Since I purchased my house in October 2023, I’ve been feeling broke. I’m living paycheck to paycheck to cover my bills and fund venture capital calls. In fact, even after realizing I had missed a $25,000 capital call, it took me another week to pay it off because I didn’t have enough money on hand.
The first six months of feeling broke were extremely uncomfortable. I was more stressed and had a shorter temper. When I received a surprise real estate capital distribution, I felt tremendous financial relief. But that relief was short-lived, as I ended up reinvesting 100% of the proceeds in stocks and my preferred private real estate fund.
Today, my cash flow remains tight because I’m on a mission to get my public equity exposure back to 25% of my net worth (from ~18% currently). Until I reach that goal, I won’t stop saving and investing aggressively.
When the Awareness of Feeling Broke Began
One day, while sitting in the hot tub, I found myself wondering why I was living with such razor-thin cash flow each month. It’s unnecessary given my net worth.
The main reason, or so I thought, is that I’m focused on regaining my financial independence by December 31, 2027—when my passive investment income can cover my desired living expenses again.
However, I think there’s also a psychological reason that stems from my childhood.
Seeing Poverty in Middle School
My first realization of poverty came in the 6th grade in Kuala Lumpur, Malaysia. The contrast between the rich and poor was stark. I wondered why some families lived in mansions with chauffeurs while so many people begged on the streets. Where did it all go wrong?
I got to know several friends who were poor, including one who lived in a studio apartment with his sister, mother, and father. Despite his circumstances, he was kind and even gave me a Fossil watch, which I now suspect he may have stolen from the watch store where he worked. Every day, he’d take the bus to Sungei Wang Plaza, a mall where I’d go to play Nintendo for free.
Then there was a beautiful girl named Posey, who had tumors on her spine. She was also poor, but all the boys liked her. She ended up with a guy named David, who wasn’t the most attractive but drove a Jaguar. He was rich, or at least his parents were.
At the club DV8 one night, he approached my friend Adlin and me and said, “Look at this.”
“Look at what?” we asked. He then grabbed Posey, dipped her slightly, and kissed her. I was impressed because they seemed like such a mismatch. There was no way some random poor fellow could date her.
As a thirteen-year-old, I began to connect the dots between money and a potentially better life. Yes, I went clubbing at 13.
Feeling Guilty For Wanting More Or Having More
Growing up in developing countries, it’s hard not to marvel at the abundance we have here in the United States. We’re incredibly fortunate, which is why it’s difficult for immigrants to take living and working in America for granted.
Living in America can actually make you feel guilty, given how good we have it here. You might start asking yourself why you got the opportunity to come here while everyone you met growing up overseas did not.
But with so much wealth in America, you might ironically feel poor because so many people have even more. Even if you’re earning enough to make ends meet and save for retirement, the sheer amount of wealth around you can make you feel like you need to work much harder.
When I worked in banking, most people were richer than me. Feeling poorer made me want to work harder to one day reach their level of wealth. And when I finally reached the level my VP was aiming for, I decided to leave. I didn’t want to pursue accumulating more wealth partly because I felt guilty for wanting more.
Continuing to accumulate wealth also felt greedy because my friends who worked in the watch store or who got unlucky with spine tumors didn’t have the same opportunities.
That Broke Feeling Can Make You Rich
When you feel lucky or like you don’t deserve your good fortune, you may end up working extremely hard to prove that you do. Alternatively, you might purposefully try to make yourself feel broke as a way of making amends with the God of Unfairness.
However, this self-imposed financial constraint can make you rich for several reasons:
1) You’ll Understand Your Finances Inside and Out
When almost every dollar that comes into your checking account must go toward paying bills, you can’t afford to lose track of your finances. One careless spending mistake could mean not being able to pay your credit card bill in full or missing a capital call, both of which could lead to late payment penalties.
The more you track your cash flow, the better you’ll understand your finances. This knowledge creates better discipline in spending, saving, and investing. You’ll remember the cost of almost everything and the times when you wasted money, which will help you avoid repeating those mistakes.
2) You’ll Become a More Diligent Investor
Feeling broke will encourage you to do everything you can to stop feeling that way. Not only will you cut back on superfluous spending, but you’ll also be more careful in how you invest your money.
When you have no financial buffer, you can’t afford to do risky things like day trading stocks, taking on concentrated positions, buying on margin, or investing in a security without thorough research.
Investing FOMO is one of the hardest types of FOMO to overcome. We often chase the current hot investment, often to our detriment. Think about all the people who lost fortunes buying NFTs in 2020 and 2021, or those who won bidding wars for houses only to feel stuck years later.
When you feel broke, you become a more shrewd investor, thinking carefully about asset allocation to help meet your financial goals. Having too much cash could actually make you poorer, as you struggle to figure out how to invest it.
3) You Develop a Greater Appreciation for What You Have
When you feel broke, you’re forced to live within your means and rediscover the great things you already have. Since you’re not buying new things to fulfill your desires, you might start wearing those shoes you bought five years ago or that shirt that’s been gathering dust.
Instead of wasting money on a car you don’t need, you maintain the one you have and appreciate the aging car smell. Get your House-to-Car Ratio right, and you’ll achieve financial independence much faster than those who spend too much on cars.
