How I think about money

These are my thoughts on how I think about money. Nothing I say here is financial advice. Everybody is in a different financial situation and what works for me might not work for you. My hope is that by reading this you'll get something out of it.


Everyone has heard that you should pay down your debt but it's not that simple. Not all debt is created equal. There are good debts and bad debts.

Good debt is defined as a debt backed by an asset of greater or equal value. An example of good debt is a home loan. If you owe the bank $500k and the house is worth $600k then having debt is fine. As long as you can manage the repayments.

The point of having good debt is to allow you to do things that you wouldn't otherwise be able to do. For example, if you tried to save up enough money to buy a house, unless you have a crazy good income, you would never be able to do it.

Even in the best case, if you somehow managed to save $500 per week it would take 20 years to have enough money. But there's a problem, housing prices typically double every 10 years, so that $500k house you wanted to buy is now worth $2 million. You can't save for a house so using debt is the only realistic way to buy a house if you want one.

Bad debt is the opposite. The typical example of a bad debt is a credit card with a high interest rate. It could also be a car loan or personal loan to buy furniture. These debts tend to be good in the short term, bad in the long term. Having a credit card allows you to buy groceries, but you should pay off the credit card every month before the interest kicks in if you can.

In short, pay your bad debts, keep your good debts.


Having some cash is pretty useful. Having too much cash is generally a bad idea. The problem with having too much cash sitting in a bank account is that it's constantly losing value to inflation.

I remember reading a story where a guy found about $40,000 cash under his grandfathers floorboards. He discovered that the money had been under the floorboards for about 50 years, since the 1970's. Forty thousand dollars is a lot of money, but had his grandfather invested the money into real estate or a low risk index fund, it would now be worth at least $2 million.

Moral of the story, keeping lots of cash sitting around too long is a terrible shame. Put it to use.

Does that mean you should go and invest all your cash straight away? Not so fast bucko. We'll get to investing later, for now, let's just focus on what to do with cash.

Organise your Bank Accounts

One of the best financial decisions I've ever made is to organise my bank accounts properly. The basic structure looks something like this:

BillsAll income goes into this account, all bills get paid from it
SavingsNeed to save up for something expensive? Keep the money in this account
Home LoanPay the home loan monthly from the Bills account
Credit CardAll other spending goes on the credit card, pay it off in full monthly

It can also be a good idea to have additional accounts for other reasons. If your trying to start a business, keep those transactions separate. Or if you need to declare some things to the government. Home loans are often broken up into Fixed and Variable loans. Or maybe you just want an account you can spend from without feeling guilty. More accounts is okay, but keep it simple.

Automate your Bills

Everybody has them, nobody likes them. It's stressful. So automate it.

Almost every bill you receive will have a way to direct debit from your Bills account. It takes a while to setup, but once you have everything automated it's peaceful bliss never having to manually pay another bill ever again.

Of course, to pull this off, you'll need to make sure you always have money in the account. I recommend about 3 weeks income rounded to a nice number.

For example, on an income of $900 per week it would be 3 x $900 = $2700. Round that up to $3000 and you've got a nice round number to work with.

If you've got a dual household income, kids and lots of bills you might need more. In this case it makes sense to have $10,000 in your Bills account. Find the number that makes you comfortable, but keep it round.

This nice round number is your new zero. When the account falls below, you know it needs a top up. When it goes above, you might be able to throw a little extra in savings.

It's natural for this account to fluctuate though. Bills come at different times, sometimes you'll get a whole batch in one week. Other times, you'll feel like you've got lots of money, only to get hit with a big bill next week. Just let it do it's thing, keep an eye on it, but don't freak out. The whole point is to reduce stress. If you're worried it's going to run out there's probably something else going on that needs to be dealt with.

There'll probably be two bills that dominate the rest. The first is your home loan repayment or rent. The second is your credit card. Add a reminder to your phone for these ones so you remember when they're coming.

My bank doesn't allow me to automate credit card repayments in full, so I have a reminder to pay that every month on the 15th. The amount varies a lot depending on the time of year so it's good to be aware of it.


Setup an automatic transfer from the Bills account to Savings. Only you'll know the right amount. Maybe you're goal is to save $5,000 in a year to go on holiday or buy something awesome. That means you'll need to put away $100 per week. Saving is always easier when you don't have to think about it. Once the money is out of the Bills account you'll be less inclined to spend it.

