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Board Games and War Games
Episode 275

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Posted by Choose FI
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Episode Guide

Understanding your financial risk tolerance and re-evaluating your investment strategy are crucial components of achieving financial independence. Jonathan and Brad emphasize the importance of 'war gaming' your finances by assessing personal variables that influence financial decisions. They explore the fascinating analogy between life and board games, where knowing the rules can lead to better outcomes. The hosts discuss practical tools, like price-tracking websites, to save money on purchases, particularly emphasizing the dramatic price fluctuations in everyday items. They share personal experiences and insights on how external events can impact financial stability. Through thoughtful analysis and sharing of different investment perspectives, the episode illustrates the importance of adapting one's strategy to changing life circumstances while keeping control over expenses and risk management.

Episode Timestamps

ChooseFI Podcast Episode Show Notes

Episode Summary

In this episode, hosts Brad Barrett and Speaker tackle the concept of assessing personal finances through a game-like approach, emphasizing the importance of understanding individual risk tolerances. They discuss practical savings strategies, including tracking prices on Amazon, and the value of "war gaming" financial strategies to navigate unexpected economic challenges. The discussion encourages listeners to analyze their financial frameworks and adapt them to changing market conditions while fostering community engagement.

Key Topics Discussed

  • Introduction to War Gaming Finances

    • Exploring the concept of war gaming as a strategic tool for financial planning.

  • Price Tracking for Savings

    • Utilizing tools like camelcamelcamel.com to track price changes on Amazon and maximize savings.
      • Actionable Takeaway: Set price alerts for items you frequently purchase.

  • Understanding Risk Tolerance

    • Evaluating personal financial situations through the lens of risk tolerance, especially in fluctuating market conditions.
      • Key Quote: "Navigating through a turbulent year toward financial stability is crucial."
      • FAQ: Why is understanding your risk tolerance important?
        • Knowing your risk tolerance helps tailor your investment strategy and aligns it with your financial goals and comfort levels.

  • Financial Independence Framework

    • Discussing the building blocks of financial independence and how life events can impact financial decisions.

  • Investment Strategies Discussion

    • Conversations around different investment approaches and the importance of diversification in one's portfolio.
      • Key Quote: "Understanding the rules is the key to winning your financial game."

  • Community Wins and Announcements

    • Celebration of community achievements and upcoming events, including the year-end wins episode.

Key Insights

  • Life is multifaceted, much like a board game, requiring a strategic approach to managing finances.
  • Understanding price fluctuations can lead to significant savings, especially when utilizing price tracking tools.
  • Risk tolerance assessment is critical during turbulent economic times; it's essential to regularly reevaluate personal financial strategies.

Actionable Takeaways

  • Assess your spending habits by distinguishing between necessary and discretionary expenses.
  • Regularly stress-test your investment strategies to adapt to market fluctuations.
  • Use price tracking tools to be proactive in saving money on everyday purchases.

Speaker Highlights

  • Brad Barrett: Co-hosting the discussion while providing insights into personal finance strategies and community engagement.
  • Speaker: Sharing personal experiences and focused on encouraging transparency in financial discussions.

Discussion Questions

  • How can understanding the simulation of financial scenarios improve your overall financial health?
  • What strategies can you implement to better monitor your expenses?
  • How do you have conversations about financial changes with your family or partner?

Podcast Extro

"You've been listening to ChooseFI Podcast, where we help middle-class America build wealth one life hack at a time."

Mastering Your Financial Game: Strategies for Success

Understanding your finances can sometimes feel like navigating a complex board game. The key to winning lies in the ability to assess your strategies, adapt to changing circumstances, and adopt effective techniques to optimize your financial journey. This article distills essential strategies discussed in the podcast episode featuring Brad Barrett and Speaker, focusing on actionable insights for achieving financial independence.

Embrace the Challenge: War Gaming Your Finances

War gaming your finances is about stress-testing your financial plan against potential risks and uncertainties. This proactive approach helps you prepare for unexpected changes, whether they be economic downturns or personal financial emergencies. Here’s how to implement this strategy:

1. Assess Your Risk Tolerance

Understanding your risk tolerance is crucial in shaping your investment strategy. Begin by analyzing your financial situation, considering factors such as income stability, existing debts, and financial commitments. Regularly revisiting your comfort levels can help you make informed decisions during turbulent times.

