Personal finance

A coin has two sides.

---

The title of my sex tape financial life.

I’ve experienced both sides of the coin:

• When I was a pro poker player (at age 20), I was rich among my peers.
• When I pivoted to marketing (at age 25), I was poor as a church mouse.

But one thing was common:

By the end of the month, my pocket was empty.

How the fuck?

The answer is… personal finance.

Personal finance

Today (at age 30), I make good money again.

But what’s more important:

At the end of the month, coins jingle in my pocket.

Plus I have everything that I want, financially:

• own home
• healthy foods
• care for my children

Wealth, health, happiness — the big three.

I’m not rich, but I’m wealthy.

… and you can be, too.

How?

Let’s start with the basics.

The foundation

Poor.

Rich.

Wealthy.

What’s the difference?

To find the answer, we need to start with the first principles.

Enter: the “5 whys” method.

What’s the goal? I want great financial life.

1. Why? — To have money.
2. Why? — To be free.
3. Why? — To do what I want, instead of what I need.
4. Why? — To meet my needs (be wealthy, healthy, happy).
5. Why? — To live.

For me, a great financial life is life itself.

It’s not money — it’s tools to build my work, health to play with my children, free time to date with my wife.

Wealth, health, happiness.

Freedom.

Life.

… and what’s life? ¹I try to deduce everything from fundamental science, so I ask the question: which scientific field studies life? <— Click these orange numbers for important extras.

In biology:

• survival
• reproduction

The two basic instincts of life’s evolution.

And a great financial life is life itself, therefore…

Personal finance is survival and reproduction… with money.

Wealth is survival. Richness is reproduction.

• Survival (wealth) is my ability to self-preservate money — while getting everything I want.
• Richness (reproduction) is my ability to replicate money — while having everything I want.

Active, passive.

Working for money until money’s working for me.

If you are wealthy, you make so much money that you can get anything that you want. If you are rich, your money makes so much more money that you don’t need to make.

• Poverty is zero (e.g., if you want to, but don’t have a car)
• Wealth is zero to one (e.g., when you get the car you want)
• Richness is one to many (e.g., when you have the best car)

So what’s the goal?

To survive until you reproduce — to be wealthy until you become rich.

How?

I only speak two languages:

• Mathematics (the language of science)
• Storytelling (the language of art)

What do I get when I mix the language of kings and kingmakers?

Formulas!

My formula for personal finance:

Revenue – Cost = Personal finance

Making money VS. spending money. Pretty simple.

Revenue has two big parts:

• Earning (making new coins)
• Investing (making more coins of what you already have)

Cost has two big parts, too:

• Spending (making coins disappear)
• Debt (making more of what you don’t have)

If you notice, these are the four basic operations of mathematics:

Addition, subtraction, multiplication, division.

Without further ado, let’s get into it.

My principles for a great financial life

The four parts will follow this order:

1. Subtraction (spending)
2. Division (debt)
3. Addition (earning)
4. Multiplication (investing)

You must first build up your defences before you attack — you cannot catch a butterfly with a torn net.

Let’s repair that fucking net!

−Subtraction: spending

The biggest misconception in finance the world:

“I wish I was rich… that would solve all my problems.”

… yet, a large proportion of lottery winners go bankrupt within a few years.

Why?

Because more money doesn’t solve our problems — it highlights them. If you pour money into your mistakes, you make them bigger. The more money you have, the more you spend.

It’s not about how much you make… it’s how much you keep.

You need more money because of your spending habits — 99% of the problem is not money-making, but spending.

Moreover, it is much quicker to fix that than to fix money-making. One requires a new job, a new profession, a new life. The other requires just a few simple golden rules.

Are you making…

• $25,000 a year? You can barely afford to buy a used car, rent an apartment, or seek cheap entertainment (e.g., watching the game on TV)
• $100,000 a year? You can buy a new car, own an apartment, go out for better quality entertainment (e.g., watching games live)
• $1,000,000 a year? You can buy a luxury car, a penthouse, the most expensive entertainments (e.g., watching the game from the VIP)

The result?

Your money evaporates. Even though your standard of living improves, you won’t have any money.

… just like me at the age of 20.

This phenomenon even has a name:

Inflation of your standard of living.

Your brain quickly gets used to the new level and it becomes the default. It’s the desire, the pre-purchase excitement, the anticipation of the products that’s good — as soon as you buy it, you need a new one.

Everyone is miserable at their own level.

The solution?

Avoid inflation of your standard of living: always live one level below your means.

Making $1,000,000?

