The #1 Reason You Never Feel Like You Have Enough Money | Ben Carlson

Yeah, it's kind of funny. Looking back on it now, my dad didn't talk about money as much as I thought, being a finance guy. It was more like lead by example. I guess there's a few comments here and there, credit card debt and these types of things, but I do think for a lot of people there's two main things that drive your financial habits. One is your sort of personality, and it's kind of roll the dice—some people are just more well-suited for taking care of money than others. And for other people, it's the environment you grew up in, right? And it is those habits. And I think that has had a huge impact on me. I was a saver from an early age because my parents were savers. My parents were relatively frugal, didn't spend a lot of money. My dad never, still to this day, doesn't spend money on himself, barely. It's like pulling teeth to get him to enjoy his money.

And I think seeing that is something that can help. And also it can hurt, right? I talked to a high school in New York a couple years ago, and these kids were telling me about their experience. They're trying to change things, but they were talking about, how do I get ahead financially when my parents are in credit card debt and they have terrible financial habits? And it's hard to break that cycle. And so, do you think that is like the main thing that drives people's financial habits—is what they saw in their childhood?

I think it's part of it, but that could also go the other way too, where you see stuff that you don't agree with, and you learn like, okay, this is what I'm not going to do. I'm not going to do that. I'm not going to get into a rut like my parents did, or I'm going to spend because they were savers, or I'm going to save because they were spenders. So I think you can also learn what not to do, hopefully, and sort of take that with you.

It's really hard, especially in today with the fire hose of information coming at you all the time. And I, you know, AI is certainly not going to make that any easier for us, right? And so I think having the right filters in place helps, because you're right, simple to me beats complex, but a more complicated sales pitch or narrative or strategy is way easier to sell people, right? If you sell people like the holy grail, it's easier to talk them into that because it's easier to buy a complicated strategy. Because if you sort of open up the curtain and look at the man behind the curtain, you know, the Wizard of Oz or whatever, and realize like, oh, this stuff—if we just take it down to its simplest parts, then you have to face the fact like, okay, now it's kind of on me, right? I can't blame someone else if something goes wrong. And so simple in a lot of ways is harder, because you have to understand what it is that you're doing and be okay with it.

I don't think I've ever compared myself to Warren Buffett before, but I do think—yes, I think especially for regular people who aren't in finance all the time. And one of the reasons that I started writing about this more simple approach is because working in the finance field, I realized like, oh my gosh, I was blown away by the depth of knowledge and the intelligence of people in the finance industry when I first joined, right? These people are highly educated, they have all these designations. And then a few years in, I thought like, wait a minute, all of that intelligence isn't really getting them that far, right? They're still underperforming the market, or they're still making these huge mistakes. Just because they're smarter doesn't make them better investors. Sometimes it leads to overconfidence. And that's the kind of thing where I tried to explain to just regular people outside of finance is, you don't want to get into that situation where you think you're smarter than the markets, or you have confidence in yourself that you're better than everyone is. And so that's why I do think like a simpler index approach, target date funds, whatever it is for most people, that makes sense, and you kind of just pull yourself out of the way and let compounding happen.

It's really hard, especially if you've never experienced it before. You can't recreate that feeling of what it's like to lose money, right? If you've been to a casino, you know, you get this sinking feeling, and there's certain parts of your brain that go off because you're losing money. There's been some studies done that show people can relive financial losses in their sleep. Like losses are really, really painful. And the thing is, one of the reasons that volatility kicks up in down markets, right? Like up markets are kind of slow and plotting, and they say like you take the stairs up and the elevator down, right? And part of that is because once people start losing money, they just start panicking, right? And it's kind of like, I'm just going to hit—there's an old Roman army thing that like action removes fear, right? So people want to do something, anything, to like, how do I relieve this pain?

And the thing is, volatility is kind of the price of admission in the markets. And so for a lot of people, first of all, it's getting more comfortable with it. For other people, it's like finding a portfolio that works for you that allows you to deal with the volatility, right? And for some people, that could mean taking less risk and having some sort of emotional hedge, whether you're holding more cash in your portfolio or fixed income or something, even though that might not get you that same chart that's in your financial advisor's office, right? It might not get you those high returns, but I think you have to kind of understand yourself. And some people are just more hardwired to deal with the volatility, right? There's young people who have invested in crypto and sat through like 60, 70, 80% crashes multiple times and have been okay and are fine with it. And other people, they would never be able to sleep at night if that happened. So part of it is like understanding yourself and what your relationship to loss is.

