How to become financially indestructible

How to Become Financially
Indestructible
Benet from future volatility

At some point, you will face daunting economic
challenges you never could have predicted.


Which Would You Be?
 —something that breaks when exposed to chaos, disorder, and
stressors.
•
A simple example: a porcelain cup falling from a table.
 —something that stays exactly the same when exposed to chaos,
disorder, and stressors.
•
A rubber ball, maintaining its structure when thrown.
 !—here, we equate this with “indestructible.” Something that gets
stronger when exposed to chaos, disorder, or stressors.
•
Your muscles, which rebuild themselves even stronger after lifting weights.
"#
The concept comes from Nassim Taleb’s
best-seller Antifragile: Things that Gain from
Disorder.
Ideas presented here are either loosely or
directly based on Taleb’s ideas.
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Photo: Sam Beebe, via Flickr
A Working Denition
!
Not only being protected
from personal or systemic
nancial stressors, but
positioning one’s self to
actually benet from them.
"$%&
%$

'(
)
Remember, this isn’t about
maximizing your returns in the
short-run. It’s about surviving and

thriving in the long-run.
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Two Key Ways to Limit Downside
Emergency Cash
Make sure you have enough cash
set aside to cover all of your
family’s costs for six months
without any forms of income.
This will provide a cushion to
prevent you from having to sell
other assets.
Insurance
Beyond basic health insurance, investigate

if you or your family would benefit from life,
auto, home, renter’s, disability, or
supplemental insurance.
Though writing these monthly checks can
be painful, they limit your downside should
significant life stressors occur.
'!%)
In times of uncertainty and
distress, nothing is more
constraining than the burden of
debt.
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#*

+,
(mortgage): This would prevent you from quickly moving
for a new job, and you might be forced to either go through foreclosure or
sell the house for less than you paid for it.
!For new cars, you’re immediately “under water” when you
drive your car o8 the lot. If you lose your job, auto payments will need to
continue, or you’ll be forced to sell your car. And since you were under
water, you’ll lose money in the process.
-Even if you declare bankruptcy, student loan debt
stays with you. This can be a signicant burden, and force you to take
jobs (with higher pay) you ordinarily would avoid. You can also have your
wages garnished for failure to repay.
#,%
#,
'%
The less you need to be
happy, the freer you are!
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One of the key tenets of Antifragility is that smaller is
beautiful—but also less fragile.
•
If you  more things in your life to make you happy, that will require more money,
which inherently makes you more fragile.
•
By living frugally, you get an unmatched one-two punch that leads to nancial
independence and antifragility:
1. You have more money left over to save and invest, which brings you closer to self-
reliance.
2. You don’t need to save nearly as much, as you know you don’t need all the bells
and whistles of life to be happy.
.'%
/
Planning for things to go
wrong means that you’re
prepared when they do.
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E>ciency vs. Redundancy
The business world are focused on making things as e>cient as possible.
Taleb argues that this can be a mistake.
Nature doesn’t work that way—things that survive have many
redundancies. The ideally “e>cient” body would have one kidney, one
lung, and so on.
Therefore, it is somewhat counter-intuitive to have redundancies in place.
It often means spending money for things that we may never use.
Are Your Redundancies In Place?
If you lost your job tomorrow:
Do you have a di8erent employer in your eld you are familiar
with that you could call?
Is there another eld you’d like to get into that you’ve already
started tinkering with?
Have you done the requisite research to see what it would take
to make such moves?
An Example From Real-Life
I genuinely enjoy my job. But my wife and I are constantly working to make sure Plans B, C, and D are in place:
/0We were both teachers in a former life. Neither of us plan to go back into the classroom. However, we
keep our credentials up-to-date should we need to apply.

/1We’ve always had a farming itch. We now spend our winters on a farm to learn more about it. We have
also borrowed plots of land and picked the brains of those at farmer’s markets to get an idea for what it would take
to succeed if we wanted to start our own farm.
/)We will likely be building a very small home in Costa Rica this winter. Should we need to, we could move
there and live on very little money for many years before it became absolutely necessary to re-enter the
workforce.
2'31%45(
0$
Tinker with ideas that have
limited downside and unlikely—
but unlimited—upside.
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61%4

57
This graph shows what convexity looks like.
•
The potential downside is limited to
something manageable.
•
Upside, however, is unlimited.
•
One thing to understand: the upside
usually has a small probability of
occurring—you have the “option” of
continuing or trying something else.
The Barbell Approach
Taleb denes this as: “A dual strategy: one safe and one speculative,
deemed more robust than a ‘monomodal’ strategy.”
For working adults, this means having one stable income while tinkering
with a passion on the side.
Though the chances of one “tinkering experiment” being wildly successful
are small, your chances go up markedly with repeated attempts.
Examples from Real Life
Albert Einstein worked at the Swiss
patent o>ce (safe) while working
on his revolutionary theories
(speculative).
Blogger Glennon Doyle Melton
started Momastery.com
(speculative) while teaching
kindergarten (safe).
Her book is now a New York Times
best-seller.

Photo: Amazon.com
!8&%
1. Limit Your Downside
2. Avoid Debt
3. Live Frugally
4. Have Redundancies
5. Embrace Convex Optionality
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#$
,&
"9:;<--0=
15%&