Recently I came across an interesting video from Mark Cuban, the billionaire famous for his gig on ABC’s hit series Shark Tank and for being the owner of NBA’s Dallas Mavericks. The video is titled “How you get rich (In 9 steps)“.

While the title of the video is tongue-in-cheek, the advise that Mark gives to become rich is practical and does not require high IQ to follow. It is also very much in line with thinking that is prevelant in the FIRE community.

Before I delve into the specific recommendations that Mark has, I want to note two books that have influenced my thinking on this topic, (1) The Geometry of Wealth by Brian Portnoy and (2) The Simple Path to Wealth by J L Collins.

The first thing to note about these books is the use of term “Wealth” as opposed to “Rich”. Brian Portnoy uses the term “funded contentment” to define wealth and to JL Collins, wealth equals F*** U money (check out the fascinating post as well as the video parody by JL Collins on this topic).  Brain Portnoy defines funded contentment as: the ability to underwrite a meaningful life– however one chooses to define that. For JL Collins, F*** U money defines freedom, freedom to do what you want and work for whom you respect.

The essense of pursuing wealth then is to achieve freedom and to have the ability to write the story of life according to ones own choosing! Sure, being rich offers freedom, but it also enslaves an individual to aim higher, with no end in sight, leading to eventual pain and misery. For example, an insightful academic study published in Nature Human Behavior,  notes, in certain parts of the world, incomes beyond satiation are associated with lower life evaluations.

To me the difference between wealth and rich lies in aspiration. Former is a wholistic focused on life-style, friends, family and society, while the later is individualistic and focused on sacrifice towards achieving desired goals. Former is selfless, while later is selfish, former leads to a satisfactory and joyful life while the later leads to (sometimes unsatisfactory) and a fleetingly-happy life, former is lasting while the later is fleeting, former requires system-2 level thinking, is deliberate and rationale, while the later may be spontaneous, in-the-moment and may be achievable using only system-1 level thinking.

Lets now look into the 9 step recommendation from Mark Cuban, and see which make sense to me and which do not. I will add one of mine (the last item in the list) to round out the list to 10!

1. Live like a student:  Agree. Its much easier for me to adhere to this philosophy, spending better part of my youth through post-doctorate studies on campus living on a meager student/associate salary. A sound advise to continue saving at a high-rate even with growing income!
2. You shouldnt use a credit card: Do not agree. As long as credit cards are being used wisely, credit cards not only offer convenience but with all the reward programs that go along with these, not using credit cards means leaving free-money on the table! I also believe that for folks who are onto the path towards wealth, managing credit cards is least of their problems!
3. Save six months of income: Agree. I would go as far as to suggest saving atleast 2 years worth of income. The great recession of 2007-2008 lasted for 18 months, the longest period of economic decline since world war II. Add a six month buffer and 2 years seem adequate to survive through worst of the downturns!
4. Put savings into SPX mutual fund: Partially agree. Putting all savings into a diversified S&P 500 index fund certainly sounds like a good advise especially at the start of ones earning career. However, I feel more comfortable diversifying portfolio across asset class, which include bonds, gold, real-estate and international-stocks. For example, Mr AVI has his retirement funds invested in a diversified AppliedValue Portfolio.
5. Invest upto 10 % of savings in high risk investments: Partially agree. The risk appetite for different individual is different, but the essential idea underlying this suggestion is that high risk investments may produce multi-bagger returns but are atleast equally likely to be worthless. My threshold for high risk investment is about 5 % and my preference is to find cheap small-cap stocks selling at massive discount to intrinsic value.
6. Buy consumables in bulk and on sale: Partially agree. In principal it seems to me a sound advise. Buying things like toothpaste in bulk when on sale is a guaranteed return-on-investment! The risk involves one getting stuck with items that no one wants to use anymore. Consumables usually dont break the bank! I therefore see no point in buying consumables beyond their immediate utility. Certain items like toiler-papers on the other hand, always buy in bulk (assuming one has space for storage).
7. Negotiate using cash: Agree. Cash negotiations always work!
8. Read books: No brainer, agree!
9. Nice works: No brainer, agree!
10. Stop chasing Joneses (added one of my own): In an instagram world of today, it is very easy to get swayed by all the fun others seem to be having! Debt in pursuit of fleeting happiness is never a sustainable path towards lasting wealth!

Video/Book/Article/Audio for the Week

• Video: Jeremy Grantham, the acclaimed investor and co-founder of GMO,  CNBC interview.
• Podcast: Great conversation on managing risk in times of uncertainty between Morgan Housel (columnist and author of The Psychology of Money) and Annie Duke (author of Thinking in Bets).
• Article: Terry Smiths owners manual to purchasing great investments.
• Article: Yet another Howard Marks Memo- The anatomy of a rally.
• Article: Jamie Catherwood on the state of the market.