LMSM 83 | Money Mistakes


Growing your net worth isn’t necessarily about what you know. It’s about how you behave. And even really smart people struggle to control their unconscious instincts and biases.

Money―investing, personal finance, and business decisions―is typically thought of as a function of math. But in the real world, people don’t make financial decisions on a spreadsheet. Their personal history, unique view of the world, ego, pride, marketing, and odd incentives are scrambled their decision-making process and it is incredibly easy to make terrible decisions. We look at 12 of those mistakes in this episode and try to unpack techniques to overcome them.

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12 Terrible Money Mistakes

Frankie and I have done our share of dumb shit when it comes to investing money, spending too much money, and not making enough money but I would say, on average, we have probably made more good decisions than bad. This episode is all about some of the dumbest things you can do with money. A lot of it is based on actual experiences we have seen of other people that we are close with.

I will lead this intro by saying we are not certified and authorized. We do not have degrees in financial acumen. You take any of our advice if you could even call it advice, at your own risk because these are our opinions. One opinion we do have is we love you very much for showing up every week and reading. If you are not sharing this amazing show with your friends by guts, start doing it.

Frankie, what is the stupidest thing you have ever done involving money?

After September 11th, 2001, for some reason, I decided to buy airline stocks and bought American Airlines, US Air, back then. They notified everybody that we were going to file bankruptcy because airline stocks got decimated after 9/11, and filed bankruptcy and did a restructure. I sat there and watched it erode in value until they filed for bankruptcy.

I looked at my account one day and realized my $4,000 was $0. It eviscerated, completely gone. As a grownup with a stable internet connection, I know I could not sell that at any given moment and hit the sell button. I have been out and gotten my money but back then, I was paralyzed by fear. I did not understand it. I was so busy working. I did not pull my head up, and it disappeared.

Was it one of those things where if it had been $40,000, you had got some advice but it was $4,000 and stressful but you did not want to think about it? You did not want to go and admit that you lost that money that if you ignored it, maybe it would go away.

Maybe, I also think it was back in that part of my life. I was 26. I did not have the counsel I have around me now. I did not know who to ask and what to do. I thought it was a major undertaking to figure this out, so I kept procrastinating. Suddenly, the US Government, through Bankruptcy Law, forced me to no longer procrastinate because they made a decision for me.

I see this a lot. I have a business, inertia, staff, and counsel through attorneys or consultants. I can make decisions faster because I understand what decision to make. I have people around me that I trust and I know I can give it to so and so. They will give me a good decision and comes back. Back then, I did not have that, so I said, “I do not know how to deal with this. I will keep kicking the can.” I kicked the can long that it evaporated.

I have told the story of me buying penny stocks many times. I had another one when I was a lot more educated. When I bought penny stocks, I was 22 and I chased some money. Fast forward, I am a lot more experienced, it is 2009, and the financial crisis is in the past early stages. It is pretty clear that the banks are all in deep shit. Stocks are all turned down. Bank stocks were all down 30%, 40%, and 50% in some cases. My financial advisor, as I was talking to him, I was like, “Are we reaching a bottom? What do you think?”

I am normally pretty sane about this stuff but I was at the forefront of the mortgage business. Finances, in my mind, are all going to make it. It was not as bad as I thought it was. At that time, UBS had these instruments and they called them Structured Products which were pretty much tranches of the crappy stuff and one of them was Lehman Brothers. It was a six-month instrument and you had to put a certain amount in and it was $10,000.

All that needed to happen was Lehman Brothers did not go out of business. It was something where the stock could not fall 75% from where it was. Lehman Brothers had already got cut in half. In my head, I am like, “It is Lehman Brothers. They have been around 100-some years. Lehman Brothers did not go out of business. They have been for Bear Stearns but why would UBS have that if it did not think there was a serious chance?”

What these big houses were doing was putting these derivative projects together because they knew these things were going bad. They own their bonds or other things they could not get rid of. They were selling to try to hedge and make money on fools like me that pretty much made a $10,000 bet that Lehman could not go under.

When something feels like free money, it almost always has bit me in my life. Click To Tweet

A few months later, Lehman went under, I lost all $10,000, and that was the end of it. Where I felt like an ass was one, it was hubris. I thought I knew too much. I thought because the past said that banks never went under, that could happen in the future. I did not stop to ask myself why UBS would even be offering that. It seems so absurd to me that it felt like free money when something feels like free money.

It almost always has bitten me in my life. I am now incredibly skeptical of any product that claims anything too good to be true. That one hurt my pride. It is not like I did not miss a mortgage payment because of that. It was a lot of money and it sucked but my pride was hurt more like, “How could I have fallen for something this stupid?”

You and I were talking about going to New York. I was encouraging Ian and his wife to get away for a few days and go to New York. My wife and I did this not too long ago. The reason I am bringing this up now is it fits perfectly with what Ian had said about not understanding something or not believing it could possibly happen, and that makes you gone for moments in time. We went to New York and saw the show with David Burnett. We had incredible seats and it was good. It was rated 4-point something stars out of 5. Everybody said it was great. It was okay. It was not great.

We bought tickets to see Music Man, which is with Hugh Jackman. I bought the tickets before the reviews came out and they were expensive seats. I remember looking at it and being like, “Last night was rated higher. It was shitty. I do not want to have two shitty nights.” My wife agreed. I am like, “We will sell them.” I paid $300 per ticket and I am like, “No one is going to pay $300 for these things, so I will mark them at $200.”

I was stupid because I was feeling the emotion of what I felt the night before, and I was like, “If I want to sell these things, there is clearly not a market.” Like Ian, there is no way the Lehman Brothers can go out of business. I had Carl go to StubHub and list them. Within four seconds, they were bought. StubHub thought I should have listed them for $399 and sold them for a fraction of that. I am still kicking myself. I am like, “How dumb could I possibly be? This is the business I live in.”