• Buy a new (but not luxury) car
• Buy your own (but not penthouse) apartment
• Buy some live (but not VIP) sport tickets

The same list we wrote for $100,000 — but it’s not about the specific products, it’s about living one level down.

How do you know what luxury is?

First, if you have to ask yourself whether you can afford it: the answer is no. It’s easy to accept not being able to buy something, but it’s fucking hard to swallow the “give up your existing comforts” pill. It’s called loss aversion.

Second, ask yourself: will this decision be a good one even if there will be a serious negative change in my current financial situation?

“Hope for the best, prepare for the worst.

— Maya Angelou

Third, ask yourself: what are you giving up by buying that product? When you spend, you feel happy. You think you are buying something — but in reality, you are losing something too.

• If you buy a Playstation, you won’t have money for an Xbox
• If you buy a sports car, you won’t have money for a work car
• If you buy sweets, you won’t have money for healthy foods

The first is not a big loss, as they are in the same category. But on the second one, you give up a money-making thing for a money-burning thing. And in the third, you sacrifice the most precious treasure of all: your health.

For every purchase, you have to choose one resource over the other.

You can buy anything, but you can’t buy everything.

… and this is true even for the rich who have all the money, because:

• Even if you buy a Playstation and an Xbox too, you won’t have time for both of their exclusive games
• Even if you buy sweets and healthy foods too, your stomach will full with sweets so won’t be space for others
• Even if you buy a sports and a work car too, they take time what you can’t spend with your children

Wealth, health and happiness (the big three) can’t be bought with money.

And speaking of money — what you spend costs you 10, 100 or even 1000 hours of work to produce. You worked for a month to burn it now.

You pay for every item with the most precious thing — your lifetime.

What are you giving up in exchange for buying that particular thing or experience… is it worth it?

If the answer isn’t “fuck yeah” — then it’s a big fat “NO”.

Have you bought a not “fuck yeah” product?

Well, it’s not just your fault.

There are a few things that have a huge influence on what we buy:

• The power of strangers: Advertisements
• The power of acquaintances: Your peers
• The power of yourself: Your own needs

The formula is simple:

• Don’t watch ads — buy the ad-free premium version, switch channels, install AdBlocker, etc.
• Forget acquaintances — family members, neighbours, influencers. Stop comparing yourself to others
• Listen to your own needs — what do you need? Always compare yourself to your past yourself, not your future one

How?

With our best weapon against the strangers, acquaintances and even yourself:

Algorithmic thinking (focus).

Identify the top factors in your spendings — categorize all your spending into one of the 3 categories below:

1. Should
2. Would
3. Could

“Should” are those you need even if you have no money: bills, mortgage, food, etc. If you don’t pay them, your electricity gets turned off, your house gets repossessed, you starve to death.

“Would” are the things that, while important, you have the option of delaying or not paying for: life insurance, healthy foods, or saving money.

“Could” are the products you would spend more on if you had more money: a bigger Netflix subscription, a better car, more travels or a bigger house.

1. Spend on the “should” first. Do you have money left over? Go to step 2.
2. Spend on the “would”. Do you have money left over? Go to step 3.
3. Spend on the “could”.

The key is to buy according to your means, not your wants.

… but how?

There are two very important groups of purchases:

• Large investments
• Frequent usages

Large investments include real estate, cars, mobile phones, and even investments itself — they consume huge amounts of money. Therefore, it’s easy to lose a lot on them. Make your decisions carefully, but not too slowly, so that you miss out on a big opportunity.

Here are some rules of thumb:

• Pay no more than 4 times your annual net income on property or a house
• Spend no more than 40% of your net monthly income on housing
• Pay no more than 3-6 times your monthly net salary on cars
• Don’t have more than 10% of all your money in cars
• Pay no more than your weekly net salary on mobile phones

There are always two prices for most commodities:

1. The price of buying it (e.g., your house loan — including the interest you pay afterwards)
2. The price of owning it (e.g., the maintenance — including the bills of the house)

Frequent usages include your sleeping mattress, your work car or your computer chair — that you use extremely often. Things you use for a significant fraction of your life are worth investing in: you spend ⅓ of your life in your bed, and other ⅓ in your work car or computer chair. In these cases, don’t think of price, think of “cost-per-use”. Always think about how much a purchase will cost per use (i.e., a computer for 1000$ for 5 years = 0.54$ per day). Save on what you rarely use or only use for a very short time.