Of course, there's always the chance of needing the money in an emergency. Having savings gives you piece of mind. It also makes the prospect of finding a new job less stressful. Having runway gives you time to find a job if you want to quit (or get fired). That's a pretty good feeling.


What's the point of money if you're not going to spend it?

I've read a tonne of books on finance and money. Not many books talk about spending. That's why I really love this quote:

Spend extravagantly on the things you love, and cut costs mercilessly on the things you don't. -- Ramit Sethi

There's no point getting rich if you have to sacrifice everything to do it. Your net worth is just a number. It's nice to know you'll have money when you retire and it would be nice to leave something to your kids. But you still need you enjoy life while you're around.

What do you love doing most? That's what you should spend the most money on.

Some questions to ask yourself:

  • Where do you spend the most time?
  • Where do you want to spend less time?
  • If you had unlimited money and resources, what would you be doing?
  • Is there problem that really bugs you that you can solve with money?
  • Can you pay for a course to learn a new skill that you've always wanted?

I spend 12 hours a day on the computer. For me, it doesn't make any sense to have a crappy ten year old computer that's slow and crashes all the time. So spending money on a new computer is an investment in my enjoyment. Reduces my frustration and makes me more productive at work.

Most of us spend a 3rd of our lives in bed. Having a good mattress is an investment in your health, especially as you get older.

If you have a hobby that you love, buy what you need to take it to the next level. Maybe there's tools that would make it more enjoyable. Or an online course you can do to level up.

We only get one life. Spending more time and money on the things you love is rarely something you'll regret.

Lastly, most of the big financial decisions will far outweigh the little ones. In other words, a 0.5% difference on your home loan interest rate will save you way more money than trying to drink less coffee. Enjoy the coffee.


Finally, we get to investing. First of all, why invest?

There's a lot of misconceptions about investing. There's also a lot of different ways to think about it. People have many different reasons for wanting to invest their money but they all have one thing in common. An expectation that it will be worth more in the future.

A better way to put it might be... investing is about preserving value over time.

Think of it this way, when you go to work each day and put in your blood, sweat and tears to earn some of those sweet dollars what you're effectively doing is converting your time and effort into money.

So it's reasonable to say that MONEY = TIME + EFFORT

Another word for TIME + EFFORT is VALUE. When you go to work you're providing value and getting dollars in return.

The Fisherman

VALUE can be created in other ways. Imagine a fisherman trying to catch fish with his bare hands. He might catch a few fish each day but he'll catch a lot more if he has a fishing rod.

He could create the fishing rod himself which would take TIME + EFFORT away from catching fish. Even so, it would be a worthwhile investment to spend the time to make the fishing rod today so he can catch more fish tomorrow.

Or he could exchange some of his MONEY to buy a fishing rod from the local carpenter. Chances are the rod would be better quality because the carpenter spends a lot more of his time and effort crafting wood.

There's a lot to unpack here.

First of all, the by making a fishing rod the fisherman is INVESTING with an expectation of profit in the future. So that's a key principle.

Secondly, when you spend MONEY what you're actually doing is giving some of your VALUE in the form of dollars to someone else in exchange for some of their VALUE in the form of a product or service.

Or to put it another way, you're trading VALUE for VALUE.

Value over Time

When you go to work and earn $100 you can take that money down to the grocery store and buy a basket of food. In theory, you can repeat that every week and each week your basket of food should be about the same.

You get out a calculator and work out that you worked 3 hours for that basket of food. In other words, that food is worth 3 hours of your TIME.

But here's the problem.

If you leave that $100 sitting in your bank account for 10 years it will no longer buy the same basket of food. In fact, it will probably only buy half a basket of food.

So now that 3 hours you worked to earn that money is only worth half as much. You still spent the 3 hours, but you didn't get the same amount of VALUE in return. That's a crying shame.

The problem is that DOLLARS don't hold their VALUE over TIME.

What is Money?

That's a deep question. Here's the summary.

Money is supposed to have 3 primary functions:

  • A medium of exchange
  • A unit of account
  • A store of value

DOLLARS are really good at the first two. You can take your cash anywhere and exchange it for something else. It's also a pretty good unit of account because you can measure it and easily see if it's the right amount.

