When should you be most wary of making a costly mistake? It’s not when things feel difficult or when you’re in the middle of solving a big problem. It’s when things are going great and you’re experiencing big success.
Massive layoffs at Facebook and Amazon. Stumbles at Google and Lyft. A shaky year in the stock market for the tech giants – all capped off by a tremendously spectacular blowup at crypto platform FTX.
The idea that “current success is the biggest indicator of an upcoming failure” seems especially resonate these days amid headline after headline about highly-regarded companies that missed the mark on sustainable growth.
Why do you need to exercise caution once you start experiencing major success?
Because you get complacent.
Because you assume things will keep going your way because they’re going your way now.
Because you don’t want to think about the work you need.
Because you aren’t properly assessing risk.
Because you have blind spots.
So what can these tech industry giants teach us about our personal finances?
First, we can consider the necessary steps to creating sustainable growth in your financial life.
The FAANG family is made up of highly-regarded companies with stock prices that just seemed to go up and up and up, but the growth projections they made (that helped bolster the stock price) are not holding up right now.
The corporate solution to that is to do massive layoffs, but that’s probably not an option when it comes to your personal life and your family.
The lesson here (or one of them, anyway), is to remember that most people, most families, can’t realistically handle dramatic swings.
You can’t easily cut costs like companies can by firing people. You can’t quickly, painlessly remove fixed costs from your budget and even removing smaller costs can still impact your family.
The solution is to avoid living at an extreme to begin with, so you don’t have to make a major overcorrection to recover from a financial mistake.
Things inevitably break down, go wrong, or simply change. So build buffer room into your plan!
Create space for uncertainty now, before something disruptive happens. You can implement stabilizing features into your financial plan by:
- Having an emergency fund
- Drafting an emergency budget
- Keeping expesnes lower than you could afford; creating a gap between what you earn and what you spend
- Opening a line of credit against your assets as an additional safety net
- Funding a taxable investment account
We’re also looking at the FTX implosion in this episode and what we can learn from it (other than, don’t take investor money and buy yourself houses in the Bahamas. Duh, right?)
Two of our biggest takeaways from the FTX meltdown and the money it took with it:
1. You don’t have to be ready for exactly what happens next, or predict how things will shift in the future. You just need to know things will shift.
In other words, expect the unexpected. The downfall of this one company is shaking the entire industry and impacting other companies that (as far as we know) are legitimate and trustworthy.
Because of FTX, trust is draining out of the cryptocurrency space faster than ever before, which impacts everyone involved… regardless of whether or not you used FTX as your own platform.
And 2: Crypto isn’t (necessarily) bad, and it’s not that you can’t make high risk bets with your money. There could be a time and a place for that in your financial plan.
But you have to be very careful and very aware of how much of your total wealth that you expose to a high-risk situations or highly speculative gambles.
You do not want to give any one variable the power to wreck your financial life. You don’t even want to let one variable create a massive setback that will take you years of work to recover from and delay your ability to reach your goals!
Want more? Join us in this episode as we walk through the takeaways we can apply to our own lives and personal financial situations.
- The importance of setting reasonable expectations for yourself and your money
- The dangers of believing in silver-bullet solutions
- Biases to watch out for, including recency bias
- How to layer in stabilizing features into your financial plan when you construct it
- Why you need to properly assess risks (and how those risks aren’t limited to what you personally choose to be involved in, but how you can be impacted by factors you didn’t see coming)
- How to properly make a speculative bet in any financial market to protect yourself from too much downside
Jump into the episode here:
Further Reading & Links from This Episode on the Personal Lessons We Can Learn from Imploding Tech Firms
- Recent headlines on Meta, Amazon, and other notable tech industry layoffs
- Here’s the Hidden Brain episode Kali referenced in the show
- 7 ways to foolproof your financial plan, and 2 ways to build a bulletproof balance sheet
- Why “change” is the X factor most people forget to factor into a financial plan
- How to build an emergency fund that works for you
- What to consider about lifestyle inflation and the gap between what you earn and what you spend
- Here’s our episode on reducing taxes that discusses the line of credit strategy in more detail
- Risk capacity vs. risk tolerance
- How to appropriately assess whether or not you can make a speculative bet in the market
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