2. Create a Scenario Analysis

Engage in scenario planning by envisioning different financial situations, such as job loss or market crashes. Ask yourself:

  • How would these changes impact my finances?
  • What necessary adjustments might I have to make?
  • Can I sustain my lifestyle under these hypothetical conditions?

Doing so prepares you emotionally and strategically for real-life challenges.

Smart Budgeting: Tracking Expenses

A crucial aspect of financial independence is developing a keen understanding of your expenses. Accurate budgeting goes beyond merely recording spending; it involves critical evaluation of where your money goes and how it aligns with your financial goals.

1. Differentiate Between Necessary and Discretionary Expenses

Break down your total monthly expenses into fixed and variable costs. Identify which costs are non-negotiable (rent, utilities, groceries) versus those that can be adjusted or eliminated (subscriptions, dining out). This allows you to pinpoint areas for potential savings, especially in a crisis.

2. Implement a Savings Strategy

Creating a savings buffer for emergencies is essential. Establish an emergency fund covering at least three to six months of living expenses. This fund acts as a safety net, providing you with peace of mind and financial stability when unexpected situations arise.

Price Tracking: Maximizing Savings

One innovative way to cut costs is through price tracking for items you frequently purchase. Using tools such as Camel, Camel, Camel allows you to set price alerts for products on Amazon, ensuring you always buy at the best price.

1. Set Alerts for Key Purchases

Identify products you regularly need or want and set price alerts. These notifications will help you jump on significant discounts or sales when they occur, leading to substantial savings over time.

2. Make Informed Purchasing Decisions

Before making purchases, research historical price trends to understand the best times to buy products. This informed approach ensures you're making financially savvy decisions rather than impulsively buying at the first opportunity.

Investment Diversification: Spreading Your Risk

A well-rounded investment portfolio serves as a cornerstone of financial independence. It's essential to develop an investment strategy that aligns with your goals and comfort levels while minimizing potential risks.

1. Review Your Portfolio Composition

Evaluate your current investment allocation. Consider diversifying across different asset classes (stocks, bonds, real estate) to mitigate risk. Historical evidence suggests that a balanced portfolio often results in more stable returns over time.

2. Align Investments with Your Financial Goals

Decide how aggressive or conservative you want to be with your investments based on your life stage and objectives. For example, younger individuals may opt for a more equity-heavy portfolio, while those nearing retirement might prefer lower-risk investments in bonds.

Mindset and Financial Literacy

The right financial mindset can significantly impact your journey towards financial independence. Cultivating a growth-oriented mindset and continuously enhancing your financial literacy are instrumental in achieving your goals.

1. Be Open to Learning

Educate yourself on personal finance topics, investment strategies, and market trends. Engage with financial content, podcasts, and workshops to deepen your understanding and find inspiration.

2. Embrace Adaptability

Financial landscapes can change rapidly due to various factors. Stay adaptable to modify strategies as necessary, enhancing your resilience against market unpredictability.

Community Engagement: Sharing Wins and Challenges

Building wealth and navigating the path to financial independence can feel isolating, but you don’t have to do it alone. Engage with like-minded individuals through communities such as ChooseFI to share experiences and learn from each other.

1. Celebrate Little Wins

Recognizing and celebrating your financial achievements—no matter how small—can motivate you to keep pushing forward. Sharing these stories fosters accountability and inspiration within the community.

2. Discuss Challenges Openly

Feel empowered to communicate financial struggles within your community. Open discussions can lead to collective brainstorming and problem-solving, creating a support system that fuels your financial journey.

Conclusion: Take Control of Your Financial Game

Mastering your finances requires proactive planning, continuous learning, and community engagement. By applying the strategies outlined in this article—from war gaming your finances to embracing effective budgeting techniques—you can enhance your journey towards financial independence. Remember that life, like a board game, can be unpredictable, but equipping yourself with knowledge and clear strategies will help you achieve your financial goals confidently.