There’s no need to get a new TV, laptop, or phone either. You keep using them until they break. When you feel broke, everything you have will last longer. The greater the utilization of your assets, the better value they become.
4) You Cure Your Addiction to a Home You Don’t Need.
I’m a real estate addict who wants to buy every property that I think is a bargain, especially at the start of a multi-year interest rate cut cycle. Our nation has a structural undersupply of homes that will likely only get worse. Unfortunately, this obsession has created strife in my marriage because my wife seldom wants to move.
For our last house purchase, it took tremendous convincing to buy something we didn’t need. Additionally, the purchase slashed our passive income by almost 40%, creating unnecessary stress.
But my addiction is now completely cured because I no longer have a 20% down payment, let alone a 10% down payment. When the choice is taken away from you, the only thing left to do is enjoy the house you already have.
If you have an unhealthy obsession with buying other high-priced things such as watches, art, and collectibles, you can cure your habit as well.
5) You Become More Aware and Empathetic to Those Who Have Less
If you diligently save and invest most of your income for at least 10 years, you will likely become much wealthier than the average person. Once you are, you might forget where you came from. Worse, you might treat people who have less, poorly. As a Financial Samurai, you must treat everyone with the utmost respect, no matter their circumstances.
My goal is to help as many people achieve financial freedom sooner rather than later. To do so, I need to be aware of the problems people face in order to come up with solutions. Otherwise, people might say I’m “out of touch with reality” or “living in a bubble.” Although I don’t believe one person’s reality is more real than another’s, I understand where they’re coming from.
When you focus only on your reality, you inevitably exclude those who face different challenges. I want everybody to feel welcome here, even if the topics might not pertain to them at the moment.
6) You Might Raise Better-Adjusted Children.
Without much money, you can’t spoil your children. And if you can’t spoil your children, you’re more likely to raise stronger, more appreciative, and maybe wealthier children in the long run.
Children, by definition, are broke. They depend on their parents for everything. Even if they work part-time during high school, they won’t earn enough to live independently.
By bringing yourself closer to their level of wealth, you’re now right there with them. How can they not help out with chores and participate in rental property maintenance if you’re not hiring people to do those things for you? How can you not be more empathetic to their needs and desires if you better understand what it’s like to always depend on someone for money?
If dad is still wearing socks with holes, it’s hard for children to whine about not having the latest new shoes. Having limited funds will create more resourceful children, and being resourceful is great for living a financially independent life.
7) You Might Awaken a Hungry Beast Within
Perhaps the most powerful benefit of adopting a broke mindset is that it can awaken a hungry beast within.
As the saying goes, “Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times.”
The biggest risk of living in a comfortable country or growing up wealthy is the temptation toward laziness. When there’s no need to struggle, we often don’t. Instead of going to the gym, we might spend six hours a day watching football and eating pizza. Instead of working on our business after dinner, we might play video games and mindlessly scroll through TikTok.
However, your hungry beast will push you to do the things you need to do, even when you don’t feel like doing them. In other words, by adopting a broke mindset, you cultivate discipline. Once you have discipline, money will inevitably follow.
The Easiest Way to Feel Broke When You’re Not
Some of you might be rolling your eyes with the broke mindset. Saving and investing the vast majority of your cash flow won’t make you broke at all. Instead, it might do the opposite, and that’s the point.
You need to feel broke precisely because you’re funneling all your excess cash into investments that could appreciate in value. Treat your investments like expenditures if you want to invest more.
The easiest way to feel broke is to keep as little in your checking account as possible. Whenever income or distributions come in, immediately transfer everything except what you need to pay your bills into your brokerage account or other investments.
The next step to convince yourself you’re broke is to assign specific purposes for your investments. Once you do, the money no longer becomes yours.
For example, your 401(k) isn’t for your present self—it’s for your 60+-year-old self. The 529 plan is obviously for your children, so it’s easy to write off as money that’s no longer yours.
Once you make an investment in your taxable portfolio, tell yourself it’s gone forever since you’re a long-term investor. The same goes for the rental properties or private real estate investments you buy. You can’t sell because you don’t want to pay capital gains taxes.
You Can Make Yourself Believe Anything
For those still on your financial independence journey, adopting a broke mentality can be one of the best ways to build wealth. Stick to this mindset for 10+ years, and you’ll likely end up with more money than you ever imagined.
When you finally reach your financial goals, you can ease up on the self-imposed pressure of feeling broke. However, changing your financial habits might prove challenging. You may even find yourself buying things you don’t need just to recreate that broke feeling that fueled your wealth-building journey in the first place.
Remember, control your mind—don’t let your mind control you!
Reader Questions And A Suggestion
Do you adopt a similar go broke strategy to build wealth? If you do, what are some ways you trick yourself into having less money than you really do to keep the financial discipline and hunger alive?
For those with over $250,000 in investable assets who want a free financial checkup, you can schedule an appointment with an Empower financial advisor here. If you complete your two video calls with the advisor before October 31, 2024, you’ll receive a free $100 Visa gift card.
With stock market volatility returning and a potential recession on the horizon, it’s wise to get a second opinion from a professional. The ultra-wealthy do all the time so they can better enjoy their time elsewhere. The last thing you want is to be misallocated relative to your financial goals and risk tolerance. When you lose money, you ultimately lose precious time.
