Winter is coming, and humans don’t do well with change. In this episode, Ryan and Terry detail all the ways we’re likely to trip ourselves up as we enter stagflation for the first time in decades. Using the inversion principle, they explore the pitfalls, and preventable mistakes most of us tend to make when fear hijacks our thinking in times of economic instability.
What you'll learn
Terry: Welcome back to the passive income project. I’m here with Ryan. Who’s still gallivanting all way around the world. Where are you now, mate? mate, actually I don’t care. Don’t tell me I don’t wanna
Ryan: talk about it anyway. I’m in Tuscany. Beautiful Tuscany, Nick ki anti region, enjoying a couple of red wines, but that’s enough about that. What are we talking about,
Terry: mate? We’re gonna be carrying on from our first episode in this series, we talked about stagflation. We defined it. We explained why it was here, whose fault it was. And we did that. So if you’re listening, you know that you are not doing anything wrong, it’s nothing you have done that it is our responsibility to figure out what to do about it.
I think it does help to understand what is going on as opposed to just going, I don’t know what’s happening. I think it does help, but we wanna move to what do we do about it? And, we said we were gonna be talking about the money moves, where we’re gonna be shifting our focus more to the present financial offense, financial defense.
We kind of realized that we’ve covered financial defense fairly well on the podcast before. So if you’re interested and you wanna brush up on those topics, we’ll definitely encourage you to go back to season one, listen to the episode, supercharge savings. And also there’s a couple of episodes around the COVID crash, too.
Those things very much still apply. We wanted to do something a little bit different today though. Didn’t we.
Ryan: Yeah, I think everyone’s kind of covering, how do you keep more of what you’re earning? And there’s kind of all these tactical things, but we want to teach people how to think more so, and. I’m excited. We’re gonna talk about Bobby the Buler today who, is gonna be our reference point.
Terry: explain what that means, mate. Explain
Ryan: it’s all about not being like Bobby, the Buler. Okay. And really it’s about basically looking at, what not to do. We’re using that inversion principle, instead of saying, =basically do this.
We’re looking at it and saying, don’t do that. Where are the mistakes? Yeah. Where are the potholes that we wanna step around? And so, yeah, it’s gonna be a little bit different this episode. Yeah. So
Terry: it’s basically saying here’s what to do. If you wanna bugger it up and you wanna put your whole livelihood and all your family at risk and do all the wrong things, here are the things that you should be doing.
Ryan: That’s it? Yep. So, and the reason why we wanna do this is because we wanna be aware of where the mistakes are. Where are the potholes, like I just mentioned, so that it can be a better place to avoid them. And so, yeah, we’re gonna be looking at Bobby the Buler, we’re gonna talk about what he would do in this situation.
So we can learn from Bobby the Buler and really just, use that as a signal of what not to do. And so there’s probably two ways you can go here, right? This kind of period of uncertainty. It. Maybe this is a little bit heightened for us because we’re, deep talking about it.
Now. This podcast’s been around for two and a half years now. So our receptiveness to those signals is very heightened. But for me, this feels like one of the most turbulent times in living history, in terms of just, I guess the shakiness of the system that we’ve been talking about and just the uncertainty of how this all plays out.
And so, for us as human beings, we can go two ways with this. We can either overreact. And do something dumb or we can underreact and do nothing at all. And I think Bobby, the Buler, he does a bit of both of those two things.
Terry: Yeah. The way we’re kinda wired is we’re wired to make false positives or what they call type one errors. So to think it’s a really big deal and overreact to the negative, because that’s actually safer that it turns out to be not as bad as we thought or. It’s a false negative where we think, ah, it’s not a big deal, but it turns out to be a bigger deal than we thought. And so when we do make mistakes, we’re gonna be flipping on one of those two.
We might be doing both those mistakes at the same time in different areas. And that’s what we wanted to talk about in this episode. Bobby be the Bulow like you said, he’s our reference point and mate, just admit it. You didn’t even know the word Bulow before we started. Did you
Ryan: real word. I thought I was making it up every time I used it. Anyway, straight into it. So where are we gonna start?
Terry: Let’s start with overreact, right?
So Bobby a Buler is fucking it up and he’s overreacting. I reckon there’s a pattern to this and there’s an overarching pattern and we make three big mistakes within it. So the big pattern. Is that we get sucked into short term fatalistic thinking. So we stop thinking about, you know, our kind of bigger, longer term timeframes and this new cycle, the hourly news cycle that we’re sort of in, it sucks us into this short term thinking.