Yeah, it's hard, because some people again are just hardwired to think like that. And a big part of it is that you have to have some sort of plan in place and some like goalposts, the mile markers, to understand like, am I on my way to reach my goals. That's the biggest thing for most people. The goal is not to beat the market or to do better than your neighbor or whatever, or to have the biggest pile of money. It's like, are you on track to reaching your financial goals? And that, when we work with wealth management clients at my firm, the biggest question anyone wants answered—it doesn't matter how much money they have, right? They could have a couple hundred thousand dollars, they could have tens of millions of dollars. The number one question they want answered is, 'Am I going to be okay?' That's what people want to know, right? If I make this decision, if I make this investment, if I spend this money, am I going to be okay?

And the hard part is that the financial planning process is a process and not an event. It's not like you do it once and then it's done for. You're constantly doing it. It's like staying in shape, right? You have to get up and put your gym clothes on every day and work out. You have to eat right. It's not like you can just automate your health. You have to actually do it. And that's the same thing with financial planning, is that you have to kind of do it every day and make those decisions and make course corrections, but you have to have a plan in place. Even like a mediocre plan is better than no plan at all. And that's the hard part for people. If you don't have a plan, that's when it's easiest to give up in the market volatility when it's going down, right? It's like, 'Okay, fine, get me out and I'll figure out something later.' If you don't have a plan, then it's easy to make those decisions that are going to come back to bite you.

Well, one of the things that we tell people is like, we can't offer you investment advice. We can't tell you what to invest in unless we understand your goals, right? And so for a lot of people that starts with your risk profile and your time horizon. Those are the two biggest things in my book. And the risk profile is your willingness, need, and ability to take risk. Those are the three big things, all right? And two of them we can quantify. One of them we can't quantify, it's more qualitative. So your need to take risk is like, what is the return you need on your assets to get to where you want to be, right? Here's what you have. Your ability to take risk is like, here's what you have, here's your net worth, here's your savings rate, here's your income. We can make some assumptions of what that will be in the future. So those two are pretty easy to kind of quantify, right? Put all the numbers together, come up with a plan, we can run some different analysis and give you some range of outcomes. If the market does this, here's what's going to happen to you. If the market does this and it's worse, here's what's going to happen to you. Like, we exist in this range of outcomes.

The willingness is the hard one because that's like the qualitative one. It's like the squishy side of things, right? You could have a ton of money. Let's say you sell a business and you're worth $10 million. You have the ability to take a lot of risk because you have a lot of money, right? You're going to be okay even if it gets cut in half. It's still plenty of money for anyone, but you might not need to take risk anymore. So then you kind of balance it out, like do I want to grow this pile way, way bigger, or do I want to avoid losing the money and having to start over again, right? And so that's the willingness part that you have to accept, like what are you willing to put at risk? And then the time horizon is the big one. When do you need to spend the money? Is this for a wedding that's in two to three years, or a house down payment that's in five years, or is it your kids' college fund, or is this retirement that's 30 to 40 years in the future? And that's kind of how you can begin to assess the types of investments that make sense to you.

And for me that would be probably, yeah, high-yield savings account. For some people it could be, you know, maybe a more balanced portfolio. You know, maybe you take a little bit of risk with your money and you split the difference 50/50 or something. But I've seen too many times where the stock market could fall very fast, right? In 2020 when COVID hit, the stock market was down 35% in like five or six weeks, right? I think you just don't want to get into a situation where you're banking on that money being there, and then you go to pay and it evaporates in the short run, right? Very quickly.

And I think that's the hard part. And so for me it's like a barbell portfolio, right? You have your risk on one side of the barbell and then you have non-risk on the other side of the barbell. And that sort of high-yield savings account, CDs, money markets, whatever you call it, that's like your liquid portion. And again, this is—some people are just—I know someone who keeps his entire cash emergency bucket in stocks, and he says, 'I know that like it can lose money, but over the long term I'm coming out ahead. So I just have to build into my, whatever it is, like I give it a 25% haircut in my mind that like that 25%, or whatever the number is, might not be there.' He's, you know, less risk-averse with that bucket of money than I am. And I think there's no right or wrong answer when it comes to that stuff. It's just like, what are you willing to put at risk and accept?

