Core Concepts: The Core Principles of Financial Strategy

Popular financial content is always exciting, controversial, and filled with real world applications and little theory.

This page is… the opposite of the popular content.

Sometimes, the most important concepts are little dense, a little heavy on theory, and aren’t exactly going to go viral.

But if you have the self-control to study the more abstract concepts of financial theory, your future self will be incredibly glad you did.

Here are the fundamental concepts that I refer to quite a bit on this website. As I write more in-depth articles, I’ll be updating this page.

Leverage Points. Your wealth building journey should be seen like a net-worth growth timeline. Leverage points are those systems you set in place which magnify your results. If you can magnify your current growth rate by 10x, that means that rather than barely retiring at 65, you could become a millionaire in your 20s. It sounds crazy, but it’s the most fundamental concept to wealth building and you should obsess over the key concepts.

Nuanced Analysis. Human beings love to oversimplify the patterns they see in life, then use that oversimplification to make decisions. These oversimplifications are things like “only invest in stocks” or “all debt is bad” or “frugality is the only way to manage your money.” Instead, good strategy requires nuance – being able to see little differences between concepts so that we don’t accept oversimplified frameworks. Life is fuzzy. Our reasoning should be designed for how things actually play out.

The 3 Phases. This website is built around the concept that there are effectively 3 phases in your financial life:

  • Phase 1. Getting Started. Picking a career, finding a job, saving an emergency fund, building your credit, etc.
  • Phase 2. Becoming Independent. Build a net worth of at least $1,000,000, usually through promotions, a side hustle, frugality, real estate, etc.
  • Phase 3. Becoming Wealthy. After you have a 1m net worth, you now legally have access to very different investments that can be much better. Private equity funds, oil wells, private real estate funds – now the sky is the limit. You can do drastically better than the typical investor with these options.

Embracing Reflexivity. Billionaire George Soros wrote an entire book about reflexivity. It’s the idea that social systems have never-ending feedback loops, which makes them behave differently than, say, gravity. This is such a vital concept, it’s worth spending a few hours reading up on the topic.

Bucket Strategy. The bucket strategy is just a way to think about money. For example, if you want to pay for a new item, maybe you figure out how to cut your expenses elsewhere. When it comes to retirement, the bucket strategy is where you set up several portfolios, each with a different end-goal in mind. For example, you might have a portfolio for your first 5 years of retirement, then a portfolio for the next 20 years, and then a portfolio for all of the time after that. There are lots of other interesting ways to use the bucket strategy as well.

Clipper-Ship Strategy. The Clipper Ship Strategy was discussed by one of my favorite authors, Richard Maybury. The idea of this strategy is that the best way to make money during a gold rush isn’t by mining gold – it’s by selling shovels. The opportunity next to the gold rush is usually more lucrative. If you’re looking to start a business or pick a career, this is a critical concept to understand.

As time goes on, I’ll be updating this page quite a bit.