If I look at the dumb decisions I have usually made, I am uneducated, I do not know the market, I do not understand things or I am emotional. I remember Ian and I were talking when Steve Jobs died. We both made money on Apple but I gave away a lot of upsides because I sold it because Steve Jobs said, “There is no way they can replicate this. They have done fine with Tim Cook.” I did not think it was the same company, so I panicked and got out. Even if you are a good investor, you are not perfect because you are human and you fall prey to emotions. There are a couple of examples of dumb shit that we have done because we are human and I am not a stock trader.

I do not consider selling Apple as one of my great losses of all time. The reason why I do not is I would have to go look at exactly what I did with whatever capital I had from that Apple stock. If I had gotten out of apple at that time and bought Google or Microsoft, or if I would have used it to buy an industrial property, it would be probably a wash.

That was an emotional decision we made but it also had some rational basis. That guy pulled off some miracles to get the company where it was. We were not as comfortable owning it with whoever was next. It would be the same with Berkshire. I do not know that I would own it after Warren. I do not know if I will. Part of me, emotionally, likes knowing he is there.

I own the B shares of Berkshire Hathaway. This episode is all about terrible money mistakes that people make. We have twelve of them that we are going to talk about. We have made a lot of these mistakes but not all of them. A lot of these mistakes are mistakes we have seen friends make. We are both years out of college.

It is an interesting point to be retrospective because we knew a lot of people several years ago were at the exact same broke level we were. They were starting at ground zero, graduating college. We have seen what worked and what did not work. In this episode, we both are recalling what we have seen from different people that have been around us in our network that have made smart decisions and some not-so-smart decisions.

Racking Up Student Debt

Since I prepped it by starting with college, Frank and I often talk about student debt and how crippling it is. The number one terrible money mistake that I see is not to say we do not believe in college, which is student debt. I have a lot of experience in looking at student debt. For thirteen years, I worked in the mortgage industry. Aside from where they live, whether they own a home or rent, and their car, student debt is by far the biggest monthly payment most people have when you look at it.

I have seen some incredibly outrageous monthly payments people made, where the return could not come close to justifying how much student debt they have taken out. I am talking about people who took out $200,000, $250,000 or $300,000 for a Bachelor’s degree that got them a $40,000 salary. There are a couple of things behind this. For me, one of them is people get overly focused on the prestige of a school.

LMSM 83 | Money Mistakes

Money Mistakes: The suffering is either going to be while you’re in school and living below the poverty line or afterward for a very long period of time. And that’s the trade-off people often make in racking up student debt.


We looked at this beforehand. Frank is getting ready to set up 529 plans for his kids and was asking me how I set it up. We started looking up, “What does a four-year degree cost at an out-of-state, good solid school?” Frank went to Florida. It is a great school. I went to Purdue, another great school. They were both very similar. We looked it up as about $28,000 a year, tuition and fees.

You’ve got to throw in housing if you are living out of state, books, how to eat right, and everything. You could take out all the student debt if you want that. You can use student debt to buy your clothes at school. You can use it to go out and have a great time. It is the Wild Wild West for me when you look at a lot of student debt.

Let’s take Purdue, for example. Purdue is a top ten engineering school, $28,000 a year. Stanford is a little bit higher ranked in engineering but comparable schools for engineering at least are double, $55,000 a year. You are paying twice as much and more than double for living expenses in California versus the middle of nowhere like Indiana. Twice as much to go to school at Stanford as Purdue but here is what is wild. The mean starting salary for someone at Stanford or Purdue with a Computer Engineering Bachelor of Science is $87,000 for Stanford and $85,000 for Purdue.

You could rack up twice the student debt to make $2,000 more annually in salary. It is not even as if ten years later, it is still comparable within $5,000 or $10,000. It is not over time the Stanford degree gets you farther. We looked it up. Harvard is up close to $60,000 a year and I would argue, you are not doing that much better with the Harvard Bachelor’s than you are in Florida. Some of it is prestige but another part of it is people rack up a ton of debt and live the life for four years. They are spending on things that are not even related to going to school.

What state is Purdue in?

It is in Indiana.

There is a premium between Indiana and California. Do you know where that extra money went from December through February? To Ian’s point, you have to look at the premium. I will tell three follow-ups on this first. A woman who works for me, I won’t use her name, is very practical. She is from the Midwest. She went to an affordable college. She did not use ego. She did not do those things. The only way she could get through college was by taking on debt. I do not think she overspent on her debt but it was one of these things where she has it. We were having a candid conversation. She is in her mid-30s and she is about to finally pay off her debt.

To me, that is a flawed system because this is a prudent person who did not do crazy things, and that debt still is weighing them down. Two, I am born a White male in America, which Warren Buffett claims are a lottery ticket. Second lottery ticket, my parents were smart enough to do what was called the Florida Prepaid Program for me. We did not have a lot of money and they paid for it before I graduated high school.

They started when I was in elementary school and they pay a little bit every month. By the time I got there, they had got me through school at a fraction of the cost. I left for college and had a job but they helped support me and part of the tuition but I was able to come out with no debt. I did not have a huge nest egg of any sort but I did not drag it. When I came out, I was able to earn, save it up, and not worry about these other things.

The third thing is my wife. We have been together now for several years. She graduated from Georgetown with a PhD several years ago. When I met her, she was 24 months out of grad school and she acted like it. She was really cheap. Her dad calls her lizard and goes, “Lizard, you can stretch a nickel so tight that the Buffalo would shed,” because, in the old days, the nickels had a Buffalo on them.

She is tight with money but there is a reason. She was looking around and had scholarships. She was living in Washington DC on $19,000 a year because that is the way it works for upper degrees. She had to stretch it. She had to get a job with that $19,000. She had to find a place to live. She lived in awful places. She would figure out how to kill cockroaches for the first month she lived there. Literally, these are the things she went into.

She would go out with her friends and would buy a bag and a box of wine, stick it in her purse and smuggle in a glass or take a glass from the bar and drink the stuff out of her purse, so for entertainment for the month, she had $40. She knew if she spent more than $10 this night, she was going to run out of money. She lived like this, looked around, and was like, “How are all these other people living like this? Are they rich?”