I think having 6 to 12 months in emergency liquid savings sounds great on paper for personal finance people, and it's totally unrealistic for like 90% of the population, right? If you imagine how many other financial goals that you're going to have to forego to get that 12 months of spending in a liquid savings account, it's almost impossible, especially for people who are just starting out and they want to also save for retirement and they want to save for kids' 529 plan or whatever, right? They have all these other goals, and so I think it's really, really difficult for most people to do. So I think you have to kind of assess what other backstops that you have. I agree with what Nick said, the job is a big one, because most people who, if they lose their job and they're out of work for a while, the emergency savings fund is going to have a hard time keeping up if you're out of work for an extended period of time.

What other assets do you have? Do you have money in a brokerage account that you can tap, right, in case, some of your investments? Maybe you have some equity in your home that you can tap for a home equity line of credit, something like that. So I think a lot of it depends on like what other sort of break-in-case-of-emergency pieces that you have. Like, we have a decent amount of equity in our home, and I have a home equity line of credit I could tap if I wanted to. And so I personally don't keep 12 months worth of spending in our liquid cash savings account. I also think people who have a high savings rate have the ability to probably have less in there, because if you just turn that savings off for a month or two, right, you can kind of replenish the cash relatively quickly. So that's kind of—I'm probably not as conservative in terms of having like six to 12 months. I know a lot of personal finance people swear by it, but I think only the spreadsheet warriors are the ones who do that. I don't think for most people it's realistic.

Yeah.

No, I know people who do that, and you're right, if you have good enough credit, they're willing to extend that kind of stuff, and you just have to obviously make sure you pay it off before that teaser period is done. But it is kind of insane that the average credit card rate is north of 20% right now, and you could still effectively borrow at 0% using a credit card if your credit score is good enough. Yeah, you're right. So there are other places that you can sort of tap if you have good credit and good financial history behind you.

Yeah. And obviously the first part of that is, even if you are the greatest investor in the world, you're the next Warren Buffett, you need to have some savings at your disposal to build it up in the capital markets, right? So saving is the big first step for most people, especially when you're first starting out. How much money you save is going to have a way bigger impact than your investment returns, right? So you have to be able to put money away. And you're right, depending on your time horizon. So you said you're 38, you retire, let's say—I don't know, people are living longer, right? You retire sometime between your 60s and 70s, right? Something like that. Who knows what'll happen? Advances in health, that sort of thing. I told my kids the other day, I think like if things keep progressing as they are, like you guys are probably going to live to 100, right? So you have a long time horizon ahead of you. So you have the ability to compound. So you're right.

For most people, I look at risk depending on where you are in your life cycle, right? So if you're a retired investor, you know, you're 65 years old, you have no more income coming in. You're cutting it off, right? You're living only on your financial assets, then like a bear market is very risky to you, right? A market crash. If it happens right at the outset of your retirement, that's risky because you don't want to have to sell your financial assets when they're down. Like when stocks are down, you don't want to sell them. But if you're a younger person, and let's say you have two, three, four decades until you have to spend the money for retirement, that bear market now is not as risky to you because you can use your human capital—that's your future income and your savings—to invest when stock prices are down, when dividend yields are higher, and these types of things. So that bear market, a market crash, probably means a different thing from a risk perspective to you. So you're right, at a younger age, you have the ability, like we talked about, to invest far more aggressively. And as long as you can take the volatility, then it makes sense because you have to look at volatility as an opportunity, not a risk. And over the long term, there's—

That's been phenomenal. So I looked at this the other day. If you go from the very bottom of the great financial crisis, which is early March of 2009, the S&P 500—so that's like 17 years essentially—is up almost 17% per year, which is mind-boggling right now. That's kind of cherry-picking. That's the low of a huge financial crisis when the stock market was down almost 60% from the highs. But the crazy thing about that to me is that coming out of the 2008 crisis, no one was saying like, 'We're going to go on a generational bull market run here,' right? At the time, people were investing from the fetal position. People were saying, 'Oh my gosh, this is a new normal. Expect lower returns going forward. Interest rates are lower. The Fed is going to create hyperinflation.' Remember how scary it was back then? I've been working in the industry for 20 years now or so. So I was relatively young going through the great financial crisis. And the market seems so easy to people now in the 2020s because it seems like, oh, the market just goes up all the time. Even when it goes down, it comes back right away. That wasn't really the mentality back then.

