EP 129: Build the Castle & Changing Our Minds

What's in store for you:

1. Photo From My Life
2. Financial Thought: Build the Castle
3. Life Thought: It's Okay to Change Your Mind
4. Good Sh*t: Walk & Talks

Photo From My Life:

Financial Thought:

Build Your Castle: I spend a lot of time around high-earners, business owners, and people with meaningful ownership in private companies. These people are typically very good at one thing: making money.

However, making money and building financial security are two very different things.

If you make $500k+ per year, own a successful business, or have millions of dollars of illiquid stock, you may look incredibly wealthy on paper. But, the vast majority of your economic value may still be tied to one thing continuing to work.

Your job. Your business. Your company's stock price.

I've started thinking about personal finance through a relatively simple framework: you need to build your castle.

Your castle is the pool of safe, diversified assets that protects your family regardless of what happens everywhere else in your life. It's the money that doesn't depend on your business succeeding, your next bonus hitting, your private stock becoming liquid, or you continuing to earn at the same level for the next 20 years.

I think entrepreneurs and people with concentrated stock positions are particularly bad at this.

If you have $250k of excess cash flow, it's tempting to put all of it back into your business. Maybe you can hire another salesperson. Buy a competitor. Launch another company. Similarly, if you own $5m of private company stock, it can feel crazy to sell some of it when you believe the company could be worth 10x more someday.

I understand the logic. I've made the same argument.

However, at some point, maximizing returns shouldn't be the only goal. You have a responsibility to take some chips off the table.

Build the castle.

Every year, take a portion of your excess cash flow and move it somewhere boring. Max out retirement accounts. Buy broad-based index funds. Hold enough cash. Pay down debt. If you get the opportunity to sell some of your concentrated or illiquid stock, consider taking it.

Will this money generate the highest possible return? Probably not.

That's not its job. Its job is to make sure that if everything else goes wrong, your family is still okay.

There's another interesting benefit. Building your castle may actually allow you to take more risk.

There's a reason VCs sometimes encourage founders to sell a small amount of stock in a secondary transaction before an exit. If a founder has their entire net worth tied up in a company, selling for $30m today may look pretty attractive. But, if that founder has already taken a few million dollars off the table and knows their family is financially secure, they may be much more comfortable turning down that offer and swinging for a $300m outcome.

The same logic applies to the rest of us.

Once you know your family's future is protected, you can take more risk with everything outside the walls.

Build businesses. Hold concentrated investments. Chase the crazy idea. Just make sure you're building the castle along the way.

My Recent YouTube Videos:

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Life Thought:

It's Okay to Change Your Mind: My 3.5 year old son has changed his mind about his Halloween costume approximately 100 times.

First, he was going to be Lightning McQueen. Then, he was absolutely going to be a Teenage Mutant Ninja Turtle. Then Paw Patrol entered the picture. After a few more changes, I think we've finally landed on Leonardo from Teenage Mutant Ninja Turtles.

We'll see if that lasts until Halloween.

The funny thing is that every time he picks a costume, he's 100% committed. There is no doubt in his mind. This is what he's going to be for Halloween.

Then a few days later, he changes his mind. He doesn't care that he spent the previous week telling everyone he was going to be Lightning McQueen. He got new information, changed his opinion and moved on with his life.

Just another example of how much we can learn from kids. Adults are terrible at this.

As we get older, we become more attached to our opinions. We dig ourselves into foxholes and then spend our energy defending our position. Changing our mind feels like admitting we were wrong. And for whatever reason, admitting we're wrong is really hard.

But shouldn't changing your mind be a good thing?

We don't know everything. We're constantly getting new information and having new experiences. If our opinions never change, we're probably not learning very much.

I'm guilty of this. There are plenty of things I believe today that I probably won't believe in 10 years. There are probably things I believe today that are just flat out wrong.

We should all get a little more comfortable admitting that. Change your mind. Admit when you're wrong. Be open to the idea that you don't have all the answers.

My 3.5 year old certainly doesn't have all the answers. But at least he's comfortable admitting when he'd rather be Leonardo.

Good Sh*t:

Walk & Talks: If you have a meeting and don't need to be in front of your computer, ask the other person if it's okay to do a walk and talk. There's no better way to reset your day than walking. It boosts creativity, helps you relax, and makes sure we don't fully melt into our desk chairs.

Remember, sitting is the new smoking.

Disclaimer: VDB Wealth is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.