Here are some rules of thumb:

• For rare/short usage, look second-hand first (e.g., baby carriage)
• The less often you go to shopping, the less you spend (1x per week)
• Always eat before shopping (empty stomach, bigger bag)
• Go shopping alone (more needs, bigger bag)
• When shopping, go with an accurate list (zero impulsive buying)
• Be flexible on brands (quality over names, colors or logos)
• Always look at unit price ($/kg or lbs), not the actual price ($)
• Stock up on non-perishable products when they are on sale (e.g., toothpaste)
• Not in sight not in mind (don’t go to the section where you don’t want to shop)
• The fewer paid programs, the better (e.g., cinema, only 1x per week)
• Dress for the season at home too (e.g., wear a sweater and long pants in winter)
• Negotiate and bargain on everything you can (e.g., buy fresh foods on local markets)
• Sleep on the decision 1 day before buying
• Wait at least 1 week before buying anything that is not a daily necessity
• Sleep on big investments 14 days before buying
• Anything big you want to replace, put it off for another six months

… and always ask yourself: what else could you buy for that much?

If you stick to only these few principles, your living conditions will improve significantly.

However, if you take it seriously, you can overdo it. It’s all about moderation: if you eat too little, you’ll be too thin and your body won’t get the nutrients it needs, so you’ll get sick — if you eat too much, you’ll gain weight and put too many harmful by-products into your body, so you’ll get sick. We put valuable labels on the “balance” for a reason, like “happy medium”, “golden mean”, etc.

Be a reserve, not a miser!

• Become a reserve by adding weight to every spending (e.g.: phone notice of deduction, or pay in cash to feel the pain when you give it away)
• But if you’re a miser, pay for everything up front (e.g.: all-inclusive on a holiday so you won’t always see dollar signs in front of your eyes when ordering another drink)

And as with habits, values, to-do’s, the first rule is…

Write your spendings!

One of the most important principles of modern corporate operation is that what you measure got better by only the fact that you start measuring it.

For how long?

Only for 3 months — it’s enough time to eliminate variance, but not too much to get tired of it.

After that, you can follow these rules:

• Make a budget — decide at the beginning of the month how you’re going to allocate your money and how much you’re going to spend. After that, there’s nothing you can do but stick to your decision.
• Set aside your savings at the beginning of the month — and only spend the rest. In different words: spend only 30% of your salary to improve your standard of living — put the remaining 70% aside!
• At the end of the month, if you’ve done well, reward yourself! It’s important because we are not robots, sometimes we need fun to recharge — we can’t just take from the body, we have to give back.

÷Division: debt

Waking up in the middle of the night, sweating, shaking, screaming about unpaid bills is horrible — stress tears your mental health apart.

Health is a core pillar of life — one of the big three.

How to keep it?

• Don’t get into debt!
• Get out of debt first!

If you want to avoid debt, here’s the magic: set aside an emergency reserve of six months.

1. Calculate how much money you need for a month to living
2. Multiply it by 6
3. Set it aside for immediate access

This is so important that practically every other rule is based on it — if you don’t have six months’ emergency savings, you cannot buy anything else.

If you are already in debt, you will get some other rules:

• You have to pay your debts before every purchase — Did you buy ice cream? Let the price of two scoops go into your debts. Ordered a pizza? Put the same amount towards your debts.
• Never borrow money — This will put a safety net under you that you don’t need. Your brain will manage the situation without it anyway. Plus, it’ll ruin your friendship.
• If you get in a tight situation, let the pressure rise and don’t touch your savings — even less your investments.

What does the third one mean?

In the investment world, some people are risk-averse — they are the ones who wake up in the middle of the night. And then there are the reckless at the other extreme — nothing will move them.

For the latter, it is an interesting tactic to let debts, unpaid bills and loans pile up until the deadline. This is an incentive. You won’t be hard on yourself if you don’t pay for yourself, so pay yourself first — others will be angry if you don’t pay for them, thus motivating you to solve the problems.

In other words: others will motivate you, so you don’t have to motivate yourself.

• If you do it the other way round and pay everyone else first, you won’t have enough for yourself and you won’t be motivated to create more, because you are not hard on yourself.
• But if you pay yourself first, the anger of others will cause your brain to go into creative mode and solve to get more. You will be forced to look for other sources of income, to work more, to think more.

Pay yourself first.

But that doesn’t mean you should spend your money — invest it!

Paying off debts is also an investment. But if there’s no interest on it, you should invest in something that pays you interest — and use the interest to pay back your debts.