And to your point about being shaped by experiences, you're right. There's a lot of people who saw their parents lose their jobs, or their parents maybe lose their house, right? I have a colleague whose parents lost their house because the business went under. It was a really scary time, and it's honestly, it's kind of good to remember that because we haven't really had a real recession in like the last 17 years since the great financial crisis. We had a one- or two-month recession during COVID, but it doesn't really count because that was more like the government shut things down, people stayed home, they sent a bunch of money out to everyone, right? Even if you lost your job, you were being paid in some cases more to be unemployed than you were to work. So it's interesting. If you're a newer investor who didn't live through that, you probably think markets are easy, right? Like this stuff—there's never anything that goes bad that lasts very long. And so it's interesting to like—it's a dichotomy of if you grew up in 2008, you were probably scarred on that for a while. Now, in the 2020s, if you started investing, you're probably going, 'This is fantastic, investing is easy,' and it's not always going to be like that.

I mean, that can help. It's funny, financial advisors, the one thing that you're told—it's like they hand you a business card when you get your financial advisor designation and they tell people like, 'Just ignore the noise,' which sounds like great advice, right? Just ignore the noise. That's impossible to do today though, because we have these little 24/7 alert machines in our pockets that tell you everything, right? And so I don't think it's easy enough to just say, 'I'm going to ignore the noise.' I think you have to have some sort of filters in place. So filters in terms of what opinions are you going to listen to? And maybe you're right, maybe it's, hey, I'm going to turn cable news off because all they're doing is trying to scare me, but I'm going to get my opinion and analysis from someone who actually understands the situation, right? And provide some context and some nuance. And that's the kind of thing that I try to do on my blog when things are going bad, is try to provide like perspective and nuance and context.

And the point is not that like, listen, nothing bad is ever going to happen, just hope for the best and you'll be fine. Like that's not a smart way to go through life either, because bad stuff can and will happen, and the markets can go through bad times. That like my whole—the whole point of my book is that the reward is worth the risk, but the risk can be pretty scary and painful too, right? Lost decades and recessions and financial crises and crashes and all this stuff. That stuff can and will happen. It's kind of just, are you going to allow the reaction function to take over in that situation, or are you going to continue to follow your plan? And that's the hard part, is like you have to stick with your plan come hell or high water, because if you give up on it, the plan is useless.

I do think there's never been a better time to be a DIY investor than there is today. There's so many more products and services and data and analysis available for free than there ever was in the past. So it's a great time to be an individualist. Plus, there's like no barriers to entry to investing anymore, right? If you want to set up an account on Robinhood, you download the app on your phone, link your bank account, invest, and there's no minimums, right? You can buy fractional shares. There's no cost, there's no fees to investing anymore. And so it's a great time to be an individual. I don't think that AI is going to replace financial advisors per se, but I do think for the people who never would have hired an adviser in the first place, it's a great starting point, right? Do I think it's 100% accurate? No. I think you still have to kind of check and make sure you're doing the right thing. But for a lot of people, finance is a taboo subject, and I think sometimes people don't ask questions because they don't want to feel dumb, right? Like, hey, I don't understand this. How does the stock market work? What's a bond? Like some of these very simple questions. I started asking myself this in college when I realized I was interviewing for jobs and I thought, I don't know anything here. I went to like Investopedia and I'm looking up words because I'm like, I'm having these conversations in the industry and I don't get this. And I think a lot of people have too much pride to admit like, I don't understand this, it's too complicated, it's over my head. If you can just ask an LLM, you know, how does this work? What do you think about this? I'm going to upload all my data here. Tell me what you think. What's a good—I think it's a very good starting point for asking questions.

And I think there is still something about a human touch, and then you know there's one thing between like, here's a plan, do it, right? AI could create for you the greatest workout plan in the world, and personal trainers still exist, right? Because people need motivation, they need accountability. You know, the greatest athletes in the world still have coaches, right? They still have trainers, all this stuff. So I think there's still for sure a world where financial advisors make sense, and people need the human touch, and they need somebody to implement for them, right? Because AI could give you here's three great options. And that's a problem. Most financial decisions exist in the state of gray, not like black or white. There's very few financial decisions where you go, 'Should I do this? Should I pay off my mortgage or should I invest in the stock market?' There really isn't like a perfect right answer there for everyone. So I think AI might give you a few options: you could do this and this would happen, or you could do this and this might happen. But then it's like, can you just help me make a decision and tell me which one to do, right? Some people need that kick in the pants to do something.