Even if you’re a good investor, you’re not perfect because you’re human, and you fall prey to emotions. Click To Tweet

It turns out she graduated, had no college debt, and they all did. You are going to have to pay at some point. There is going to be suffering. The suffering is either going to be while you are in school and you are living below the poverty line or you are going to suffer for a very long time afterward. That is the tradeoff people often make in racking up student debt.

If you look at some of the student debt, these terms are 10, 15 years. I do not think a lot of people stop to think about how long that is in their life. That payment could be going to investing in stocks, real estate, and things that are generating a return for you. That is dead money. You are putting dead money into something.

Choosing the Wrong Field, Wrong Industry, Wrong Company

These two are tied. Number two, which is tied to the first part is choosing the wrong field, major, industry, and company. If you go take a bunch of student debt out to get a Computer Engineering degree at Stanford, that is probably a decent idea. You are out in the middle of all of the action. If you are into programming, technology, and startups, it is good. The network is going to help you find something exciting and sexy. That skill you are learning is always going to be in high demand if you can be good at it. You are going to pay off that student debt much faster than somebody who goes and takes $200,000 of student loans out and gets a Management degree.

I am talking about a Management Bachelor’s, which a lot of people take, some benign major, an Accounting degree or jobs that are going to get you a $45,000 salary to take $200,000 of student debt out. $200,000 that they used to be what doctors did and doctors are in financial trouble for the first fifteen years. Every doctor I have talked to was damn broke until they were 40 years old and paid off their debt. I do not think the average kid going to college gives enough thought to their field, major, and industry. I know it feels like a big decision they have to make so young but tough shit. If you make a bad one, it is going to cost you for the next decade of your life.

I have used this example before. My wife is somebody who is a perfect stress test for me. She is an academic. She is a Professor and her friends are professors. In many instances, their spouses are professors. These are smart people. Their SATs scores beat my SAT scores by a couple of touchdowns but in some instances, they do not make good choices.

I will give an example. There is someone we know, friend of friends, who decided to spend hundreds of thousands of dollars becoming an Africanist. For those of you that do not know what an Africanist is because I did not, it is basically someone who is an expert on parts of Africa. I made the stupid mistake of like, “African Americans?” No. Africans, literally, people living on the continent of Africa and he is a White guy from America. He got a degree and became an Africanist.

He can’t find a job anywhere. He tried in Chicago, Boston, and DC. It is incredibly hard to find a job because who is going to hire someone who is not an African to be an Africanist? What I’ve got lucky with and what I saw was I am a construction kid. I grew up in construction. I went to school thinking I could become a doctor because when you are a construction kid, your construction parents teach you that rich people are doctors so, “Go be a doctor,” but I was too stupid to be a doctor. I was not good at it and sucked at Chemistry. I did not continue the course. I’ve got honest fast and said, “I am a construction guy.”

They have an incredible college here for kids that are good at construction. I asked them like, “How do most people pick this major?” They are like, “They usually come from construction families.” I am like, “That is me,” and what I did is I leaned into what I was, and what happened is inertia followed because I started to do things that were serving who I am and true to who I am. I’ve got a degree from the University of Florida, which is a top ten public education in the US. I’ve got a degree in something that serves me, that I am passionate about, and I am good. Green sheets and what that did is I was still broke at twenty but it started to snowball into something else.

Having gone to Purdue, it is a very demanding engineering school, and it was hard. It was hard to get an Engineering degree. The classes are much harder. It is a lot of Math and Sciences. It is detailed, more homework, tests are more difficult, and a lot of guys in my fraternity dropped out of engineering school and took easier majors, and they had a much easier time in college.

They had more free time, and fun, and went to more parties than me. When it was time for me to graduate, I had 100X opportunities. I had every major company beating down my door and reaching out to me. You click a button and say, “I will go to that interview,” and you are in. A lot of them had to go take these full commission crappy jobs selling computers. I can tell you a lot of them back 5 to 10 years, where they were wandering around aimlessly job-to-job because they took these real generalist majors that did not give them any one specific skill and were not in particularly high demand.

The ones that had student debt set them back financially. The top two mistakes right there that will start at your youngest is do not rack up more student debt than you absolutely have to. Do not get too caught up in prestige, focus, and pick the right major. That means picking a major that is hard. If the major is easy, you are not going to get a good job. There is no point in you going to college. That is not going to be a demand. Pick a demanding major, tough shit, harder work, and put more time in because companies are not stupid. They know the easy and hard majors.

If you look around and you are mostly around football players, you are in the wrong class. In Florida, we are required to take a couple of these types of general ed classes but if that is your major, you are in the wrong place. I remember there were paper ball wars or paper airplanes flying through rooms. Those are not the right spots. Although the Construction degree that I got was something I was set up to do well at, it was hard. It was a lot of work.

LMSM 83 | Money Mistakes

Money Mistakes: The average kid going to college doesn’t give enough thought to their field, major, or industry. It feels like a really big decision to have to make so young, but if you make a bad one, it’s going to cost you for the next decade of your life.


Most people reading this are right out of college but if you have kids, what is the network that comes with it? What is the job fair look like when you have a degree in Engineering from Purdue or the University of Florida’s Building Construction Department? How many people show up? What is their placement rate? Those are things that you ask questions about and things that can steer you in the right direction. If you are going to make an investment, look at what’s the payoff.

Screwing Around Too Much In Your Twenties

Mistake number three, screwing around too much in your twenties. It is easy to say, “Your twenties should be your funniest decade.” You’ve got your most freedom, most healthy able body, and all of that. I do not begrudge anyone that has a lot of fun in their twenties. I had a lot of fun in my twenties.  That is not even what I am saying but if you take that to the extreme of worrying about your work-life balance before you have kids and have real responsibility where you are taking long breaks from work.

You are living abroad where every Sunday is party time, going to brunches, and partying so that you are not your best on Monday, you are not going for big promotions because you know that it is going to mean more work. If you do all of that, you are going to work a lot longer in your life. If you blow off your twenties, when you should be learning, growing, moving up, and taking on new challenges, you will be behind in your 30s and 40s, and then when you have kids, you are going to feel pretty guilty that you did not work hard enough.

