The Rules of Money, Part 2

I already gave you my preamble in Part 1. Let’s dive right in to the good stuff.

Without further ado, I present THE RULES OF MONEY.

Rule #1: Never Kill the Golden Goose

Let me begin by saying that the absolute worst thing you can do with money is play the lottery. But if you are unlucky enough to actually win the lottery, you will be given a choice.

Do you take your reward as a lump sum, or as annual payments that will be divvied out across the remainder of your life?

There is a right answer. And, sadly, it is not the answer that popular media would lead you to believe is correct. You should, without exception, choose the annual payments. You’re still likely to lose all the money, regardless, but if you choose annual payments, then you can’t possibly blow all the money all at once.

Annual payments give you a second chance each year to learn how to manage the money and possibly put it to a good use that will actually make you happy (as unlikely as that is for the typical lottery winner).

It’s the same lesson we learn from the story of the golden goose—which, incidentally, is one of the oldest stories in the world. In the story, a greedy man finds himself the owner of a most miraculous goose. She lays a single egg made of solid gold every day. An egg of gold every day is more than enough money for the man to live off for the rest of his life. But, succumbing to his avarice, he kills the goose in the hopes of harvesting the hundreds of eggs that have not yet been laid. When he finally carves open the miraculous foul, he finds only a single golden egg (or, in some versions of the story, nothing at all).

Hence the warning: “Never kill the golden goose.”

Though, frankly, a more modern phrase has been devised that delivers the lesson more clearly: “Never sell the principal.”

If you have some kind of interest-bearing instrument—whether that be real estate that collects rent, stocks that collect dividends, or any other kind of passive-income generating investment—then the last thing you want to do is sell that source of passive income to someone else. The only exception to this rule is when you sell one principal as a means of buying another, more profitable principal (such as trading a stock that delivers a 2% dividend for one that yields 5%).

There is no shortage of people in this world who will sell their golden geese for an immediate payout. These people then wonder why they never have enough money.

Rule #2: There’s No Such Thing as Free Money

Going back to our lottery example, there is a clear misunderstanding—on the part of 99% percent of people—about how the wealthy get their money.

A lot of people assume that the wealthy somehow steal it, and the only way to get rich is some kind of theft that magically goes undetected.

But a far greater contingent of people suppose that the only way to come into money is to be given it by someone. Most of these will point to the practice of inheritance as proof that the only way to gain wealth is to have it bestowed upon you.

This is likely the reason why so many people approve of the idea of handouts, in the form of helicopter money from the government or even a corporately controlled lottery.

But here’s the thing: free money does not exist. Any money you appear to be given without strings attached is actually a trap designed to impoverish you.

The most common way this happens is inflation. Here’s a swell idea: why doesn’t the government just give every person one billion dollars each! Then everyone can be set for life!

As simplistic as that sounds, there is a frighteningly large number of adults who believe that statement as written. They don’t realize that giving everyone in the country one billion dollars would also dilute the value of every dollar in existence. The result would be sky-high price increases: cars that cost trillions of dollars and houses that cost quadrillions of dollars.

In this situation, the already-wealthy would quickly use their billions to buy something more valuable, such as gold, real estate, or commodities. Meanwhile, the already-unwealthy would either hoard their money until its value was inflated away, or spend it on items designed to lose value over time, such as consumer electronics or cars.

Free money is a myth. Wealth cannot be given to anyone. Even inheritance, which supposedly proves that the only way to obtain money is to receive it as an act of someone else’s charity, is no guarantee of wealth. Much like lottery winners, people who experience an inheritance windfall frequently lose the money in the span of months. The only exception is that rare heir who has been trained by their progenitors on how money and wealth actually work. Only someone who has already internalized the principles of money can hope to keep whatever amount of money they have.

And they start by realizing that money is never free.

Rule #3: Status Is Not Money

Gold Wastebasket, by Midjourney

As stated before, there is a severe misunderstanding about what wealth is by a majority of people.