Debts fall into two categories, similar to spendings:

• Large
• Frequent

The latter (frequent) includes loans, bills and food. These are good things: food is delicious, bills provide warmth and electricity, and loan is a form of investment — the rich like to use it. When inflation is high, for example, do you know what one of the best investments is? Low interest loans! When annual inflation in Hungary was over 25% and it was looking month by month like it wasn’t going to come down anytime soon, I put my money into a 3% loan. Two years later, my loan has cost half as much…

Here are some rules of thumb:

• Take out only as much loan, so that if the repayment triples, you can still pay it
• Don’t spend more than ⅓ of your net income on repayments
• If interest rates go down, replace your high-interest loan with a lower one

The former category (large) is made up mostly of taxes. Many people do not pay attention to it, even though taxes are the biggest part of people’s spendings. You would get twice as much money if taxes were not deducted. You work about 4-6 months out of 12, from January to at least May, to pay your taxes. Only in the months after that do you generate your own money.

• You get taxed when you make money.
• You get taxed when you spend money.
• You get taxed when you save money.

… and you get taxed even when you die.

You can avoid this — by starting a business.

That’s why later we will talk about business:

Starting a company… for personal finance.

For now, suffice it to say that you can get a range of benefits with a company, like paying less taxes. Hungary, for example, has the highest VAT in the world – the “Value Added Tax” you pay on every single product you buy or sell. Every. Single. Product.

It is fucking 27%²For comparison: in the US, the sales taxes are around 3-7 %.

But if you buy as a company, you can claim back the VAT, so every product will be 27% cheaper. It’s like Black Friday… every day of the year!

+Addition: money-making

Waking up in the middle of the night is terrible — but not sleeping at all is even worse.

When you work through the night because of money, that’s a sign you are doing something wrong. If stress tears your mental health apart, lack of recovery tears your physical health apart.

That’s why making money (like losing it) can be damaging.

Many people think that if they have money, they will be happy.

They won’t.

Not having money causes unhappiness, but having money does not cause happiness.

Unfortunately, that’s how personal finance life works: one big mistake can be enough to lose — but it takes many, many small improvements to win. That’s how every fields, aspects and systems of life works.

Others believe that to make money, you need money. No. You need money to invest and multiply money, but not to make money from zero.

Instead, you need:

1. To identify what there is demand for
2. Then you need to develop the supply

To do this, you need to specialize — to have as much knowledge as possible in a field as narrow as possible.

This is the opposite of what you hear from the rich, right?

Diversification! — they shout.

Well, diversification is a completely different skill: it’s about keeping money, not making it.

The rich were focused first, too.

Find a specialism you can be the best at. But to get the balance back, you need to know the world — the different disciplines. The good news is that you only need to know it superficially, the key principles of each discipline.

“You must know the big ideas in the big disciplines and use them routinely – all of them, not just a few. Most people are trained in one model – economics, for example – and try to solve all problems in one way. You know the old saying: To the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.”

—Charlie munger

Only then can we connect the fields and give something unique. It is best if you can become the smartest people in your field — working with the smartest people in every other field.

So the first step is to learn how to make money from nothing.

The next step is how to make money from money.

×Multiplication: investing

Now we come to the best part:

The art of making money from money.

Your first two important steps:

1. Make yourself an investor
2. Make others your investor

1Make yourself an investor

Here’s how:

• If you have a lot of money, don’t sit on it — tie it down! There’s no such thing as having money that stays level: if you don’t increase it, it will keep decreasing (e.g., inflation)
• Learn about money — you don’t need to learn about money to make it, but you will need to learn it to multiply it
• Study history, not forecasts
• Find the opportunity that eludes everyone else. How? Invest in something you know how to do and can influence (e.g., owning your own business, real estate) — it may promise a smaller profit, but it will ultimately bring you a much bigger edge than something that promises big opportunity but you don’t know how it works
• Invest 10% of your wealth in high-risk investments – if you had bought $100 in bitcoin in 2009, you’d be a millionaire billionaire by now

1Make others your investor

Here’s how:

• Talk to other people about money — talk through who has savings, family assets, insurance, etc. The rich are interested in the topic “money”. My friends who are financially struggling don’t like to talk about money, business and investments. So I also learn from my friends who are struggling financially: I learn what not to do
• Always seek the opinion of an independent professional when making big decisions… life decisions — in Hungary, for example, you get $3-4,000 free money after your second child, and $12-16,000 after your third… yet none of my friends know about it
• Hire smart people — the rich work with people who are even smarter than they are
• Get rich friends — they are close to the fire, and that’s where the money is made. Information is the most important resource of our time, overtaking oil
• Teach your kids to manage money before they have their own earnings. This is not taught in school — at home, during the morning routine, before the afternoon nap, or at the dinner table

Now for the most important piece of knowledge in this article!

