Just Keep Buying: Study Guide

Quiz

Instructions: Answer each question in 2-3 sentences.

* According to the author, what is the core principle of "Just Keep Buying"?

* Why does the author argue that focusing on spending too much can be misleading?

* Explain the "save-invest continuum" and its importance for individuals with differing financial situations.

* What does the author mean by "human capital" and how can it be converted to financial capital?

* Why is focusing on increasing income considered more sustainable than focusing solely on cutting expenses?

* What is the author's take on the "credit card debt puzzle?"

* What does the author mean by "bet hedging" and how does that apply to financial planning?

* How does the author define a "splurge" and how does he suggest managing these purchases?

* What is "lifestyle creep" and why is it more detrimental to higher savers?

* Briefly outline the author's argument against saving up cash to "buy the dip."

Answer Key

* The core principle is that the timing of buying U.S. stocks does not matter as long as you keep consistently buying them, regardless of market conditions. The most important thing is to consistently invest in stocks.

* The author contends that focusing on spending can be misleading, as increasing income often has a greater impact on wealth accumulation and is a more sustainable method of building wealth, and higher income households tend to spend a smaller percentage of their income compared to lower income households.

* The "save-invest continuum" states that if you don't have much invested, focus on increasing your savings and investing, and if you have a sizeable portfolio, focus more on the details of your investment plan. This acknowledges that individuals with different net worths should have different financial priorities.

* "Human capital" is the value of your skills, knowledge, and time, and it can be converted to financial capital by selling your time, expertise, or creating products. In other words, it is an asset that can be leveraged to generate income.

* Focusing on increasing income is considered more sustainable because it can lead to more significant and consistent growth in financial resources compared to simply cutting expenses, as it unlocks one's potential financial value. The data suggests that higher income households spend a smaller percentage of their income than lower income households, allowing them to save more.

* The author argues that people with both credit card debt and savings often retain debt as a risk reduction strategy. They do so because they are concerned about future access to funds, and willingly pay interest on debts to ensure they have cash reserves.

* "Bet hedging" is a risk-reduction strategy where one maximises long-term success instead of chasing short-term wins, such as when some seeds remain dormant instead of sprouting all at once. The author implies this concept applies to saving, as it's important to focus on long-term results and consistency instead of attempting to time markets or chase quick returns.

* The author defines a "splurge" as a purchase that feels non-essential or extravagant to an individual. The author suggests managing these purchases with the "2x rule" (saving the purchase price for investments), and focusing on purchases that create long-term fulfillment.

* "Lifestyle creep" is when spending increases alongside income. It is more detrimental to higher savers because they must save an even greater percentage of future raises to maintain their retirement goals due to the impact of additional spending on their overall financial plan.

* The author suggests that trying to time the market and save up cash to "buy the dip" is not an effective strategy, and that it is more important to consistently invest, even if it feels like prices are high.

Essay Questions

Instructions: Answer each essay question using evidence from the text to support your response.

* Discuss the role of historical context, such as the changes in transaction costs, in making the "Just Keep Buying" strategy more viable today than it may have been in the past.

* Compare and contrast the author's views on spending and saving, considering the arguments that you may already be saving too much, and how this relates to the fear of running out of money in retirement.

* Analyze how the author uses anecdotes (e.g., his grandfather’s gambling habit, Jerry Richardson’s success) and research findings (e.g., the Panel Study of Income Dynamics, studies on spending in retirement) to support the book's central claims.

* Explain how the concepts of "human capital," "financial capital," and "lifestyle creep" are interconnected, and how a person should balance these factors in their long-term financial planning.

* Evaluate the author's contrarian views on debt (credit cards and mortgages) and cash reserves, and discuss how these views may challenge mainstream financial advice.

Glossary

* Bet Hedging: A risk-reduction strategy focused on maximizing long-term success rather than short-term gains; in finance, this involves diversifying investments and consistently contributing over time.

* Debt-to-Income Ratio: The percentage of a person's gross monthly income that goes toward paying debts, commonly used by lenders to assess a borrower's risk.

* Financial Capital: The monetary assets available for investment.

* Human Capital: The value of an individual's skills, knowledge, and time; seen as an asset that can be converted into financial capital through work and productivity.

* Lifestyle Creep: The tendency for spending to increase alongside income, often leading to reduced savings and delayed financial goals.

* Poverty Trap: A situation where individuals cannot improve their financial circumstances due to a lack of initial resources, thus perpetuating poverty.

* Save-Invest Continuum: The idea that financial priorities should shift from a focus on saving to a focus on investments as one's net worth increases.

* Splurge: A discretionary, non-essential purchase that feels extravagant, the definition of which changes over time and with differing incomes.

* Transaction Costs: The expenses incurred when buying or selling an investment, such as trading fees or real estate agent commissions.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit depositologico.substack.com