You can view + comment on this post at rftr.substack.com
Here on Reel From The Real, i write what i’ve learned in investing x personal finance.
My goal is to:
share optimistic and positive energy - because the hustle is real x rough enough
personalise personal finance that bit more.
😎 To your wealth,
Aila Obiocha
When it comes to finance and investing, one thing I’ve realised is that the way we invest money can be influenced by the way we earn money, especially if that happens through salary.
Here’s the first trouble with earning money as salary:
it conditions us to get paid for effort, not results.
With the exception of salespeople, executives (CEO, CFO, COO, etc), and a few other professions, most of us who earn a salary get paid for our efforts (time-based remuneration) rather than our results (outcome-based remuneration).
I think this affects us as investors. Investing is a constant dance of thinking, deciding, and executing. Earning money based on effort affects our ability to think, decide and execute based on results.
Investing is a results-based activity. Your profits do not depend on the amount of time you spent researching that stock, scrolling through Twitter, or looking for buy/sell tips in that Telegram group 👀 👀 👀 .
Your profits depend on whether you are right, and by how much. Results, not effort.
Here’s the second trouble with earning money as salary:
it conditions us to earn small but frequent and repeatable amounts of money. drip, drip, drip, drip.
As a result, most of us do not learn how to stack money.
And yet, wealth building is a stacking activity.
The best verb that I think describes the activity of becoming wealthy is the word ‘amass’ - to gather a large amount over a period of time. Wealth is a stacking activity. Earning in stacks, saving in stacks, and investing in stacks are all skills in the game of wealth. The skills within the skill.
The first time I invested in stacks, I wrote a cheque for $50,000. My stomach fell out. I nearly vomited, and had to go outside for air. Didn’t sign in to my bank account for weeks. That “0.00” account balance was like a hot knife in my eyes.
Earning in small but frequent and repeatable amounts of money. Most of us carry this experience into investing. We become clock-watchers of the stocks and bonds we invest in, wondering why they don’t increase in price daily.
We obsess over dividend-paying stocks, because we get a cheque from them every X months. Exactly like a salary - small but frequent and repeatable amounts of money.
We obsess over the rental income from property investments because we get paid every X months. Exactly like a salary - small but frequent and repeatable amounts of money.
The trouble with this is that wealth tends to happen in large, lumpy, infrequent but transformational amounts of money. This is why when it comes, it changes lives.
A wealth event allows you to buy the whole house in cash, not with a 10% deposit.
A wealth event allows you to pay off the mortgage at once, not over 20 years.
A wealth event allows you to pay for mini me’s university education in full, from today.
A wealth event allows you to quit that job and take a 3-year break, to do whatever it is that burns brightest in your soul.
But also, wealth events tend to be non-repeatable, one-offs. You cannot sell that company more than once, unless you start a new company and sell that. That stock may go from $12 to $90 again, but it won’t happen for a while. Even with dividend-paying stocks, our greatest profits eventually come from the increase in share price, just as the best property investments eventually deliver the largest capital gains.
How we earn money matters, because it can affect us. Without realising it, we may apply a salaried mindset to our investing activities; program ourselves into salary-like investments. Instead of seeking wealth from our investments - a true multiplication of money - we can end up seeking a replacement of salary.
What most of us call a “safe” investment is really just an investment that behaves like a salary … because that’s how we are used to earning money.
These investments feel safe because they feel familiar. They pay us money in the same way we earn it. This can be good, but it can also mean that we miss out on entire investment opportunities that don’t look safe or perform like a salary, but can be a real source of wealth.
We are addicted to frequent money, rather than transformational money.
But true financial wealth transforms.
It changes locations, homes, schools, families, relationships, passports - and, sometimes, even character.
Salary can be a wonderful path to investing and building wealth. But please, try to ensure that at the end of the month, you take home the paper, not the psychology.