Money | How to stop stressing about money
More important than growing your wealth, is making sure it doesn't vanish
We all have loss-aversion: Losing something hurts much more than gaining it. This, combined with the fact that money has diminishing returns on well-being, means that you should be much more worried about losing money than gaining more. So: How can you avoid losing money?
Also, just to be clear, this is not financial advice, this is some guys sharing tips they heard from some other guys and gals and AIs.
How to minimize regret
Build a buffer for small financial shocks
Your car breaking down, an ER visit, an unexpected tax bill. About half of all Americans would have to go into debt to cover a $1000 unexpected bill. Being able to cover these creates significant peace of mind.
Pay off your credit card: Before anything else, pay off your short-term debt. The high interest of credit cards creates a spiral that’s difficult to get out of. If you have a history of struggling with this, seek financial advice.
Understand social security: What would happen if you would get sick or lose your job? A lot of financial advice ignores this because it’s written for low-social-security countries.
Aim for 3-6 months of buffer: This depends on your social security. You want to be able to have enough time to find a new job or bridge a long sick leave, while paying for unexpected damage to your car. No high-risk investments with this.
Get insurance for big financial shocks
As a rule of thumb, you should insure anything that you can’t comfortably cover with your personal buffer. Your holiday flight? Probably don’t need to insure that. By accident setting a forest on fire on your holiday? Probably need an insurance for that. And yes, I know somebody who managed to do that, his insurance paid. The basics:
Health insurance: If you can afford it and you are healthy: Aim for a high deductible and good inpatient cover. Inpatient is where the costs explode typically. Make sure you also have one for travel, often covered by credit cards.
Liability insurance: Usually pretty cheap and mandatory in many countries. This makes sure you are covered for breaking stuff by accident. Make sure you actually have high covers and not just “state minimums”. For personal, car, professional.
Life insurance: If people depend on your income, you want to make sure they can maintain their lifestyle in the case that you pass away. Best to get a term insurance for the next 20 years while building up savings for after.
Disability insurance: You are far more likely to become disabled than to pass away early. Yet most get a life insurance and not a disability insurance. Make sure they cover “own occupation”, otherwise you can be forced into any job.
Home insurance: Didn’t listen to our advice and didn’t get a water sensor? This insurance makes sure you won’t be in ruin. Bonus points for getting cover for natural events like earthquakes, hurricanes, or fires.
When I started working in health insurance I was surprised that the theory of change was focused on preventing people from falling into poverty, not increasing their health. In the end people often find money to pay for healthcare, but after their treatment they are in debt for life.
Christoph
Protect yourself from non-insurable risks
We’ll cover some more ways to lose your money in next week’s post on investing but apart from betting and investing, these are the most common things people regret later
No prenups: Marriage is a financial contract with default terms most people never read. A prenup lets you pick the rules instead. Especially matters for business owners, cross-border couples, and asymmetric wealth.
Scams and identity theft: It takes five minutes to clone your voice with AI. Set bank limits, agree a family safe phrase, verify on a second channel. Freeze your credit or check your report yearly.
Loans to friends: This can be regular loans, co-signing on a mortgage, personal guarantees. Sometimes when friends and family are involved, thinking rationally gets harder. Only take the risks you are comfortable with.
Let’s get started
Set up automated savings
Create a blocker in your calendar to make an inventory of your insurances
Educate your parents about AI scams
Bet money on actually doing these things
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