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What You'll Get Out Of Today's Show

  • It's no secret that Brad and Jonathan's families are board game fans. One way they can typically save 20-60% on the cost of board games is by watching for price drops on Amazon using CamelCamelCamel.
  • Brad was able to save a substantial amount on the purchase of a squat rack simply by being able to stand by and wait for the price to drop.
  • Listener Liz heard about CamelCamelCamel on the podcast and added a list of board games to her watchlist. She was eventually able to purchase all of them at roughly half the list price.
  • Life may be the ultimate board game where your finances are a piece of it. When you know the rules, it makes it easy to win. Just like there are strategies for winning at Monopoly, there is an unwritten and unspoken framework for living a better life.
  • Now that 2020 is getting back to a more steady-state, it may be time to start wargaming your finances and look at your risk tolerance.
  • This year that stress-tested our investor policy statements and mindset. Perhaps you don't have the risk tolerance you thought you did. Times of stress and uncertainty are not the time to make changes. Adjustments should be made when times are calm.
  • There are different variables to consider and one of the questions to ask is "How much does your life actually cost?". This can change over time and affect your risk tolerance.
  • A couple of years ago, Brad intentionally increased his costs by moving to a more expensive home. Though it increased costs by 40-50%, they felt the life benefits would outweigh the additional costs.
  • The only debt Jonathan has is his mortgage, reducing his structural expenses to housing, food, utilities, and insurance. He thinks even some of that could be cut down to support a survival budget if required.
  • If this year has shown us anything, it's that your income source may not be a stable as you might have previously thought. You shouldn't be dependent upon anyone.
  • There's a mindset of positivity that takes a terrible situation and figures out how to pivot. With your wargaming plans set, you can find a way out of it.
  • Brad lived through a financial calamity at 22 years old when he worked for Arthur Anderson. After the Enron scandal, his company went out of business. He witnessed others who were living on the financial edge, but because Brad lived at home and had very little debt, he was fine.
  • Jonathan says he doesn't mind spending a lot of money on an item, but he doesn't want to spend a lot of money on something that locks him into structural, recurring payments that make his life more expensive.
  • If something were to happen to his business, Jonathan is confident that with the skill set he's acquired and one year of financial runway he's saved, he would have a very soft landing. The events of the last year have him reevaluating his investor policy statement, possibly driving changes to his investment allocation to a more conservative approach now that the market is at record highs.
  • Jonathan is considering making these changes after riding the roller coaster of the last year and holding firm. Now that things are back to relative calm, he can make decisions based on knowing himself better, not based on fear.
  • In the episode with Paul Merriman, he made the case for a portfolio that weights all of the asset classes evenly. Total stock market funds are cap-weighted, meaning the top companies make up a disproportionate percentage of the total market cap. Therefore, a disproportionate amount of your money is invested in these top companies and you aren't invested as diversely as you think.
  • Jonathan has had half his money invested in a total stock market fund and half in a portfolio more similar to what Paul Merriman recommends through M1 Finance. Paul Merriman's method has gotten crushed in the last year, but over a 40 year window, it should bring higher returns. Jonathan is trying to figure out a mix that he is comfortable with.
  • Another expense area to look at are investment fees. It used to be expensive to invest, but investment costs have become much more competitive. You don't need to spend 1% on commissions and another in expense ratios. Fees have gone to near zero if you look for them. Don't let people "help" by trading on your fear.
  • War game your finances out. Think about the variables unique to you, analyze your risk tolerance, your income, your expenses, and what you have control over.
  • This year's Year-End Wins episode will be a live podcast on Dec 8th at 7:30 pm Eastern time. RSVP for the live event at ChooseFI.com/2020wins.
  • If you want to share your 2020 win, send an email to [email protected].
  • This week's book winner is Abbey. She turned 22 this year, is almost finished paying off $17,000 student loans and maxed out her Roth IRAs for 2019 and 2020, as well as her 403b, 457, and HSA, and broke the $100,000 mark in her first year of nursing. Congratulations, Abbey!

Resources Mentioned In Today's Conversation

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