Assets vs. Liabilites

There are two types of “invesment”:

• Assets
• Liabilities

Although we have to spend money on the assets, they will bring us money back later. A work truck to transport your tools from one customer to another (e.g., electrician, gardener, carpenter, etc.) is an asset — it helps you make more money.

We have to spend money on liabilites in the same way, but they have the opposite effect: they don’t make us money… and often takes us even more. A sports car that you drive for fun is a liability — it helps you spend even more money (e.g. gasoline), not to mention the maintaining of it (e.g. insurance, service, etc.)

• Assets are investments — multiplication of money.
• Liabilities are expenditures — burning of money.

The point of investing is to make money… without you being there. You don’t work for the money — the money works for you. When you eat. When you play. Even when you sleep.

Can you invest only with money?

No, you have:

• time
• energy
• knowledge

You are full of investable assets.

But while they are limited — 24 hours a day, 2400 calories, and 86 billion neurons —, money is unlimited.

To invest, you have to spend your money. But poor people spend their money too, only they don’t buy assets, they buy liabilities.

The liabilities take the money out of your pocket, the assets put it in.

Here’s the scale — poor, wealthy, rich. You can tell from the balance sheet of anyone which category they fall into.

Assets generate new money that you can reinvest in even more assets. That’s good news because moving from 1 to 2 is much easier than moving from 0 to 1 — then from 2 to 3 is even easier, and so on, until you have enough assets to give you a “passive” income.

The goal: to have assets that generate more money than the liabilities take away.

What most people do wrong is to increase their liability purchases as much as their asset purchases.

• ⅓ of lottery winners declare bankruptcy — meaning they were worse off than before they became rich.
• 78% of former NFL players have gone bankrupt or are under financial stress — because of joblessness or divorce.
• 65% of new businesses fail during the first 10 years of being open — many of them due to lack of financing.

Hence, the rich are the last to buy luxury goods — they invest everything they can in assets. The poor do the opposite.

Everything is a liability that will burn money:

• Own house
• Own cars
• Hobbies
• Unhealthy foods
• Children’s toys

Everything is an asset that will make money:

• Real estates for rent
• Work trucks
• Further training
• Healthy foods
• Education of children

Buying liabilities instead of assets is a loss in many ways:

• Time — the value of your asset may increase (e.g. real estate), while the value of your liability is sure to decrease (e.g., television)
• Energy — assets take more and more of the burden off you (e.g., investment property), while liabilites keep you busier and busier (e.g., bigger home is more cleaning)
• Knowledge — gaining investment experience with the assets, gaining money-spending experience with the liabilities

So the point is to buy things that generate income or increase its value.

But what to invest in?

• Real estate?
• Bonds?
• Stocks?
• Mutual funds?
• Saving accounts?
• Intellectual property?
• Gold?

Well, here is everyone’s favourite answer:

It depends.

There is no universal answer, because it all depends:

• the product (e.g., data vs. oil, Apple stock vs. Shell stock, etc.)
• the investor’s characteristics (e.g., risk tolerance, budget, etc.)
• the economic environment (e.g., growth vs. recession, etc.)

… and 1000 other things.

BUT!

I think you’re best off doing what you’re currently here to do… investing in:

• Yourself
• Your work

Let’s see them.

You + Your work

1You

There is one (and only one) investment that most star investors agree is “the best of all” — the #1 investment.

It is…

Yourself.

Learning. Self-improvement. Thinking. Ability. Talent.

We said that the best part is: the art of making money from money.

Well, no.

It’s the art of making money from your brain.

Not a wonder that this became one of the two parts of greatness:

• Inner world — you
• Outer word — your work

What you learn, no one can take away. Not even a business partner. Not the tax authorities. Not a family member. No one and nothing — not even amnesia.

• You don’t need start-up capital
• No tax to pay afterwards
• One click away from all the knowledge

… and it’s all fucking fun.

• If you can grow your salary by 10% a year, you’re making a 10% return on your investment: yourself.
• If you can grow it 20% a year, you’re making more than most star investors.
• If you grow it by 30% a year, your monthly salary will be 13 times more in a decade than now.

That’s a nice sum.

Don’t believe me?

Listen to the world’s best investor.

… and you can invest in yourself not just mentally, but physically.

It’s called health.