You are going to feel like you were selfish. It is hard to make up for a decade where you have the energy to work the hardest you will have in any decade of your life. I had more energy in my twenties than I clearly do in my 40s period. If you do not take it seriously, you are going to pay for it from a wealth perspective.

There are a couple of things I would like to add to that. One, I remember being in college and realizing I was going to work with construction people. Construction people are hardworking, blue-collar in most instances, and they go and do. I have always had a dream to go to Australia. The University of Florida had a study abroad program with a school in Sydney. They would send six of their students and we would send six of ours. A friend of mine chose to go, and two things happened when he went. He had a great time. He loved it. It is an incredible stay.

The two things that happened were they had a grading system that was different and his grades dipped drastically. He went from the top of the class to the middle of the heap because of this. Secondarily, everybody he interviewed was like, “Why the fuck would you go to Australia?” He is like, “I want to study abroad.” “Are you going to work in Australia?” He is like, “No.” He found himself as an outcast in a world of people who have never been and have no desire to ever go to Australia. They thought he was a jackass for going to Australia. His grades were not great. He was not at the top of the class and he could not relate to people because of the fact that he made these changes.

What you think is positive ended up being something you had to defend in every interview.

It is interesting. The other thing that I have learned is this, if you do it right in your twenties, you gain the skill. In my twenties, it was construction, estimated, and sales. I was fortunate enough to be a manager by 27, 28 years old. I learned those things. By the time I was 30, I was able to get my 40s streamlined. If you do it right, you learn the skill in your 20s, in your 30s, you are managing it, and in your 40s, you are either an executive or owner. Your 40s, 50s or 60s, if you set it upright, are your big earning years.

I remember being in my twenties and it was a snow day. All my friends are screwing off. It would snow in Virginia 1 or 2 times a year. The first year it happened, I was like, “I am going to go run my project,” and I came home at 6:00. At 6:00, everybody was drunk. They have been drinking since 10:00. It happened the next year. I was promoted by then. I am like, “I am going to go to work.” Around 4:00 or 5:00, I finished. I was the only one working. They were all drunk. The third time that it happened, I was in another job.

The people who were out partying every time it snowed year-over-year were in the same jobs. I was always in a different one because I embraced that. By the time I was in my 30s, I was a manager. By the time I was in my mid-30s, I was an executive. I delayed some of the early stuff. I did not go party. I missed some of those things. Ian did a better job than me, having more fun in his twenties but what happened for me is I saved, earned, and continued to get momentum in my career because I focused on it. What changed is my 40s are drastically different than what my 20s look like.

In my twenties, I worked an insane amount of hours. The most I ever worked, maybe 30s were close. I love something you said. What I accumulated most of in my twenties was not wealth and money because you are taking on more debt. I’ve got married, you’ve got to get a house, and there’s a certain thing that you have to do but what I accumulated a lot of was experience.

My twenties were the most uncomfortable decade of my career. It was uncomfortable at my own choosing. Every time I would get remotely comfortable in a job, I would be banging on the door for the next promotion. I am talking about every year. If I’ve got even remotely close to being good at sales, I was begging to manage salespeople. I was always barely able to do the next job but it made my twenties a very stressful part of my career.

Don't rack up more student debt than you absolutely have to. Don't get too caught up in prestige and focus and pick the right major. Click To Tweet

At 28 is when I moved to DC, so I lived in a new city. I had to learn a new industry. I am running a profit center to go to NVR. Everything I did was about building skills and experience. In my 30s, I worked as hard but the jobs were easier for me because I put that grind into my twenties. I put all those hours in so that when it was time for me to run a business in my 30s, I was prepared for it and very good at it. I accumulated experience that helped me earn a hell of a lot of money in my 30s.

I get into this debate with my wife a lot because she is an educator and has a Liberal perspective because she is on campus. Some people do not have the same upward trajectory as other people. There is no doubt. I would argue that I do not have the same upward trajectory as other people either. I did not go to Stanford. I did not have 1490 on my SATs. I had to earn and grind to get what I had but the point is if you do not get yourself in a position or put yourself in a place that has upside, you are never going to have it. If you are an Africanist, your best-case scenario is maybe being a professor in that realm.

Think how depressing that is that your best hope could be to be a professor ruining other children’s lives by teaching them a major that they are going to have a miserable life learning a stupid major that is not going to earn money.

It is a perpetuating circle. The point of it is if you put yourself in enough of these positions, things can change. If you put in the work and build the value, which most people are not willing to do. Warren Buffett has a famous quote, “Most people miss opportunity because it is dressed in overalls.” You’ve got to put it in the work but if you put in the work, what tends to happen is in your 30s, 40s, and 50s like Ian has been called a couple of times to run high-level businesses, he gets paid a ton of money by the hour. I get paid a significant amount of money by the hour to be a consultant.

When Ian and I are brought into deals, the hourly wage we are paid is similar to a middle reliever in Major League  Baseball. The numbers are astounding. It’s because we built an incredible foundation in an environment or industry that is valued, we get to be specialists for moments and get to utilize that skill. If you watch a TV show and they bill $1,000 an hour or something crazy, those are big numbers but if you do it right and market yourself properly, by the time you get to middle age, you get opportunities like this. It happens to lots of us if you have done the right things in your 20s and 30s, and you build the right foundation.

Living Above Your Means

Number four, money mistake is living above your means. This one did not take a lot of brainpower for us to put on there but it is a little obvious that you have to put it on there. When you develop expensive tastes too quickly, we both pay way more than the average reader of this show would pay for a bottle of wine. I was 23 or 24 years old, and that was not happening. I was buying Miller Lite cases and drinking in my apartment with friends before we went to the bars because it was cheaper than paying for one in Chicago.

