What does money mean to you? Is it an instrument of power? Is it a tool to buy happiness? Is it your ticket into freedom?
Whatever it means to you and no matter if you are pro or anti-capitalism unless you choose to live like a monk you will need money. But this book is NOT about becoming rich quickly! It is about something way more serious: our retirement.
We cannot rely on the government to provide for us and our families once we retired. Life expectancy increases and fewer and fewer younger people will have to support more and more older folks. It is up to us to take care of our family and Tony Robbins made it his mission to present to us the tools we need to make this happen.
There are 7 steps to financial freedom, no matter if you are 30 or 50 years old, no matter if you earn $30,000/year or $3,000,000/year. He presents us the strategies of 50 of the most successful investors of all time like Ray Dalio, Warren Buffett, and Carl Icahn.
And by the way, even if retirement sound boring to a lot of younger people, imagine being able to retire when you turn 45 instead of 65. This book is over 600 pages strong, so what you will read here is the summary of the summary.
Disclaimer: This book is written for American citizens and some chapters only make sense if you live in the United States. But the vast majority of the book will give you useful tips, no matter where you live.
About the Author
Tony Robbins needs no introduction. Many people see him as the poster boy of motivational speaking and “the positive guy”, but his material is far deeper than just “positive thinking.”
He is the author of many successful books and has spoken to millions of people during his live seminars on personal development, peak performance, and finances over the past 40 years. His clients range from top athletes to presidents, to successful businessmen to people like you and me.
He is a regular guest on all kinds of TV shows and the media in general. Also, Tony is a true philanthropist and he will provide 50 meals for people in need for every copy of “Money” that is sold.
Book Summary: Money: Master the Game
Tony Robbins lists 7 crucial steps on your way to financial freedom. However, 2 of the 7 steps are applicable to all areas of life as they focus on the mindset, and not necessarily the “practical” attainment of money.
Step 1: Make the Most Important Financial Decision of Your Life
Winning the game is simple, but not easy. The plan is to create a money machine. This means you have to build up a critical amount of money and then live on the money the machine generates every year (through reinvesting and interest).
How much money you need to put into the machine before it can start working depends on the amount of money you will need to meet your standards. But more on that later.
The most important financial decision of your life is how much money you will put into the machine EVERY MONTH. That’s right, once you made a decision, you will have to stick to it. Is it 3 % of your income? Is it 10 %? Maybe 15 %?
It all depends on how much money you make, how much money you will need later on, how much time you have left until your (planned) retirement, and how much you are willing to put into it.
Pro tip: Every time you get a raise, increase the amount of money you put into the money machine. As you are not used to having the plus of money, spending more on the money machine will not feel like a loss.
Another pro tip: Automate it! Be sure to transfer your money automatically from your bank account into the machine. The money you don’t see pop up on your bank statement is money you will not think about (read spend).
Step 2: Know the rules before you get in the game
There are a lot of myths (and straight-up lies) about money and investing. Before you start investing your money, be sure to inform yourself about these 8 rules about investing. I know that this will sound like a lot of conspiracy theory, but it is important to know about those facts:
1. Even though mutual fund managers claim to beat the “market“ (referring to a stock index), they seldom do. In fact, 96 % of actively managed mutual funds won’t be able to beat the market over a longer time period. And the 4 % who do aren’t the same every year. In other words: the 4 % just got lucky that year. So it is better to align yourself with the market but in a smart way.
2. The difference between 1% and 3 % in fees does not seem like a lot, but it will destroy your savings. It really depends on the conditions like annual growth and the amount of money you put into your assets, but it is very realistic to say this difference can mean another DECADE of saving before you hit the critical mass in your money machine. Also, watch out for (hidden) fees.
3. Returns don’t equal real returns. Let’s use numbers. Start with $100,000. Add 50 %, now subtract 50 %, now add another 50 %, and finally subtract another 50 %. The average return would be 0 % and you should get your $100,000 back. But if you do the math, the real “return” is $56,250. Don’t be fooled, my friend.
4. Fun fact: 4300 mutual funds were tracked and it turned out 49 % of the managers of those funds owned no shares in the funds they managed and the remaining 51 % owned only a small amount of shares.
5. If you live in the United States and you own a 401(K) you will make a lot of money….for other people. There are a lot of hidden fees, and other devious contraptions to nickel and dime your account to death so better choose wisely.
6. A target-date fund is no guarantee for returns. Better be smart with your own asset allocation you are about to learn later on.
7. Annuities aren’t as bad as many mutual fund managers want you to believe. There is a time and a place for annuities in your investment plan.
8. Most people believe that you have to take huge risks to get good returns. This is false and dangerous. The number one rule is to never lose money if possible. Despite psychological reasons (losing a certain amount of money feels worse than winning the same amount), there are financial reasons we saw in Rule 3. When you’ve lost 50 % of your money, gaining 50 % won’t make it even. You have to gain another 100 %. So risk less and win the long game.
Step 3: How to make this game winnable
Grab a calculator, because we are about to figure out how much money you will need in order to reach your goal. Actually, we are talking about 5 possible goals. You will have to assess your own lifestyle (now and for a possible future) and calculate how much money you would need annually to get there.