I think right now especially, it always is location dependent, but if you live in a big city, I think it's probably—especially as a young person, it's almost impossible to afford owning a place right now with where mortgage rates are and where prices are for most people. I think in big cities, right, if you're in San Francisco or LA or New York or one of these big places, it's probably way cheaper, far cheaper to rent than it is to buy, right? And I think what's happening with a lot of young people who have been unfortunately priced out of the housing market through no fault of their own, right? We just had this generational housing market. We went from the lowest mortgage rates in history to more than doubling, you know, in very short order. Plus, housing prices went up 50%. So you had this double whammy that made housing really unaffordable for a lot of people. And so I think for most people, especially in big metropolitan areas, renting just makes more financial sense. A lot of people are doing that. And hey, I don't have to save for my down payment, I'm not buying a house and paying a mortgage, I'm not paying property taxes or insurance and these types of things. Now I can invest. And so we're actually seeing a lot of young people invest in the stock market now because they're not buying houses.

I think one of the things you have to do is just automate as much as you can when it comes to saving. Jerry Seinfeld had this great bit where he said, 'Isn't it funny that all the news in the world fits into like 14 pages in a newspaper every day, right?' And I think for people, that's how you're spending. So some people will say, 'I'm going to spend whatever I'm going to spend, and then I'll save whatever's left over.' I don't—

I don't think that ever works because you'll spend whatever is there. So I think if you treat your savings like it's a bill every month, right? I have my gym bill, I have my Netflix bill, I have utilities, I have rent, and then I have my savings for retirement or whatever, or my brokerage account. And that's going to be automatically taken out of my paycheck, right? Once a month, once every two weeks, whenever I get paid, the money is going out and it's going into my investment account. I'm never going to even pretend it's there in my bank account. I think if you automate that, that's a big first step. And then you spend whatever's left over, right? So that's your budget. You do your savings up front, and then your budget is whatever's left over — that's what you spend. So I think automating is really, really helpful because that's just out of sight, out of mind, right?

We talked about working out and being healthy before. That's one of the ways that investing is actually easier than health is that you can automate a lot of it. You don't have to do it every single day. You can automate your retirement contributions. You can automate rebalancing for your asset allocation. You can even increase your savings on an automatic basis, right? This year I'm saving 8% of my paycheck. Next year I'm going to bump it up to 9%. Whatever it is, you can automate a lot of that stuff ahead of time. I think that's really key for a lot of people — talking about how do you avoid the scary headlines and the scary market volatility and stuff. Part of it is removing yourself from the situation and making good decisions ahead of time so you don't have to make them in the heat of the battle.

I just think you have to prioritize. And I'm not one of these personal finance people. I hate the personal finance people that tell you that you can't enjoy your life, right? You have to live like a monk and just never enjoy anything. Like, what's the point of living and earning a decent wage if you're not going to enjoy some of it? I think you just have to prioritize. The way that I look at it is being selectively cheap about certain items, right? So, for me, I'm like an A-to-B guy when it comes to cars. I don't like luxury vehicles or something. I know some people do. And I think it's really about prioritizing what matters to you.

Like, what do you want to spend money on? If going to Starbucks every day and getting a latte is going to bring you some sort of little joy — my wife loves to do that. I'm not a coffee person. It brings my wife joy to go to Starbucks, right? I'm not going to harp on her for her coffee spending habit because that brings her some sort of joy in life, but she cuts back in other areas. I think that's the point, is really prioritizing areas that matter to you. Whatever it is — for some people it's having a nice car, some people it's having a nice house, some people it's going on trips, some people could be like, I like spending money on shoes, right? I like spending money on clothes. Whatever it is, you just have to be honest with yourself what those areas are and be okay spending on them, but then also cut back elsewhere so you can have some sort of balance in your life.

My number one rule of personal finance is never carry a balance from month to month. Now, you talked about the 0% card thing like that. I understand, and sometimes you get into a pinch. But it's just compounding negatively against you, right? And so if you're paying 20, 22, 24% to your credit card company, right, no investor on the planet can earn returns that high. So it's the compounding that goes against you for credit cards. Now, I think having credit cards and building credit is very helpful if you pay off the balance every month, right? Because you're building a better credit score. A lot of credit cards will give you rewards, and you're effectively being subsidized by people who aren't, right? And the credit card fees. So I think if you can use credit cards to your advantage — like I spend everything on my credit card and I just pay off the balance every month, and I earn, you know, I don't know, 2 to 3% a year on that spending from the credit card companies through the rewards points.