Staying healthy is one of the best ways to save, you can’t get such high returns on anything else:

• No need to spend on medicines, treatments, special foods
• You don’t have to spend time on them (you couldn’t delegate or automate this)
• You don’t lose cognitive capacity from your mental work because of worry, stress, fear

… but what about the other half of greatness: your work?

2Your work

Well, if you look closely, the most popular investments are all linked to businesses:

• Bonds
• Stocks
• Mutual funds

A company can save you a lot (remember, zero VAT).

No ceiling on your salary.

… and if you get into debt, your company will be the debtor — not you.

Money-making, investment, spending, debt.

The four basic operations are all combined in a company.

You can become wealthy in a job — but you can only get rich as an entrepreneur.

So now comes the paradox:

Why to start a company for personal finance?

A good job requires expertise — specialised knowledge. For a business, you need business knowledge (in addition to expertise) — general knowledge.

This is why entrepreneurship pays so much more… and why most businesses go bankrupt. Even if you are the best hairdresser in the town, if you don’t understand business principles (e.g. finance, marketing, etc.), then the less skilled professionals will leave you behind because of their better business knowledge.

• In a business, you work for yourself: everything you create will pay off for you later — many times over.
• As an employee, you work for someone else: you do the work you get paid for — only once.

Investing in a business is not just about starting a company: the above (bonds, stocks, mutual funds) are ways in which you are effectively participating in businesses, but not running them. Still, you are best off doing all this by starting a company.

Why?

• addition & subtraction — aka finance (accounting)
• multiplication and division — aka laws (legal)

Remember: the rich surround themselves with even smarter people. And the two most important people you should be answering the phone to at night are your accountant and your lawyer.

Finance (accounting)

The accountant speaks the language of numbers.

He understands the numbers, but more importantly, the stories behind them. It requires precision — the more the numbers, the greater the precision.

If done right, it can have a huge tax-reducing effect — so it can cut exactly the biggest cost of all, giving you a big payback.

• We can pay our costs before we pay tax
• We can reclaim VAT
• We can get state aids

The company earns, spends as much as possible, then taxes the remainder (and typically there is no remainder, so no tax).

The individual earns, spends as much tax as possible, then spend the remainder (and typically there is no remainder, so no spending).

That’s why a company has much more room for manoeuvre with numbers.

Laws (law)

A lawyer speaks the language of words.

He understands the words, but more importantly, the loopholes they create. It requires up-to-date knowledge — the complicated the words, the more the knowledge.

If we do it right, it can give us huge protection — so it helps us with what is our biggest disadvantage as individuals: our liability.

• If we make mistakes as a company, the company is penalised.
• If we make mistakes as individuals, we are punished.

That’s why you see the richest people having multiple lawyers and nothing on their name: they are unassailable. They control it, but they don’t own it. If they lose, nothing can be taken from them.

The poor want to own everything and run their own affairs: they are vulnerable. And if they lose, everything can be taken from them.

So a company has much more room for manoeuvre with numbers — and even offers protection against words.

It’s always cheaper to pay the accountant and lawyer than the tax authority or court!

The goal is not to become educated, but to surround yourself with educated people.

Here are some more tips for corporate finance:

• Write total income (this is how you know if you are growing, stagnating or rushing towards bankruptcy)
• Write total costs (e.g. depreciation, your working tools are worth less every year, they wear out) – these are the minimum costs you need to generate
• Write all future costs and improvements (e.g.: new work car in 3 years, then it’s X$ per month)
• Capital always has an interest loss (it’s in a work car instead of bank interest, for example) – the point is to put it into whatever will give you the highest return
• Don’t confuse the company’s money with your personal — you shouldn’t give yourself a safety net either personally (from company money) or at company level (from your personal money)
• Don’t keep all your money in the company, but don’t take it all out either! Have the same 6 month operating contingency reserve as you do in your personal finances
• Stress test! Always play with the idea of how much loss you can cause if something goes wrong — prevent anything that could ruin you
• Only grow if your profits grow – profit is the indicator of company health

And finally and most importantly:

Only start a company if you sincerely want to!

There are more convenient, fun, stress-free ways to make money. A large percentage of companies fail within the first 5 years. A large percentage of the rest go bankrupt in the next 5 years.

If you don’t really want to, keep your job and start a business as a second leg — or invest it in something else!

… but if you want to start one, you can use the rich man’s favourite word.

Diversification

• Don’t keep your money in one place
• If your only source of income is your salary, you are in danger. Your viability depends entirely on your employer. You could get fired. You could go bankrupt. Your employer is human, anything can happen to him. There’s a reason we have more than one leg.
• The more you specialize, the more you depend on your field. Get deep knowledge in something, but get general knowledge in many areas.