Perhaps it needs to be stated in plain language: wealth and luxury have nothing to do with each other. In most cases, they actually negate each other.

The poor imagine that the rich wear nothing but Gucci and Chanel, drink aught but Don Perignon, ride limousines to every appointment, and always have the latest and most expensive electronics.

Granted, there are people who live that way, but they are the poorest people in the world. Again, naysayers will point to supposed proof that contradicts this rule. “What about all those Hollywood movie stars? Are they not known for their consumption of luxury brands? And are they not also the richest people on Earth?”


Movie stars get paid by the luxury brands to wear their products. A few actors and actresses have doled out large sums on expensive houses in expensive neighborhoods, but these properties change hands so often that it has become a running joke. The foolish young starlet buys a mansion in the Hollywood hills, but learns after a year or two just how much money it takes to maintain such a property, then sells it at a loss just to be rid of it.

People who pursue luxury often do so out of a misguided desire to attain some kind of status. If you’re the only soccer mom in your circle who wears Gucci, you delude yourself into believing this wins over the other soccer moms and brings them to your side. These are the status games played by poor people.

Now, rich people also play status games. I won’t pretend they don’t. But their status is measured by accomplishments, not by accoutrements. A New York Times bestselling author wears his bestselling status as a badge of honor. An entrepreneur advertises all the companies he has either started or saved. A hedge fund manager has his list of influential clients (and his fund’s earnings reports).

But even then, status is not a substitute for wealth. The author, entrepreneur, or hedge fund manager who gets too drunk on status will eventually neglect their golden goose until it dies. The smart ones quickly fall out of love with status, and learn to enjoy their many blessings without comparing themselves to others.

Quite a few of them take it even further. The phenomenon of the “secret millionaire” is much more common than most people suspect. In a typical middle class neighborhood, there’s bound to be one or two of them, wearing the same Old Navy cottons that everyone else wears, and living in a house they could have bought twenty of.

The Halfway Point

So far, the rules have been about maintaining wealth. But you’re not here for that, are you?

No, you’re here for the other rules of money—the ones that allow you to attain wealth you do not yet have.

Be of good cheer. Those rules exist! And they can be conveyed to anyone who has ears to hear. Or, in this case, eyes to read.

Still, it is important for you to learn the rules of maintaining before you learn the rules of acquiring. For, like the lottery winner or the windfall heir, acquiring a large sum of money will be of no worth to you unless you first know how to keep it.

Are you ready to learn how to make money?

Rule #4: You are Not the Exception

This rule was supposed to be “Buy low; sell high”—except that rule, which is excellent in principle, cannot be obeyed by most people.

“Buy low; sell high” is not some well kept secret enjoyed only by the uber-wealthy. Everyone already knows this rule, and it has helped almost no one make money. You know why? Because everyone forgets this rule exists the moment they see prices move.

It’s only when the news starts to report about surging stocks that every sorry desk jockey starts to think, “Maybe now is the time for me to start investing!” And by then, it is already too late. Likewise, it never occurs to them to sell their beloved cash cow while the good times are still rolling. “Let’s ride Bessie even higher!” is their excited refrain.

In the face of greed, the wisdom of “Buy low; sell high” evaporates. Because everyone—absolutely everyone—believes they are the exception to that rule.

That is why Rule #4 is “You are Not the Exception”. Because you’re not.

This is the most common impediment when people try to make money. They invest with the idea that they can completely go their own way. And while it’s true that each investor has to discover their specific and unique strengths through experimentation, this does not give them free reign to ignore the rules that govern the fundamentals of money.

Rule #5: The Investor Who Separates Hype from Value Will Always Win

This rule was supposed to be “Always bet on the fastest horse”, but I changed it for the same reason I changed “Buy low; sell high”.

I’m sure I don’t need to explain this a second time. Suffice it to say that while “Always bet on the fastest horse” has helped many people obtain wealth, it has caused many more people to stumble.

Why? Because most people can’t tell the difference between value and hype.

I learned this in my days as a software engineer. Word got around that I had done well for myself with my investments, and before long, my coworkers would come to me—not to ask for recommendations, but to try winning my validation for their own investment choices.

