a year. I just don't need that much physical stuff. Maybe this number will go up the more I realize I want. But right now it's the same as my financial freedom goal. **Once you have outlined your financial goals you have taken your first major step to financial freedom! And hopefully you have found you need a lot less money than you were expecting.** ## Step 2: Start A Freedom Fund The second step to your financial freedom is to start a freedom fund! Your freedom fund is the fund you put towards giving you financial freedom. When you first start out Tony Robbin recommends creating a retirement account and only creating more investment accounts after you have started maxing that out every year. To make things simple, I'm creating a ROTH IRA retirement account. Why? - You pay taxes up front when investing into a ROTH IRA. But you don't have to pay taxes when you take away your earnings at retirement. Since taxes WILL be way higher when you take them out, you save yourself from taking a massive hit to your earnings at retirement. - You can take back your contributions from your ROTH no penalty. So if you're in a bind, worse case scenario, and need money back from your retirement account, you can take money out. - You control your ROTH IRA. It's not attached to the job you have or your boss. I started my freedom fund by signing up for a ROTH IRA with Vanguard, a well known brokerage firm. **You can do it either with Vanguard or another broker of your choice. Once you have done this you have taken your second step to financial freedom!** ## How To Speed Up Your Money Making Some quick tips on how to speed up money making before the next section: 1. Save more 2. Earn more by investing in yourself and starting a business 3. Become more tax efficient 1. Invest in index funds which have less hidden fees, turnover rates, and therefore less hits on your money before taking the money out letting it compound faster 2. Invest in tax deferred places like a ROTH 4. Change your location 1. Move to a place with less taxes like Florida, Bali, or the Czech Republic # Step 3: Define Your Portfolio ## Asset Allocation: The Most Important Skill For Making Money Asset Allocation is where you allocate your money in investments. It’s the most important skill for making money. Because it determines what happens to your money in different market environments. One word is essential to understand for asset allocation: **Differentiation**. Differentiation refers to how differentiated your money is allocated. The more differentiated it is, the more it’s protected against market fluctuations. This is why index funds are so powerful in protecting against market fluctuations. As we will discuss later, it's possible to succeed or barely fail in any financial climate, *if you are differentiated smartly.* You'll learn how to do this with Ray Dallios asset allocation shared later in this article. ### Two Buckets You Can Allocate Your Assets You can allocate your assets in secure and in risky buckets. Your secure bucket is meant to make you money while being very safe. It gives peace of mind. Here are some secure investments: - Cash/Liquid - Bonds - CDs - Your home - Annuities (only the right ones) - Index funds Your risky bucket is meant to have a higher chance for making money but is more risky. Risky bucket choices include: - Real Estate - ETFs - Mutual funds ### What Is Your Asset Allocation Going To Be? Up to you to choose what allocation he will put insecurities versus risk/growth. How much are you willing to take risk? How young are you? Typically the younger you are the more you are willing to risk for gain and the more time you have to learn from mistakes. It’s more important you create a asset allocation that gives you peace of mind and less stress than one that brings objectively the most money. Right now, I’m thinking 50/50 security versus growth. ### Earn And Invest The Difference + The Dream Bucket This is the secret to compounding your money over time. Don’t spend all of what you earn from your investments. Invest some of it back and let compounding bring you to financial freedom. It’s your choice how you allocate your returns. You could do 1/2 in securities 1/2 in risk/growth. **As long as you don’t touch your freedom fund. That’s sacred money.** Then there’s your dream bucket. Your dream bucket includes things you are saving up for in liquid cash. If you can slowly add funds to your dream bucket, you’ll get so much more motivation saving for things. My dream bucket is: - My own studio - Buying parents the second land - A better Laptop computer ### Timing? When To Invest And Where Far more money has been lost from preparing for corrections or anticipating corrections, then in corrections themselves. **You have to take yourself out of the picture and automate your investment corrections so that you don’t let emotions overrule you.** Nobody can time the market perfectly. There are too many variables. The trick is to win no matter what the market does. **But so many people still try to time it.** Why? Because they let their emotions get in the way. They buy high when funds are doing well, thinking they will continue to do well. They don’t take into account regression to the mean. Then they sell too low because of the disposition effect. **Don’t make this mistake.** What does Tony Robbins recommend? Dollar Cost Averaging. Dollar Cost averaging works by reinvesting your earnings in the same proportion of your chosen asset allocation on a regular schedule (monthly or quarterly), **no matter the volatility of the market.** This seems counterintuitive at first until you understand how volatility works in the market. Over the long term, markets rise. Especially if you have a very diversified portfolio. So if you keep reinvesting in your diversified portfolio and have the maturity to hold it out, **you will make money in the long run.** However, if you change your asset allocation in response to the market your back to the same mistake as beforehand, timing the market. To make this even more powerful, automate it. Have a proportion of money in a checking account automatically get invested in the asset allocation of your choice every month. ## Ray Dallios All Season Asset Allocation Ray Dallio has an Asset Allocation that has made money almost every year in the last 40 years. And when it has lost money it has at most lost 3%. What does he know most don’t? First traditional advice on balancing your portfolio by putting 50% into bonds 50% into stocks is wrong. Because stocks are way more risky proprtotionally than bonds. So to have a 50/50 balance you would put more like 75/25 or 90/10 into bonds versus stocks. Secondly, he understands the importance of differentiating. To ensure you succeed or barely fail in all financial climates you must have your money in a broad range of investments. That way, you are protected in any financial climate. ### Rays All Weather Asset Allocation Exact Percentages 30% In Index Fund Stocks Like The S&P500 15% Intermediate Term Government Bonds (7-10 year treasuries) 40% Long Term Bonds (20-25 year treasuries) 7.5% Gold 7.5% Commodities ## Step 4: Automatically Start Investing Towards Your Freedom Fund Automatic investments are the secret to guaranteeing you invest towards your freedom fund over time. If you do it manually each month, you will be VASTLY less likely to invest because it will be painful seeing that money "go away." It's best to keep it going in the background. With a added second step, save more tomorrow. Save more tomorrow is a automatic investment strategy that works by having people put away an initial percentage of their income into a retirement fund automatically. Than every time their salary gets raised, they put slightly more in. This makes it feel less aversive when they save money because they don’t feel like they are losing money they already have. So say you're in college and start automatically investing 10% of your annual income. Then, you get a raise to your income and start investing 13% instead. Over years, you start investing massively and massively more. ## Step 5: Reallocate Assets Each Year Inevitably your investments in one of your buckets will veer off course. For example your growth bucket will skyrocket and you initial asset allocation of 50/50 becomes 25/75. What do you do? Rebalance. You must take out and reinvest the gains in the growth bucket until it’s back to 50/50. You might think, this sounds insane, *why would I take out my income in my risk/growth bucket when it’s doing well?* Because it will come down, like always. Rebalancing over the long term **will** make you more money than sticking with the same allocation. So once per year, rebalance your asset allocation so that you don’t take as much income taxes from taking money out of your assets and reinvesting them. ### Warren Buffets Asset Allocation Advice Put simply, but 10% in short term government bonds and 90% in a low fee index fund like Vanguards. Then hold onto it for the long term. ### Does Financial Stress Ever Go Away? Most of the people Tony Robbins interviewed said financial stress never fully goes away. Even when you become financially independent the problems you had before, become new problems. Instead of how do I afford rent, food, or gas? It becomes what should I do with all this money and where should I invest in charity? ## My Asset Allocation - [[My asset allocation]]