So, after the four basic operations…

The Sum of it all

So to create a checklist that you can take away with you, we need Simon Sinek’s Golden Circle:

1Why do I need money?

To be wealthy, healthy, happy.

To be free.

To live.

2How can I make money?

(Reading on phone? Rotate it for wide screen mode)

Poor	Rich
Empty pocket (zero coins)	Leaky pocket (too heavy coins)
Tries to survive financially	Tries to reproduce financially
Thinks money solves problems	Knows money highlights problems
Starts by catching the butterfly	Starts by fixing the net
Works for money	Money works for him
His standard of living inflates	Lives one level below his means
Buys according to his wants	Buys according to his means
Prepares for the best, ignores the worst	Hopes for the best, prepares for the worst
Most important resource is money	Most important resource is time
Says "yes" to everything	Says "fuck yeah" or "NO"
Compares himself to others	Compares himself to his past self
Only cares about the price of buying	Also cares about the price of owning
Spendthrift, not a generous.	Reserve, not a miser
No idea what he's spending on	Writes down his spendings
Puts money from his hand into someone else's	Puts money from his hand into his pocket
Borrows money	Lends money
Works to get out of debt	Works to not get into debt
The pressure is killing him	He uses pressure as motivation
Thinks loan is evil and fears it	Uses loan as an investment
Taxes first, spends the rest	Spends first, taxes the rest
Thinks "money = happiness"	Knows "no money = unhappiness"
Thinks "to make money, he needs money"	Knows "he only needs money to invest"
Diversifies to make money	Diversifies to keep money
Studies forecasts	Studies history
Invests in what's trendy	Invests in what he knows
Only invests in safety	Invests in high-risks too
Thinks "money is stagnant if he doesn't spend it"	Knows "money either grows or shrinks"
Doesn't like to talk about money	Interested in the topic “money”
Likes to be the smartest person	Surrounds himself with people smarter than him
Thinks he learns everything at school	Learns finance at home
His learning ends with school	His learning ends with death
Spends on liabilities	Spends on assets
Tries to own everything	Tries to control everything
Pays to tax authorities & court	Pays to accountants and lawyers
Never uses personal finances	Starts a company... for personal finance
Thinks the rich got rich because they are lucky or evil	Thinks the poor stay poor because of their habits
Thinks in price ($)	Thinks in cost-per-use, unit price ($/kg) or hourly wages ($/hr)
Thinks in what he sees (why should I buy this product in front of me?)	Thinks in what he doesn't see (what else can I get for that money that's not in front of me?)
Pays for unexpected expenses with a credit card	Pays for unexpected expenses with his own emergency reserve
Pays others first	Pays himself first
Knows everything better	Asks for advice
Buys the luxuries first	Buys the luxuries first
Speaks the language with words	Speaks the language with numbers
Works hard	Works smart
Getting poorer and poorer	Getting richer and richer
Looks for a good job	Creates a good job
Educated	Surrounded by educated people
Wants to buy everything, but can't afford anything	Can buy anything, but doesn't want everything
Thinks the same (99%), so he gets the same results (1%)	Thinks differently (1%), so he gets different results (99%)

3What should I do to have money?