It goes without saying but most people screw this up. They get their first raise and immediately go upgrade their car. Their next raise, they go live in a better apartment. People run up credit cards in advance of their annual bonus. I have seen that so many different times where people can’t wait to get their bonus and spend it. A lot of that has to do with their tastes running ahead of how they are performing.

A few interesting things. I desperately wanted to buy a house when I graduated from college. The house, for me, was an instrument to flip into something else. I was going to build it myself. It was not forced equity. I lived in it for two years, I could sell it, and it gained up to $250,000 tax-free. This was a strategy. One of the things that moved me from Florida to Virginia is the company I worked for had that program and I wanted to do it.

I remember looking at bags of carrots at 22 or 23-years-old, those little small carrots that come in the bag because I was packing my own lunch, number one. The number two, I was looking at the difference in cost and it was $2 extra to buy the carrots that were cut. I remember for three years, I peeled my own carrots, eat them, and that would be a snack during my workday. I would peel, cut, and put them in a little plastic bag, and I was saving $2 or $3, which if you listen to our stuff, now we spend lots more money on things that are way more frivolous than carrots.

It is because we cut the carrots many years ago that we get a chance now not to, and that is it. Ian said something about not taking your bonus. Ian and I have a few mutual contacts from our days at the publicly-traded builder. Few of the people that work there, March 15th was a big day. It was a bonus day. Whenever you work there, you will get your bonus on March 15th and there is a host of different bonuses that will all come due.

There was somebody who was fiscally irresponsible that I would learn later, who was always excited about the 15th. I had another friend who was very prudent. I am like, “What did you do on the 15th?” He is like, “There was an auto-draft deposit. I did not even look at it. I wanted to work.” That person is filthy rich. They did not look at it. It was another event.

They’ve got the positive. This other person looked at it as if this were a bonanza. I am going to go out and spend and buy a new car and put it in a pool. I am going to sell my options. The other person who took a little bit but left the rest of it in play, the power of multiplication through appreciation and compounding, is real.

LMSM 83 | Money Mistakes

Money Mistakes: It’s a terrible financial decision to buy a second home for the vast majority of people.


Taking Out More Debt

This one pair pretty well with another one on the outline, which is if you live above your means and the way to live above your means if you are not generating income is debt. It is taking out more debt than you can. When you are younger, it is in the form of credit cards but if you are living on credit cards, it is your fault. There is no one else to blame.

It means you can’t control yourself. You can’t go out for things and spend on things. It means you are driving too expensive of a car, living in too expensive of a house or apartment. If you can take the mentality of credit cards are evil and believe that when you are younger, when you get older, you use them to get points and other things, you pay them off right away. You do not pay the interest but if you can take that approach when you are young and in your 20s and 30s, I always was scared of credit cards. I was always very adverse to them.

When I lived in Chicago, it was an expensive city. I lived in some absolute dumps. I had the same company towards us. I did not have a car. It was part of the thing I liked about GE is I did not have to own a car. I lived in a dump where if it rained, it dripped into the apartment and stairwell. It was a fire hazard where I lived, which is not the smartest thing.

I wouldn’t take on credit card debt. I needed extra spending cash to be able to have fun and go out with my friends all the time, which I like to do but I was not going to do it on credit. I knew a lot of guys that financed those entire five years after college on credit cards. Some end up living with their parents again for a while to pay the credit cards off.

Ian made fun of me relentlessly for the cars I drove. I lived in crappy houses for the first two years out of college and I still drive a comparatively shitty car. I do not drive a decked-out Mercedes or a Chevy. I have always driven slightly used cars because they are less expensive and I can pay it off in 2 or 3 years instead of 7 years. I can take those next five years of money and do other things with it. It is a derivative of debt or credit cards but it is something to do.

The other thing that I have noticed a lot of times is people will buy things when they go on sale, and they put them on a credit card. A lot of people have gone broke buying things on sale. If you do not need it and it is not a must, and if you are not paying cash for it, it is one of those things that will very much limit you later.

What we call this in my business is a drag. It is one of these things that has dragged. Having debt causes drag. When it is time for you to go buy your house and Ian was working in the mortgage industry, you would see all these things. The bad decision with college and credit cards is debt. Those two things will work against your credit, and they also limit how much your DTI or Debt To Income and those adds up. You can afford less house, which is shelter if you have other debts. These things all work in unison.

We both liked debt. We both are comfortable with debt.

Not on consumer debt.

You can’t use debt on depreciating assets and things that go to zero or go to less than what you paid for them, debt on cars, clothes, and housing. We use debt on appreciating assets or assets to cashflow. If I can use debt to get another asset that sends me a monthly payment that covers the debt, pays more, and pays it down, I love that kind of debt.

Most people do not use debt for that reason. They use it to flaws. They use it to get things to show off a certain amount of I have made it to their neighbors to try to keep up. Be careful with that and that goes along with living above your means. Now, we have said all of that. We had to get that out because you can’t be a dumb ass about the way you spend.

Thinking You Can Save Your Way To Wealth

I also think mistake number six is thinking that you can save your way to wealth. You might be able to do that. You read these stories about people that saved for 50 years and “Now, I am a millionaire and I never made much money,” but it is a miserable way to live where you are cutting coupons and you are not spending money ever. You are known as the cheap friend.

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I am a big believer that most Dave Ramsey disciples are freaking losers. If you have to follow Dave Ramsey to tell you, “Do not drink cappuccinos and lattes, and that is how you are going to make it in life.” If you think that small, you will never be wealthy. There are two ways to win a baseball game. You can either play good defense and have great pitching and try to win every game 1 to nothing or 2 to 1, or you can smash the shit out of the ball and outscore everyone you play.

What I would challenge you is which team is more fun to root for. I have rooted for and I have coached teams that did it the hard way. Great defense and pitching, and it was great to have all three but usually, a team has one, or the other great lineup or good defense. It is miserable to root for the team that does it all with defense. Every game is a nail-biter. There is no room for error.