But it's a terrible store of VALUE over TIME.

So we have a problem if we want to store the VALUE created by our TIME + EFFORT over TIME.

What's the solution?


If you want to spend all your money right now INVESTING is probably not going to help. But if you have any money that you want to keep for the future or pass down to your kids then you're going to need a solution to the store of VALUE problem.

Investing is that solution. It's not perfect, there's risks but it's the best we have.

The pillars of investing

There's lots of ways to invest and they all have their pros and cons. The particular investments you choose will ultimately be a personal choice.

I like to invest in things that I've taken the time to understand. Investing is not particularly difficult, you don't need to be a genius, but you do need conviction. You need to firmly believe in whatever you're buying and size your position appropriately.

Let's talk about some different types of investments.

Real Estate

Real estate is pretty easy to understand. You're either buying a house for yourself and your family to live in or your buying an investment property to rent to someone else.

Some people say the house you live in isn't an asset because it doesn't generate income. This might be true in the strictest sense but let me tell you why I still think it's a good long term investment.

Lets imagine you borrow $500k from the bank to buy a home. For simplicity lets say the house is worth exactly $500k and your repayments are $700 per week.

You might assume that if you can rent the same kind of house for $500 per week that's a better deal. After all, you're paying $200 more on the house repayments and the loan isn't getting any smaller because you're paying interest only.

However, as a rule of thumb, real estate doubles in value every 10 years. So ten years from now the house you bought for $500k will be worth about $1 million. And you still owe the bank $500k. In other words, you got $500k in equity for minimum repayments. You can now use that equity to refinance and buy an investment property or other type of investment.

More importantly, that guy that decided to continue to pay rent is still paying rent. And his rent has increased with the value of the property. So instead of paying $500 per week he's now paying $1000 per week on the same $1 million dollar property.

Granted, he could have used the extra $200 per week he was saving initially and invested it elsewhere, but would his investments be worth $500k more? Probably not.

That's the power of leverage. A home loan let's you buy an asset you normally can't afford. The repayments are the cost of holding that asset while you wait for it to appreciate in value.


The stock market is another common type of investment. To be honest, outside my super fund I don't own any stocks.

That said, they are attractive for a few reasons.

  1. They are liquid, meaning you can buy and sell them whenever you need to.
  2. There are plenty of index funds if you want to keep it simple.
  3. You can dollar cost average into the market.

Dollar Cost Averaging is a really important concept when you're investing in something that has wild price fluctuations. Instead of trying to time the market, buying the bottom and selling the top you instead average out your buy price with DCA.

The way it works is simple. You buy a little bit each day / week / month depending on what you can afford. Each time you add more, your buy price will be the average of the previous buys.

To illustrate, imagine you're driving down the street and you see bags of apples for sale. 10 apples for $10. You think to yourself, I can buy these apples and sell them down the beach for $1.50 each. Each apple costs $1 so you're making a nice little profit.

But then a bit further down the street another apple cart is selling bags of apples. 10 apples for $5. If you buy another of apples, your average cost will go down.

10 apples for $10 = $1 each + 10 apples for $5 = $0.50 each = 20 apples for $15 = $0.75 each

Now you only need to sell each apple for more than 75 cents to make a profit even though the original apples cost $1 each. That's pretty neat.

This is dollar cost averaging in a nutshell. It's also how your retirement fund works. When your employer adds money to your fund each week, that's effectively them DCAing into the market on your behalf.


The last class of investments I want to mention is Bitcoin and crypto.

Most people would consider Bitcoin and crypto to be alternative investments. Somewhat outside the mainstream. Financial advisors might even tell you it's a terrible idea.

But I think there's room in every investment portfolio for some amount of these supposedly 'riskier' investments. The important thing to remember is position sizing.

You probably don't want to throw your entire net worth into Bitcoin (although some people who really understand it actually do). Instead, look at your total net worth across real estate, stocks and cash and maybe consider putting 1 to 5% of your money into something like this.

Why? Because these types of investments have a much greater potential return. If you take the time to actually understand what you're buying it's possible to get comfortable with it and outperform other asset classes.

You might be surprised to learn that Bitcoin outperforms every other asset class almost every year. It's a wild ride, but with the right DCA strategy it's not much different to investing in stocks.

It makes a more well rounded portfolio in my opinion.