Read Time: 4-minutes
Happy Saturday,
Here is this week’s edition of 6-Point Saturday — financial insights to help you make smarter money decisions.
Table of Contents*
*Clickable in the online version.
Point #1 — Achieving Success By Avoiding Failure
Down to his last $800, and with a new source of motivation, struggling actor Taylor Sheridan decided to make a change:
"I had a very real motivation: I was having a kid.
And we were renegotiating my contract on the show [Sons Of Anarchy], and they were offering me not enough money to pay that rent you were just talking about.
And I’m sitting here thinking about raising a baby in this place, crammed into an apartment…
And so I made the decision. I go: 'How can I look this kid in the eye in seven or eight years and say you can do anything you want to do be anything you wanna be…[but] sorry I’m not gonna see your baseball game. [Because] I got a Windex [commercial] audition at 5:00.'
So, I just couldn’t... And I didn’t believe that I was gonna be more than I was as an actor on Sons. And neither did they, which is why they felt comfortable not offering me a lot of money.
They were like: 'You’re never gonna be a star. If that’s your goal, you should know this is what you’re worth.'
“And they were right.
And so then I decided to tell my own stories.”
After his wife purchased him a script-writing software, Sheridan immediately got started:
I sat down and opened it up and I said I have absolutely no idea how to do this, but I know exactly how not to cause I’ve worked on so many bad friggin scripts in my life. [If I] just don’t do any of those things, tell the story I wanna tell, be honest, it should probably work out okay.
And so I just I write movies [that] I wanna see, about things that interest me. And I assume I’m not that unique and that other people will like them too and so far they have."
After the success of the hit series Yellowstone and its multiple spin-offs, Sheridan just last month inked a 5-year deal with NBCUniversal for over $1-billion.
But what's interesting to me is Sheridan's strategy: rather than try to create a hit show, he first tried to avoid a cancelled one.
A principle, called “Inversion,” that one of the most successful investors encourages:
“One of my favorite tricks is the inversion process. Constantly invert: don’t think about what you want, you think about what you want to avoid.”
And a principle that applies to the rest of your finances.
So, let's look at 9 ways to improve your finances by first avoiding common failure points.
Point #2 — 9 Major Mistakes To Avoid (And What To Do Instead)
Delaying investing: Every year you wait costs you compound growth. A 25-year-old investing $500/month at 8% reaches $1.5M by age 65. Wait until age 35? Just $680K. Instead, start with any amount today, even $50/month to get started and build the habit.
Overtrading: According to one U.C. Berkeley study, investors who trade frequently underperform the market by 6.5% annually (!). Transaction costs and taxes are likely to diminish your returns. Instead, consider whether a buy-and-hold strategy with annual rebalancing is a better strategy for you.
Ignoring fees: Continuing the 25 year-old investing $500/month at 8% example, if their investment fund charges 1% more than a low-cost index fund, they’ll be left with $1.2M instead of $1.5M. Or 300,000 reasons why considering index funds with low expense ratios can make sense.
Not asking how an advisor gets paid: Financial advisors who are paid through product commissions are heavily incentivized to sell you their product. Now, some advisors are able to balance this potential conflict of interest. Just be sure to ask how they are compensated before buying anything.
Spending above your means: Even a high income can’t overcome poor spending habits. Instead, consider following the 50/30/20 rule: 50% of take-home pay for fixed expenses, 30% for non-essentials, and 20% to savings/investment.
Excessive mortgage debt: Buying too much house is a quick way to strain the rest of your finances. While mortgage lenders try to approve you for the maximum they think you can borrow, first consider your other financial goals so you can decide the maximum amount that you want to take on.
Operating without an emergency fund: Nearly 40% of Americans can't cover a $400 emergency with cash. First, build a starter emergency fund with a few thousand dollars, then work up to 3 to 6 months of fixed expenses.
Neglecting basic estate documents: It may not seem urgent, but your foundational legal documents protect both you and your loved ones. Consider getting a will, a healthcare proxy, an advanced medical directive, and a power of attorney.
Thinking complexity is better: Complex products typically have hidden fees, penalties, and pages of fine print. Simple is usually better: low-cost index funds, term insurance, and traditional tax-advantaged accounts.
Your Move: Which one of these would be easiest for you to start with?
Point #3 — “I was sold on whole life insurance and now I regret it.”
Hi all, I'm an unmarried, no kids, 23M and I have no debt and am just about to start a job where I can really start saving for my future. However, while I was in college, my parents' financial advisor kind of "sold" me on whole life insurance for various different reasons. I made it pretty clear to him that I was not very interested on the death benefit aspect of it, and he assured me that there were ways for it to be a good "investment".
Well consider me a fool for believing him and actually thinking that whole life insurance is an investment just because I can pull money out tax free. I had no idea that it was a loan until recently and I put about $2,500 into the account and my current surrender value is $16…
As I mentioned in Point #2 above, financial advisors who get paid through commissions are often heavily incentivized to find reasons you’re a good candidate for their product (To a man with a hammer, everything looks like a nail).
But, this individual is not married, has no kids, and no debt obligations…Can you see the mismatch?
There are no major reasons he even needs life insurance.
This is exactly where inverting can protect you: Instead of asking, “Are there positive aspects to this financial product?” (which encourages confirmation bias), ask: “Is there anything about this that could destroy value?”
In this case, the downside is clear: paying thousands into a product optimized for a death benefit they don’t even need.
In general, it’s better to keep your insurance and investing solutions separate.
If and when the time comes that this person needs life insurance (partner or obligations to look after in the event of an untimely death), it’s often better to buy term life insurance and invest the difference (between what you would pay in the higher whole life insurance premiums and your lower, term premiums) in low-cost index funds.
Point #4 — ‘Surrender Value,’ Explained
Why did the 23 year-old only get back a fraction of his premiums? Let’s look at how surrendering a policy works.
Surrender value is the amount you receive if you cancel a permanent life insurance policy early, after subtracting surrender charges, fees, and any policy loans. It can be much less than what you’ve paid in premiums. Here’s why:
Your life insurance premiums first cover insurance costs and expenses, including sales compensation, with only the remaining portion building cash value (the policy’s savings/investing component). Policies also impose surrender charges that start high and decline over time.
Bottom line: Whole life policy rules can be complex, so make sure you read the fine print, especially around surrender charges.
Point #5 — Quotes of the Week
Continuing the “Inversion” theme, which of these is your favorite?
Point #6 — My Questions of the Week
How appealing do you find the inversion principle? How often have you used inversion in your finances, or in your life generally?
Reply to let me know! I read every response.
Thanks for reading — I hope you found a helpful idea or two.
I’ll see you next Saturday with more.
Have a great weekend,
Benjamin Daniel, CFP®
Founder, Money Wisdom
P.S. Want to take control of your money, stop stressing about your expenses, & feel confident about your financial future? There are 2 ways I can help you:
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Disclaimer:
This material is not investment or tax advice. No responsibility for loss occasioned to any person or corporate body acting or refraining to act as a result of reading this material can be accepted by the publisher.
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