You always feel like your chin is up to the water and the water is rising on you, instead try to earn more and focus on producing. This data was pretty interesting in our half-ass internet research that we found 97% of American households will never earn more than $200,000. If you are trying to become wealthy by saving money and not spending, that is not a life well-lived. I would argue, go take more chances. Invest in your training, skills, and ways to make more money.

Seek out jobs that are not comfortable for you. Seek ones out that have a little more risk but a higher ceiling. Earn your way to a place where you do not have to say, “I am not allowed to drink Starbucks coffee in the morning, and that is how I am going to become rich,” because that is fool’s gold to try to save your way to becoming a millionaire.

Our society values people who earn. If you can produce and earn, society pays you. What kind of life are you living if you can’t afford a Starbucks? What type of life are you living if you are only ordering off the left-hand side of the menu? I have an unbelievable number of acquisition salespeople that work in my business. They say, “One of the things I love about it here is we are uncapped.”

You are damn right. You bring me a million-dollar deal. I will pay you the commission based on your commission schedule for that million-dollar deal because you made the company a ton of money. It is uncapped earn. Go earn, self-source, and find. There are people in the accounting department who are good at saving but those jobs pay very differently than people who can go earn. They are good at what they do and they have value.

The way society works on the major upside is having the ability to earn. The sweet spot is if you can earn and still spend below your means, which Ian and I get on here and joke about bullshit we spend money on. We spend way less than we could based on what we earn, and that is the sweet spot because of the majority of the stuff that we do.

We will take that but we reinvest our cash in the assets that grow, and that is what starts to happen. We are both in our mid-40s. If we are still doing this podcast in twenty years, who knows. In our mid-60s, if we are still alive, we are still going to be buying assets, and reaping the benefits of the assets that we started building in our 20s that have allowed us to go into our 40s and beyond.

Maybe we will be drinking like Coors Light like Bill. He is richer than God. That is all he will drink. He used to drink fancy wine. Maybe as we get older, we will get even cheaper. We will get even more miserly.

It could happen.

Marrying The Wrong Person

Number seven mistake, marrying the wrong person. Again, 25 years since college, I have been to a lot of weddings. I have been to a share of weddings. I also know a bunch of those weddings that did not work out. There are a number of different directions we can go here and we could do an entire episode on marrying the right person.

There are two things that I want to make a point of. Your spouse is either a headwind or a tailwind to your earnings. I am very fortunate that I have been married to the same girl for many years and she has always been a tailwind. What I mean by that is she is my biggest supporter, believes in me, and is very encouraging when I am not doing well from either an earning or career standpoint. She doesn’t downgrade me. She knows when I need a pump-up and when to be positive with me. I am not someone that needs a lot of that but she is good about that.

LMSM 83 | Money Mistakes

Money Mistakes: Go take more chances. Invest in your training, skills, and in ways to make more money. Seek out jobs that aren’t comfortable for you, ones that have a little more risk but a higher ceiling. Earn your way to a place.


I have never had a very stressful time at work and had to come home and deal with nonsense, negativity, and finger-pointing. She is incredibly positive, uplifting, and believes in me. That is about all I need. My family believes in me. It is obvious when someone is married to someone who is the opposite. It is obvious when they work for you when you talk to them, and you hear the way their spouse talks to them, that they have married the wrong person from a wealth perspective because they do not have that support.

I have managed a lot of people that have gone through some tough divorces. I can assuredly say those people were not too productive while they were going through those ordeals. That is the support part and the earning potential. When you go through a divorce, if you are the higher earner, you are going to pay 30% of what you earn in a year for as many years as that state deems. You are going to split all of your assets and start all over again. For some people I know that are wealthy folks, the financial pressure of divorce is incredibly brutal. It can knock a decade off of hard work in your career that you feel like you are starting all over again.

Getting Married Too Early

Ian made a note and it talks about getting married later. I do not know if I was ready to get married in my 20s or 30s. I certainly did not find the right people. I had a long-term relationship from my late 20s until my mid-30s. What I found in a spouse is someone who gets me, and supports me as much as I am able to support them, not financially through emotional and talking, and not second-guessing. My spouse is very stable and balanced. If some stupid, she says it but when she says it, I listen because she doesn’t say anything stupid.

About second-guessing, I was in a relationship where I was constantly being second-guessed. I was being second-guessed if I was being faithful, working late, and what I was doing. Was I out doing something I shouldn’t be doing? It is debilitating. It is one of these things where you can’t thrive if you constantly have a regulator or governor on forward progress.

Again, unnecessarily. I have a lot of friends that should have been second-guessed on those things by their spouses but Frank was not one of those. The only thing Frank should have been second-guessed on is whether he ate the last piece of cheesecake in the refrigerator. Now that is a legitimate thing to second guess Frank on. The infidelity thing is pretty crazy.

I’ve got an argument with Ellie over, “Did you eat the last crabcake? I was going to eat that for dinner.”

What Frank said is important because all your friends are getting married at 25, it doesn’t mean that is right for you. Getting married is not some checkbox. Getting married to the right person is everything. All of Frank’s best friends got married and Frank did not find the right person, so he waited. He did not feel the pressure to marry the wrong person. I got married at 25. He got married at 40. Both worked for us but we found the right person.

I did feel pressure. I would get invited to weddings, parties, and all these things. If you have two dates for a party, you do not have a date. It is like two starting quarterbacks. In your twenties, it is okay because they are still single people at weddings. By the time you are 35, you are hanging out with other people’s kids and it gets uncomfortable. It is like living uncomfortably in your twenties. I would rather be uncomfortable and broke at twenty than uncomfortable and broke at 40. It was one of those things that were not a sacrifice later. It is a get-to-do later because I did not make the wrong choice earlier, and I hadn’t found the right person.

Having Kids At A Time of Serious Money Uncertainty

Number nine that goes along with marrying the wrong person is having kids at a time of serious money uncertainty or if you are already in an unhappy marriage. It is not going to make things better. Having kids is expensive. You are now paying for multiple people and a lot of your money goes to it. If you are going to have kids, you are going to put a lot of pressure on marriage in general.