“Alan! What are your thoughts about Cardano?” I was asked one day.

“Never heard of it,” I answered honestly.

“Well, I think it could be the next big thing!”

“What does it do?”

“Well, it’s like Ethereum.”

“I never liked Ethereum. How is Cardano like Ethereum?”

“It’s better than Ethereum. It fixes all of Ethereum’s problems.”

“Everything invented before Ethereum lacks Ethereum’s problems. If you want something without Ethereum’s problems, invest in literally anything that preceded it.”

“Aw, you’re just not willing to give Cardano a chance.”

I ended up leaving that job before Cardano crashed. I have no idea how that former coworker fared. Badly, I suspect. But this illustrates an important point: in my coworker’s eyes, Cardano was the fastest horse. Because surely, anything that was so intensely buzzed about must be the fastest horse. People wouldn’t be talking about it if it wasn’t the fastest.

Betting on the fastest horse is still the best strategy if that horse is fastest as a matter of value, rather than as a matter of hype. But the average investor cannot tell the difference, which is why I stopped telling people to bet on the fastest horse. Now, I tell them to learn the difference between value and hype.

And if the person can think objectively, then identifying value is not hard. Value is anything which solves a problem. The more efficiently it solves the problem, with the fewest side effects, the more value a thing has.

When I asked what problem Cardano solved, I was told only that it solved the problems caused by Ethereum. Basic math tells me that subtracting Ethereum from the equation is a more efficient solution than creating a new cryptocurrency to fix Ethereum’s problems.

Now, it’s possible that a value proposition can solve some problems while creating others. If I believed Ethereum solved a problem despite its flaws, then you could convince me it would be worthwhile to create a more efficient Ethereum alternative. But the fact that Cardano was being pushed by people made me instantly suspect something was amiss.

The investment didn’t pass my value sniff-test. It turns out I was right to be suspicious.

Rule #6: Give Ten Percent to God

Not joking.

This is actually rule #1, but putting it here at the end gives it dramatic effect, and some people wouldn’t bother to read the rest of the post if I had started with this. Some people are allergic to any mention of the divine.

But I don’t have to invoke the divine to prove the value of this rule. The rule will work even for someone who is adamantly opposed to the existence of a Supreme Being. And I’ll tell you why.

Do you know why I learned to put my investments in a spreadsheet? To track their movements up and down using my own records, unmanipulable by an outside source?

I did it to keep track of how much tithing I owed.

It was the only way. I didn’t trust my online investment bank to tally my tithing. It was the kind of thing I wanted to verify and double check myself, to ensure that I didn’t shortchange God. That’s why I started feverishly keeping track of all my investments, lest I accidentally overlook some income whose first tenth was due to the Almighty.

And keeping track of my investments this way caused me to learn how my money was actually working. And then it caused me to learn how all money works. The only reason I know any of the other rules of money is because I started with this one.

And even an atheist can learn the rules of money this way. Granted, he would receive additional monetary blessings if he gave his money to God with the full belief that God is there to receive it, but as long as he has a zealous need to keep track of his tithing debt, and actually pays that debt (for simply looking at numbers on a spreadsheet will not do), he will receive some degree of blessing.

Naturally, the true believer who observes the same performances will reap an even greater advantage, but casting one’s bread upon the water always sees a return. And this practice is accessible to all.

There You Have It

This is what schools won’t teach you. I give these rules to you now without any expectation of return. You have no need to thank me. Your taking these principles to heart is reward enough for a grateful teacher.

Of course, I know most of you won’t actually learn these lessons. If it was that simple, everyone would do it. Too many of you will simply try betting on what you think is the fastest horse, telling yourself you are buying low when you are buying at the top. I am under no delusion that I will free all the prisoners from Plato’s cave. If even one leaves his chains behind, it will be a statistical miracle.

Yet I am proof that such miracles can happen. I have seen what lies outside the cave.

You’ll never believe how beautiful it is out here.

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