In the 2017 annual shareholder letter for Berkshire Hathaway, you’ll find this from Mr. Warren Buffett:
“Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need. We held this view 50 years ago when we each ran an investment partnership, funded by a few friends and relatives who trusted us.”
In essence, Buffett is saying that anytime we trade something we have, or need, in order to get something we don’t need, we’re making a very bad trade.
After reading this, I put the shareholder letter down and grabbed my notebook. I wanted to see where I was making this “insane” trade in my life.
I started by breaking the trade down into two separate sides:
What DON’T I Need More Of In My Life?
(As I did this, I realized I had never
asked myself this question. Interesting.)
Here are some of the items I listed for myself:
- Debt
- Sugar
- TV
- Unfulfilling Work
- Meals/food
- Social Media
- Bad Tenants
- Taxes
- Limiting thoughts/beliefs
- Drama
- Booze
- Business Overhead
- Processed food
- Stress
- Traffic
- News/media
What would you add to your version of this list?
What don’t YOU need more of in your life? Have you ever thought about this?
Next, I looked at the second part of the trade with this question….
What I DO Need More Of In My Life?
- Cash (larger cash reserves never hurt nobody)
- Interesting & Inspiring Friends
- Monthly income (cashflow)
- Fasting
- Meditation – calm mind
- Leads for my businesses
- Great investment opportunities
- Love
- Incredible experiences
- Adversity
- Experience
- Wisdom/knowledge
- Fun
- Strength/stamina
- Self-discipline
After making these lists, I could easily see several scenarios where I traded away something I needed more of for something I didn’t necessarily want.
An easy example would be having doughnuts for breakfast instead of fasting. Another example might be watching sports all weekend instead of getting my ass off the couch to go look for incredible investment opportunities.
I seem to be making one, or more, insane trades on a daily basis. 🙁
Next, I listed various scenarios where people seem to explicitly make these bad trades. Here are a few items that I jotted down…
When someone decides to borrow money to buy a larger house or a new car, they are making this trade. If the car I’m driving works fine and I go borrow money to buy a new car, I’ve made a very bad trade. I’ve traded away my future income for something I don’t really need. I’ve increased my monthly expenses and have added additional stress to my life.
When someone cheats on their spouse, they are trading away the love and companionship of one of the most important people in their lives for a few minutes of pleasure.
When we get sloppy drunk, we are trading our health and self-control away for a “good time.”
We trade away our lean bodies every time we eat foods that are not good for us (Sugar isn’t good for me, yet I continue to eat ice cream).
When we continuously trade our time for more money, we run this risk of making a very bad trade. We trade something more valuable (our time) for something less valuable (money).
When we take on significant risk to make money we don’t necessarily need.
When we assume more overhead in order to make increase our business’s revenue. Renting larger offices, hiring more employees hoping for growth instead of running a tight ship.
When we focus on building wealth instead of creating cashflow.
Based on Buffett’s comment, we should be able to make improvements in our lives simply by deciding not to make these bad trades anymore. By moving towards what we really want more of and letting go what we don’t want more of.
Check out this tweet:
It seems as if life is really just a series of trades.
We’re always trading every single day. The question Buffett has suggested we think about is… are we making good trades?
It’s easy to see that we’re not always making good trades, and we don’t typically think about what we’re giving up in relation to what we’re receiving with each trade.
My most important Cashflownaire Principle is:
Our overriding goal above all others is…peace of mind and happiness.
This principle suggests that we should consider thinking about the various trades we make in relation to our peace of mind and happiness. We should consider making peace of mind a priority.
Will ___________________________ (whatever trade you’re considering) give you more peace of mind, or less?
We don’t typically make our choices based upon this metric. Instead, the majority of our decisions are made with money as THE most important consideration.
In fact, most people will always take any trade that seems to offer them more money. They’ll take the new higher-paying job, even though it requires more of their precious time and adds layers of additional stress
into their lives, without ever considering if the additional money is actually worth it.
Take some time and think about the various trades you’re making in your life. Where are YOU trading away what you have and need for something you don’t need? In what areas are you trading away your peace of mind?
Now that you have your list of bad trades, figure out how to unwind these bad deals!