The last thing you want to do is bring them into a world where you have uncertainty with your job and pay. You have a whole bunch of debt and nothing in assets. Adding kids to that is going to make your life very stressful, and it is only going to put you a lot more behind. It would be better to try to figure that out with your spouse. How can we get ourselves into a better financial position? A lot of people like people that get married because other people are doing it. There are a lot of married couples that feel the pressure that we should be having children when they are not ready to, and it hurts them over the next 20 or 30 years.

I had this myth that if I had a wife and kids, my life would get easier when I did not have kids. What I was desperate for was a support system in a family and my own home team. Those things come with a spouse and children but what doesn’t come is ease. What I have learned is whenever you add other humans, things get more complicated.

They are wonderful but it is not like you will get spare time and be able to have all this peace. What comes with it is they are forever. I remember being in college and I had a friend who was already married, and he is still married. He was a couple of years late getting to college. He had started his life first and came back to college. He told me, “We are not going to start having kids yet because they are around for a long time.”

If you blow off your twenties when you should be learning, growing, moving up, and taking on new challenges, you'll be behind in your thirties, and you'll be behind in your forties. Click To Tweet

I thought that was a selfish perspective because I was 19 or 20 and he was 25. I was like, “Why would he say that?” I then unpacked it, and he was right. He was not ready to have kids. He was in college. He was 25 and still in college but kids are going to be around for two decades. It is something you’ve got to go into willingly, ready to go, and you’ve got to understand that it’s got a long tail. If you have other things you need to accomplish, you need to do those things first before you get into kids. Ian is a great example. You guys were married for a decade before you had RJ?

Close. Maybe 8 or 9 years.

It is a long time. You guys could have done it earlier but you chose, “We want to go live and now we are ready.”

It will have been stressful if you think about it. If we had kids while we were still in Chicago, I was not earning a lot. We were both working at the same time. I was trying to figure out, “Do I stay at GE? Do I go to NVR?” If we had kids when we moved to DC, I did not know if I was going to stay in DC. I did not know anything about my company and industry. I did not know how stable that was.

A big reason why we waited a long time to have kids, honestly, we were having fun together. We were enjoying it, and we are young but a big part of it was I wanted to be like, “I am rock solid financially to have kids now,” rather than rush it, run out, and have kids at the same exact time, some of our other friends were. To us, “Waiting a few years, we are going to be better parents because we are going to feel like we can give them everything. We are not going to fight as much over money because money can become a real stress point in a marriage when you have kids.”

Number ten is buying a house when you are not ready. There are a lot of different ways, buying too much house or buying a house, either way, it doesn’t matter. For 13 years, I worked for the 3rd-largest builder in the country, and at the end of it, we were doing $12,000, $13,000 or $14,000 settlements a year, and 90% of those people got a mortgage through our company. I’ve got a chance to see all kinds of financial situations.

At least 1/3 of those customers, in my opinion, had no business buying the house they bought. The reason I can say that is there are some pretty clear objective metrics that go into whether you give someone a loan for a home or not. The biggest one to me, always, aside from credit score was, “What was their monthly income and what was their monthly payment on the house, principal interest, taxes, and insurance?” That is called a front debt to income ratio.

The back debt to income ratio is all of your monthly payments. If someone made $10,000 a month, including the house payment, and had $5,500 in monthly payments, that would be a 55% debt to income ratio. Frankie, we did loans all the time at 45%, 40%, 50%, and 55% total debt to income ratio, and that is before taxes.

You start thinking about after taxes, these folks have hundreds of dollars that may be left in the bank to live and they are buying this expensive house. Frank knows it because he sells these houses. These folks would move into this house with three months of reserves payments they could make. They had to get a scrape together, a gift from family to get into it.

Frank would go see them and say hi to them because he would stay in the community, and they would be living on beanbags for months, some of them years. They could not even afford to put curtains in the house, paint the house, to put furniture. Why? It is because of the societal pressure that you haven’t made it unless you have bought a house but buying a house for some people means financial ruin.

There is another way to buy the house. In most normal communities, if you buy a new home, for example, there are five working plans. They’ve got the small loss leader that gets you in the door with a low price and they have got the blown-out massive house on the top end. What people usually buy is 3 or 4 but almost nobody buys 1 or 2. 1 and 2 are the lowest prices. 3, 4, and 5 are the highest price. That is what they do. They are like, “I liked this one but this model home that is number 4 out of 5, I could stretch and hit. What you do is you stretch into something that makes you a house poor.

“Currently, it is my wife and me, I will get a three-bedroom.” “You’ve got to get the five-bedroom.” That is where societal pressure comes in. You go from a debt-to-income ratio of the high mid-30s, which is reasonable to 50 because you can’t help yourself. It is like people have buffets. You go back for your fourth plate because you paid $30 for the buffet. Clearly, you do not need that much. If you are home alone, you do not need that much.

LMSM 83 | Money Mistakes

Money Mistakes: Make decisions that are in the wheelhouse that you can do well in the long term.


Buying A Second Home

You get emotional and you are like, “I am going to capitalize on this,” and that is a lot of what happens. I am seeing this now. This is the second point with housing, with Airbnbs. Everybody now is ecstatic about Airbnbs. “We’ve got to go own an Airbnb.” Airbnb, at its core, is a second home. You are going to buy a vacation rental. In Ian’s world, people do not Airbnb. They keep it vacant all the time but in my world, people are often buying Airbnbs.

I will ask why and there are two reasons. There is inventory in Airbnb because it is discretionary stuff. That is luxury. It hasn’t been gobbled up by the hedge funds, and it is easy to find inventory, so people chase it. Most Airbnbs are run illegally. They are not paying the hotel tax because the hotel tax is quite expensive. What they are doing is they are running it and paying taxes as single-family, and you are capitalizing as a commercial investment.

Eventually, that is going to come to rules. You are basing a business around a lie, essentially. To that end, you are doing it for ego and chasing yield that doesn’t belong, and those two things could potentially set you up for incredible ruin because who the hell needs a second house? People that make $20 million a year. You are better suited, not spending all this money on the house, and instead of having two incredible vacations a year, it is going to cost you way less long-term.

