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Making Fast Money Quickly Turns into Dumb Money

by | Oct 30, 2023 | Money, Personal Finance

Get-rich-quick schemes are everywhere.

The myth is you follow some shortcut and make money fast. It seems clever. The cryptocurrency world is one of the biggest traps for this sort of thing.

And don’t worry, I made some big mistakes with cryptocurrency and fast money too, so I’m not here to tell you I’m a financial Jesus.

But I do find the difference between making money fast and slow as a crucial framework to understand. I’ve written about why it doesn’t take 50 years to make decent money and get wealthy with boring index funds.

Now I want to go in the opposite direction and explain why making money too fast is poison for your financial health.

Quick wealth is fragile wealth

Morgan Housel wrote the most popular book on money of the last decade.

His essays about money are the best I’ve read. He takes complex topics and makes them easy for a 5th-grader like me. He says “quick wealth is fragile wealth.” This idea hit me hard in the face.

I shouldn’t tell you this but in 2021 I made a stupid amount of money.

The post-pandem!c era got out of control. You could make money doing almost anything. I built up a war chest (thanks to crypto) of $1.2M. The money came thick and fast.

I got ahead of myself. I went mansion shopping with my wife. We had big dreams and knew we’d be having our first kid soon. I’d sit in the hot tubs. I’d talk smack to the real estate agents. I’d imagine a different life.

Then I got hacked and lost $1.2M. I’ve mostly blocked out this terrible experience — that’s what financial trauma can do to you.

But as I read Morgan’s essay on getting rich quick, I felt emotional. It brought back so many memories of 2021.

He says “The speed in which you made your wealth is the halflife for how fast you can lose it.” I realized I made money fast and lost it even faster (under a year).

That’s the problem with fast money. It makes you delusional.

You don’t appreciate the money-making process and you’re more likely to make big mistakes like I did and go from the fast money category to the dumb money category.

Wealthy people never want to talk about this one (and I may piss off the internet)

Alright, here goes.

What wealthy/rich people never want to talk about is the role that luck played in how they made their money.

They want to believe it was because of their IQ, EQ, entrepreneurship, or sheer genius. Often it’s not. It’s because of:

  • Right place, right time
  • A coin-flip opportunity where the odds of winning are 50%
  • A big risk that could easily have bankrupted them too
  • Daddy’s connections
  • Daddy’s trust fund

We’ll never admit to luck because it undermines our success. It attacks our ego and status in society, too. But to ignore luck is to play liar’s poker and miss what Nassim Taleb teaches in his epic book “Fooled by Randomness.”

Morgan Housel says:

The quicker the wealth was made, the higher the odds it came from luck that will revert just as fast.

I made a lot of money in 2021, but if I’m being honest, the crypto portion was mostly luck. I didn’t have some genius trading strategy other than buying the two most popular cryptos.

Because I got lucky the win reverted just as fast, like Morgan predicts.

Financial FOMO caused by social media

The temptation to make fast money is higher than ever.

Social media is a beauty pageant where everyone is flaunting their assets (and booties).

When you’re surrounded by everyone talking about their wins and how they got them, it creates this false reality that everyone is winning, so why not you?

Sharing losses doesn’t get likes. It doesn’t increase your social currency, which is why this essay is suicide for my online reputation (ahhh well).

If you spend too much time looking at everyone winning, you eventually, no matter how disciplined you are, try to find ways to make fast money.

That makes you vulnerable to fragile wealth and the likelihood that luck will play a part, and therefore, reverse your financial gains.

What this all means for you

I’m not saying don’t make money fast.

I’m not saying you bank $100K and then just give it all back because Timbo says so.

What I’m saying is become financially self-aware.

Understand the downsides of money. Understand what money can do to your psychology. Understand that money can make you delusional and ruin your life if you don’t study and respect it.

That’s what I’m learning the hard way and it’s a bitter pill to swallow. Learn from my mistakes.

Build anti-fragile wealth.

This article is for informational purposes only, it should not be considered financial, tax or legal advice. Consult a financial professional before making any major financial decisions.

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