Level 1: Financial Security
-Your home mortgage
-Utilities for the home
-Basic transportation needs
-Basic insurance costs.
Level 2: Financial Vitality
This includes (in addition to Financial Security)
-Half of monthly clothing costs
-Half of monthly dining and entertainment costs
-Half of little luxury costs
Level 3: Financial Independence
This is the amount of money you need to completely maintain your current lifestyle.
Level 4: Financial Freedom
In addition to Financial Independence, this includes what you would need to allow yourself to purchase two or three significant luxuries per year (like a vacation).
Level 5: Absolute Financial Freedom
This includes everything you can dream of. How much money would you need annually to never think about your spending again?
Out of these 5 possible goals, you should pick one short-term, mid-term and one long-term goal you will try to achieve. Now you know the amount of money your money machine has to generate every year so that you get a lifelong stream of income.
Step 4: The 3 Buckets
Asset allocation and compounding are your best friends. But why is clever diversification so important? “Because spreading your money across different investments decreases your risk, increases upside returns over time, and it doesn’t cost you anything”
Remember our No. 1 goal is to never lose money (or as little as possible)! Therefore, we will have different buckets we put our money into.
The Security Bucket will lower your risk of losing money, even though the returns are often not that spectacular. The Security Bucket includes:
-Cash or cash equivalents (you should always have enough money in your pocket to support yourself for another 3-12 months)
-Certificates of deposit
-At least one life insurance to support your family in case something happens to you
The Risk/Growth Bucket will give you the big returns, but this bucket also comes with a lot more risk. The Risk/Growth Bucket includes:
-Commodities (like gold, silver, coffee, oil, cotton)
-Currencies (like yen or euros)
-Collectibles (like wine, art, coins)
-Riskier structures notes
The Dream Bucket is the last bucket and something special. It is about the money you set aside to enjoy the things you love during your journey to financial freedom. It is for today, not for tomorrow as Tony says. Let’s say you get a bonus of 1.000 $. You can invest 500 $ and spend the other 500 $ on whatever you like. It is your reward.
Step 5: A Lifetime Income Plan and How to Make it Bulletproof
So what does the perfect asset allocation look like? Ray Dalio, one of the greatest investors of all time, gives the readers his suggestion for what Tony calls an “All Seasons” portfolio. A portfolio like this would have given the owner good returns, even in times when the market dropped dramatically (and when it loses money, the amount is very small).
The All Seasons portfolio includes:
-30 % of stocks
-15 % intermediate bonds
–40 % long term bonds
-7.5 % commodities
-7.5 % gold
Please remember to re-balance the ratios at least annually. This means, if you make a lot of money in stocks, take the returns and put them into the other categories so that the original ratio maintains over the long run. Sounds like a small factor, but it can save you from huge losses.
Step 6: Play the Game Like a Billionaire
As already mentioned, Tony Robbins interviewed 50 experts on investment for this project. In this part of the book, he invites the reader to join parts of 12 of those interviews. Of course, these are only excerpts, as some of those interviews went on for 3-4 hours, but you get a lot of insights.
For his interviews, Tony asked each of the experts one particular question: If they couldn’t leave their family and kids any money at all, but instead only an investment plan, what would this plan look like?
It doesn’t come as a surprise that different experts have different points of view, but they all agreed on several key points:
-Don’t lose money
-Don’t try to beat the market
-Watch out for nasty fees and taxes
-Use a clever asset allocation and diversification
-Stick to your plan and don’t be scared when the market drops, because it will
-Nobody knows what’s going to happen on the market
-Be aware of your emotions when it comes to investing
Step 7: The secret beyond money
The last chapter is classic Tony Robbins material. The last step is not really about getting money, but about your mindset about money and life in general.
No matter where we are on our journey, we should always be grateful. We are the people who make meaning out of events and we control our attitude towards what life gives us. The richest person in the world can feel poor if he or she has the wrong mindset. At the same time, we all can feel wealthy.
In fact, we are. Look around and notice all the things we can be grateful for. With gratitude comes real wealth. Last but not least, Tony wants us to share our wealth. Even if you feel like you don’t have anything to give away for free, doing so will help you immensely. You stop yourself from being caught up in the money game and it also tells your brain that you must be wealthy already since you have something to give away.
Personal Thoughts and Putting Knowledge into Practice
I am not a booker, a mutual fund manager, or an expert on investing, so I cannot assess the technical quality of this book. But I can say that Tony Robbins was able to present everything he talked about in a simple and entertaining way.
I feel like I gained more insight into a topic that always seemed to be “too complicated to fully understand.” I can recommend this book to everybody who wants to learn from the best of the best how we can achieve financial freedom.
Furthermore, I thoroughly enjoyed getting into the heads of the most successful investors. If this is a topic you are interested in (and you should be), then get this book. End of story!
Even if you (for some inexplicable reason) don’t buy this book, I recommend going to a bookstore and reading Chapter 7. It will take 30 minutes, but it has the power to change your perspective on how to live a fulfilled life. Like I said, classic Tony Robbins stuff.
Lenny Hu is a scientist at day and a self-improvement addict at night. He believes presence, gratitude, authenticity and continual personal growth are the four ingredients for living a fulfilled life. He is interested in fitness, meditation, neuroscience, psychology, studying languages and learning from everyone he meets.