1. Spending (−)
   • Pay no more than 4 times your annual net income on property or a house
   • Spend no more than 40% of your net monthly income on housing
   • Pay no more than 3-6 times your monthly net salary on cars
   • Don’t have more than 10% of all your money in cars
   • Pay no more than your weekly net salary on mobile phones
   • For rare/short usage, look second-hand first (e.g., baby carriage)
   • The less often you go to shopping, the less you spend (1x per week)
   • Always eat before shopping (empty stomach, bigger bag)
   • Go shopping alone (more needs, bigger bag)
   • When shopping, go with an accurate list (zero impulsive buying)
   • Be flexible on brands (quality over names, colors or logos)
   • Always look at unit price ($/kg or lbs), not the actual price ($)
   • Stock up on non-perishable products when they are on sale (e.g., toothpaste)
   • Not in sight not in mind (don’t go to the section where you don’t want to shop)
   • The fewer paid programs, the better (e.g., cinema, only 1x per week)
   • Dress for the season at home too (e.g., wear a sweater and long pants in winter)
   • Negotiate and bargain on everything you can (e.g., buy fresh foods on local markets)
   • Sleep on the decision 1 day before buying
   • Wait at least 1 week before buying anything that is not a daily necessity
   • Sleep on big investments 14 days before buying
   • Anything big you want to replace, put it off for another six months
   • Make a budget — decide at the beginning of the month how you’re going to allocate your money and how much you’re going to spend. After that, there’s nothing you can do but stick to your decision.
   • Set aside your savings at the beginning of the month — and only spend the rest. In different words: spend only 30% of your salary to improve your standard of living — put the remaining 70% aside!
   • At the end of the month, if you’ve done well, reward yourself! It’s important because we are not robots, sometimes we need fun to recharge — we can’t just take from the body, we have to give back.
   • Become a reserve by adding weight to every spending (e.g.: phone notice of deduction, or pay in cash to feel the pain when you give it away)
   • But if you’re a miser, pay for everything up front (e.g.: all-inclusive on a holiday so you won’t always see dollar signs in front of your eyes when ordering another drink)
2. Debt (÷)
   • Don’t get into debt
   • Get out of debt first
   • Set aside an emergency reserve of six months
   • Pay your debts before every purchase — Did you buy ice cream? Let the price of two scoops go into your debts. Ordered a pizza? Put the same amount towards your debts
   • Never borrow money — This will put a safety net under you that you don’t need. Your brain will manage the situation without it anyway. Plus, it’ll ruin your friendship
   • If you get in a tight situation, let the pressure rise and don’t touch your savings — even less your investments
   • Take out only as much loan, so that if the repayment triples, you can still pay it
   • Don’t spend more than ⅓ of your net income on repayments
   • If interest rates go down, replace your high-interest loan with a lower one
3. Earning (+)
   • Identify what there is demand for
   • Then develop the supply
   • Specialize first
   • Get multidisciplinary thinking
4. Investing (×)
   • Don’t work for money — make money work for you!
   • If you have a lot of money, don’t sit on it — tie it down! There’s no such thing as having money that stays level: if you don’t increase it, it will keep decreasing (e.g., inflation)
   • Learn about money — you don’t need to learn about money to make it, but you will need to learn it to multiply it
   • Study history, not forecasts
   • Find the opportunity that eludes everyone else. How? Invest in something you know how to do and can influence (e.g., owning your own business, real estate) — it may promise a smaller profit, but it will ultimately bring you a much bigger edge than something that promises big opportunity but you don’t know how it works
   • Invest 10% of your wealth in high-risk investments – if you had bought $100 in bitcoin in 2009, you’d be a millionaire billionaire by now
   • Talk to other people about money — talk through who has savings, family assets, insurance, etc. The rich are interested in the topic “money”. My friends who are financially struggling don’t like to talk about money, business and investments. So I also learn from my friends who are struggling financially: I learn what not to do
   • Always seek the opinion of an independent professional when making big decisions… life decisions — in Hungary, for example, you get $3-4,000 free money after your second child, and $12-16,000 after your third… yet none of my friends know about it
   • Hire smart people — the rich work with people who are even smarter than they are
   • Get rich friends — they are close to the fire, and that’s where the money is made. Information is the most important resource of our time, overtaking oil
   • Teach your kids to manage money before they have their own earnings. This is not taught in school — at home, during the morning routine, before the afternoon nap, or at the dinner table
   • Write total company income (this is how you know if you are growing, stagnating or rushing towards bankruptcy)
   • Write total company costs (e.g. depreciation, your working tools are worth less every year, they wear out) – these are the minimum costs you need to generate
   • Write all future company costs and improvements (e.g.: new work car in 3 years, then it’s X$ per month)
   • Capital always has an interest loss (it’s in a work car instead of bank interest, for example) – the point is to put it into whatever will give you the highest return
   • Don’t confuse the company’s money with your personal — you shouldn’t give yourself a safety net either personally (from company money) or at company level (from your personal money)
   • Don’t keep all your money in the company, but don’t take it all out either! Have the same 6 month operating contingency reserve as you do in your personal finances
   • Stress test! Always play with the idea of how much loss you can cause if something goes wrong — prevent anything that could ruin your company
   • Only grow if your company’s profits grow – profit is the indicator of company health
   • Only start a company if you sincerely want to!
   • Diversify

Congratulations!

You have the recipe to get wealthy, healthy and happy — now you just have to cook it.

BUT!

If you’re going to continue this path, I have to warn you.

Disclaimer

In the introduction, we noted that a great financial life is life itself.

… with a really important footnote:

It’s not money!

Very important difference.

Money is not life. For many people, money controls their lives — for them, money is life.

Please, for the sake of God, don’t let it!

Control money to live — not the other way around.

Don’t be like I was.