Unlocking Financial Freedom
Ronald Read was patient; Richard Fuscone was greedy. That’s all it took to eclipse the massive education and experience gap between the two.
My favorite Wikipedia entry begins: “Ronald James Read was an American philanthropist, investor, janitor, and gas station attendant.”
Ronald Read was born in rural Vermont. He was the first person in his family to graduate high school, made all the more impressive by the fact that he hitchhiked to campus each day.
For those who knew Ronald Read, there wasn’t much else worth mentioning. His life was about as low key as they come.
Read fixed cars at a gas station for 25 years and swept floors at JCPenney for 17 years. He bought a two-bedroom house for $12,000 at age 38 and lived there for the rest of his life. He was widowed at age 50 and never remarried. A friend recalled that his main hobby was chopping firewood.
Read died in 2014, age 92. Which is when the humble rural janitor made international headlines.
2,813,503 Americans died in 2014. Fewer than 4,000 of them had a net worth of over $8 million when they passed away. Ronald Read was one of them.
In his will the former janitor left $2 million to his stepkids and more than $6 million to his local hospital and library.
Those who knew Read were baffled. Where did he get all that money?
It turned out there was no secret. There was no lottery win and no inheritance. Read saved what little he could and invested it in blue chip stocks. Then he waited, for decades on end, as tiny savings compounded into more than $8 million.
That’s it. From janitor to philanthropist.
A few months before Ronald Read died, another man named Richard was in the news.
Richard Fuscone was everything Ronald Read was not. A Harvard-educated Merrill Lynch executive with an MBA, Fuscone had such a successful career in finance that he retired in his 40s to become a philanthropist. Former Merrill CEO David Komansky praised Fuscone’s “business savvy, leadership skills, sound judgment and personal integrity.” Crain’s business magazine once included him in a “40 under 40” list of successful businesspeople.
But then—like the gold-coin-skipping tech executive—everything fell apart.
In the mid-2000s Fuscone borrowed heavily to expand an 18,000-square foot home in Greenwich, Connecticut that had 11 bathrooms, two elevators, two pools, seven garages, and cost more than $90,000 a month to maintain.
Then the 2008 financial crisis hit.
The crisis hurt virtually everyone’s finances. It apparently turned Fuscone’s into dust. High debt and illiquid assets left him bankrupt. “I currently have no income,” he allegedly told a bankruptcy judge in 2008.
First his Palm Beach house was foreclosed.
In 2014 it was the Greenwich mansion’s turn.
Five months before Ronald Read left his fortune to charity, Richard Fuscone’s home—where guests recalled the “thrill of dining and dancing atop a see-through covering on the home’s indoor swimming pool”—was sold in a foreclosure auction for 75% less than an insurance company figured it was worth.
Ronald Read was patient; Richard Fuscone was greedy. That’s all it took to eclipse the massive education and experience gap between the two.
Morgan Housel, The Psychology of Money
I read Morgan Housel’s The Psychology of Money for the second time last month. It is the most unusual personal finance book I’ve ever read. Morgan Housel believes that building wealth is more about behavior than anything else. As the story above shows, many “ordinary” people have built good finances for themselves, and there are well-educated people who have become “what-not-to-be” examples in finance.
I highlighted nearly all of the book. Here are some of my highlights;
“Doing well with money has little to do with how smart you are and a lot to do with how you behave”
Don’t rush at this. Slow down. Think about it for a moment. How do you behave with money? Do you even know how you behave with money? How much do you spend on important things? How much do you spend on things you don’t really need? Are you living below your means? These questions can tell you how you behave with money, and it is far more important than your income in determining whether you will become rich. Fix it.
“A genius who loses control of their emotions can be a financial disaster. The opposite is also true. Ordinary folks with no financial education can be wealthy if they have a handful of behavioural skills that have nothing to do with formal measures of intelligence.”
This follows from the first. Are you emotional with money? The first scam I fell into was when a good friend recommended that I purchase a Bitcoin. I did. I am a computer scientist, so when I see a website with poor security, I take note. On this day, I saw the poor security on the website, but I proceeded to do the transaction. Why? The guy who recommended it was my friend. That was all. Emotions beat reason. I lost my money. I haven’t done much better since then, but the lesson was apparent: the most foolish way to make financial decisions is using your emotions.
“Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.”
What if your business plan doesn’t work? Planning for the plan not to work is an important part of the plan.
“Be nicer and less flashy. No one is impressed with your possessions as much as you are. You might think you want a fancy car or a nice watch. But what you probably want is respect and admiration. And you’re more likely to gain those things through kindness and humility than horsepower and chrome.”
I thought really hard about this one. Slow down and process this. No one cares that you bought that car as much as you did, no one cares that you bought that shoe as much as you did, no one cares that you bought that phone as much as you did. What’s the implication? Only buy the things you genuinely need; no one is impressed with what you have as much as you are. They can never get the excitement that you get.
“Money’s greatest intrinsic value—and this can’t be overstated—is its ability to give you control over your time.”
I am glad I learned this lesson early. The ultimate value of money is that it should lead you to control your time. The financial decisions I make, especially work-related, are guided by this thought. If I can do work that will give me freedom over my time but pay less, I will take it compared to a job that will pay higher but steal all my time.
“Saving is the gap between your ego and your income.”
This is crazy but true. I realized I could save more if I could cut down on the things to which I have attached my ego. Let me give you one example. Every day I spend 200 Naira buying water, and I take a lot of liquid daily. This is because I always buy bottled water that I could walk around with. I could save 200 Naira daily if only I could purchase a water bottle that I can carry around; however, in my mind, it is weird for a man to carry water bottles around. Ego. Well, I did seize my friend’s water bottle and save 200 Naira daily.
Compound Interest. Life is in compound interest. This excerpt on Warren Buffet does justice to this;
More than 2,000 books are dedicated to how Warren Buffett built his fortune. Many of them are wonderful. But few pay enough attention to the simplest fact: Buffett’s fortune isn’t due to just being a good investor, but being a good investor since he was literally a child.
As I write this Warren Buffett’s net worth is $84.5 billion. Of that, $84.2 billion was accumulated after his 50th birthday. $81.5 billion came after he qualified for Social Security, in his mid-60s.
Warren Buffett is a phenomenal investor. But you miss a key point if you attach all of his success to investing acumen. The real key to his success is that he’s been a phenomenal investor for three quarters of a century. Had he started investing in his 30s and retired in his 60s, few people would have ever heard of him.
Consider a little thought experiment.
Buffett began serious investing when he was 10 years old. By the time he was 30 he had a net worth of $1 million, or $9.3 million adjusted for inflation.¹⁶
What if he was a more normal person, spending his teens and 20s exploring the world and finding his passion, and by age 30 his net worth was, say, $25,000?
And let’s say he still went on to earn the extraordinary annual investment returns he’s been able to generate (22% annually), but quit investing and retired at age 60 to play golf and spend time with his grandkids.
What would a rough estimate of his net worth be today?
Not $84.5 billion.
$11.9 million.
99.9% less than his actual net worth.
Effectively all of Warren Buffett’s financial success can be tied to the financial base he built in his pubescent years and the longevity he maintained in his geriatric years.
His skill is investing, but his secret is time.
That’s how compounding works.
Morgan Housel, The Psychology of Money
Wow.
I read that twice. His skill is investing, but his secret is time. Make time your ally. Think long-term. Think in compound interest. Start early.
I am going to read The Psychology of Money again next year. It is that good.
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I wish you the best with your finances.