Frank and I could not agree more on this one. Folks that buy second homes, in general, do not have enough money to do it. They do it because it is like a trophy and they know someone else who did it. It sounds cool to say, “My house is at the beach.” There are so many people that own a second home and you ask them if they have any income-generating real estate and they do not. All they have is a second home. If you are buying a second home before you have real estate that pays you rent that pays back, an Airbnb doesn’t count because most people do not make any money on that shit.

If you are doing that, it does a couple of things. You feel like every vacation now has to be at your second home. You do not go anywhere. That is the only place you ever go to. You should have a net worth of $10 million or $15 million before you buy a second home. I could think of so many better things to go put that money into. It needs to be a plaything like buying a 2nd car when you get a 2nd home but most people get an 80% loan on that second home.

They are trying to go there 3 or 4 times a year and barely scraping by to say that they have a second home they go to. Freaking buy some flights and go stay in a hotel in a great city with your family anywhere in the world. When you are ready to go, go pay as you choose. It is a terrible financial decision to buy a second home for the vast majority of people. The reason they do it is to try to keep up with other people.


As we wind this down, the last thing we had on the outline, and this is a pretty obvious one, is people that think they are stock market traders. They trade too active, and they are buying and selling all the time, trying to time the market. If you do not have time to study stocks for 15 to 20 hours a week, you have no business trading in and out of equities. If you are not studying, reading every quarterly release, listening in on the conference calls, paying close attention, reading the Wall Street Journal every day, and reading every bit of news on the company, buy and hold it forever. Do not trade in and out of it.

Many people trade in and out based on their emotions. They are up 22%, so they sell and they think maybe I will buy the dip, and then it runs another 50%. The mistakes I have made, all of them in the stock market, had been I was too active. They were never, “I sat too long.” They were all around. “I moved too fast. I moved in and out of things too much.” To me, if you do not have time to do that, let someone else manage your money or pick something else to invest in.

A lot of novices do this. I did it with the two stock examples I talked about. I traded Apple at the wrong time and I clearly did not sell US Airways at the right time. I jokingly said to someone that a couple of years ago, they are a flipper. They flip houses. He is like, “We bought it and overpaid. We have spent too much on construction. It took longer than we thought. We did not make any money but it was a fun experience.”

My response was, “Can I please add you to my buyer’s list?” He is the perfect person who is going to overpay. That is what trading too actively is, your novice. You can’t beat a bunch of people that are sitting in front of Bloomberg machines up on Wall Street. You are not going to win, so you are better suited not to do those things and look at it from a different perspective.

Out of all 12 of these mistakes, they come down to 2 things. The first is a lack of initiative. I do not pay enough attention. I do not know enough to educate myself on some of this stuff. I do not read enough about it and pay attention, so I am never going to get myself into a good money position. As we were looking at this, Frankie was telling me that a high percentage of people at his company, he offers a match in his 401(k) and people do not take it. Even though it would be money right out of Frank, it saves Frank money because they are not choosing it. It would be pretty expensive for him. He has 50 employees if they all took it but they do not even take the money that he is willing to give them.

If we look at it, 92% of employers that have a 401(k) plan offer a match. Nearly 30% of people do not take it. It is literally free money. One of the simplest easiest decisions you can make is to take a direct 100% return, tax-free on your money, even if it is $1,000 or $2,000, and people won’t even help themselves. The initiative is one. That also gets back to a lot of the earnings stuff we talked about.

If you're trying to become wealthy just by saving money and not spending, that's not a life well-lived. Click To Tweet

Two, it is the ego. Trying to impress people who do not give a shit about what is going on in your life or what car you drive. You are trying to impress them with a nicer house, a nicer car, private schools, and social spending. I know a guy who complains all the time about his job. He hates his job, company, and everything about his career. He bought a brand new $80,000 Mercedes. He is going to be doing more work for that same shitty job and company.

He doesn’t even realize that his spending is driving him to do something that creates a lot of misery for him. If he chills out on what he spends and does not try to keep up with anything, he would be saving more money and he could go do a job that pays them a little less, where he has a better boss, company, culture, and balance.

I did one of my best deals. I picked the right major for myself. I’ve got a degree in Construction Management. I did not take on too much debt in college. Once I graduated, I began to read. We did not put investing in yourself and we talked about it a bunch. I read a book by Charles Schwab, a pretty simple book, Learn to Earn. I read the book and it said that, “One of the things you could do is invest in companies that you believe in.” It was in the late ‘90s. I believe the company that I went to work for was a good company. I listened to everything and what the CEO said. I was not an insider illegally. I was able to buy my own company.

I liked everything they said. I bought stock for $38 a share with my first bonus check. It was roughly $2,500 worth of stock. This is late 1998. The stock promptly dropped and toggled between $30 and $33 a year for two years. I am thinking I should sell it. In 2007, the stock peaked. Around its peak, I sold it for $825 a share. My $2,500 was worth under $60,000. I use that with a hard money lender. I bought a house that I flipped. I made $40,000 on that flip. It was the first flip I ever did.

I own some other real estate that I lived in, and it was the first one I ever flipped. I sold that and paid taxes. I took $2,500 and turned it into $100,000 for a 4,000% return, which is pretty good over around a ten-year period. That is not bad. I do not remember what I did with the other $200 that was in the bonus check. I think I blew it at a bar in DC. To that end, that is taking all of the worst things and aligning them in a way that worked out perfectly. It is investing in yourself, all the stuff we talked about, and making decisions that are in the wheelhouse that you can do well, and long-term had an incredibly positive effect.

You should read this with great money advice because Frank and I are clearly smart by pouring thousands of dollars into this show. A great money move by pillars of money strategy.

There is no doubt time. We also both offer courses individually on how to maximize the amount of time you spend.

As always, you should listen to Frank and Ian about money because we are dumbasses. Frankie, great talking to you. Make some money moves.

Always a pleasure.