And we also, we make this mistake that the way it is right now is the way it’s always gonna be like, it’s permanent and it’s gonna be permanent going forward. So how it is right now, we just draw a line out into the future and we actually don’t account for change the other way.
Ryan: Obviously the news is a big part of this, right? It’s just what creates a sentiment for people like we’ve talked about in previous episodes, a stress brain doesn’t do well. At many things. Doesn’t do well at learning and retaining new information, but also doesn’t do well in making good informed decisions. And so Bobby literally just sits there and just consumes all the news and he just takes it on board and he feels every single wave motion that comes through it.
And he lives in fib. And what that means is he has a lot of cortisol running through his veins. And so when he comes to making decisions, it’s just a very scary thing. It’s a very foggy brain that’s being used. And so you probably start to overweight some of the dangers and underweight some of the opportunities.
And so I think you’re exactly right there and kind of making sure that you do detach yourself from that ongoing cycle of new information that can sometimes be from not the right sources, but keep anchoring towards something much greater, which is what you’re working towards in the future
Terry: and the way this plays out. When we think about invest. Is when you’re investing, you’re making 10 years decisions. So Bobby’s made 10 year decisions. And then all of a sudden he gets sucked into the one hour news cycle. And all of a sudden he’s judging those 10 year decisions against the one hour news cycle and all that information.
And so Bobby starts to think I’ve made a mistake. I’ve done something wrong. this is all wrong. And that’s why people sell when prices are falling. You start changing your time, period, your timeframe around how you judge it and you actually don’t have any rules in place. So Bobby’s not gonna look back to his decision journal.
He’s not gonna say I’m not to review this decision for 10 years. He’s just gonna look at the news and say, holy shit, crypto’s tanking. Bitcoin’s tanking real. Estate’s tanking. Equity’s a tanking must be a bad idea. And this is where Bobby’s wired. Like every other human we’re all wired to hunt and seek opportunity and flee threats and falling prices look like threats and rising prices look like opportunities. So that’s why a lot of us tend to buy when things are rising and sell when things are falling. That’s the first way that Bobby gets sucked into short term thinking what’s the second way that he gets sucked into short term
Yeah, I think the second one is he or she, Bobby becomes overly defensive and stops doing a few things that are really important at any point in time. And the first one is stop investing in herself. And stop seeking out opportunities to. Grow that human capital, the skillset, the talent, the toolbox that’ll help her earn into the future and make sure that they’re more resilient in the workplace in terms of being able to maintain strong income.
The second one is to stop investing in opportunities that. Actually help them save money in the future. I know this one’s true for you right now, Bobby. I mean, Terry, We’re gotta be Bobby. Love it, but you’ve got one right now.
Terry: Yeah, I do. Yeah. So we’re looking at solar energy, right? So we know that energy prices are gonna be doubling. They’re gonna be going. And so we’ve got money and we can sit on that money or we can spend that money in a way that saves us cash over time.
If I’m listening to the Bobby side of me, I’m like cling to that cash buddy, cling to that cash but probably the better thing to do is to get that money invested and get those cost savings as quick as possible.
Ryan: What do you think your default state is? What would you do if that situation was.
Terry: Definitely hold on a cash. That’s my default.
Ryan: You are Bobby. I thought that
Terry: it’s against my instinct.
Ryan: So you’re combating Bobby.
Terry: I’m combating Bobby right now. Yeah. Okay. So I’ve made the call. I’ve booked in the meeting and Bobby I’m just telling him to shut the hell up.
Ryan: So I said, stop investing in yourself. That one, which is stop investing in cost savers and not really kind of running the, the price first value calculation and extrapolating that over time.
The third one is stop investing in assets. Yes. Big one. Now this is a pretty timely one because you know, obviously we’re looking at the prices of things are changing. So even though the media headlines are definitely pushing things, you can’t ignore the fact that the price is actually changing as well.
And so when it’s on a, decline’s a very hard thing for a human being to basically. Ignore a lot of their natural biases and instincts essentially to then purchase something on the fall. And so I think a lot of people have accustomed themselves to dollar cost averaging as a way to invest, which is a really smart call,
Terry: quickly explaining dollar cost averaging
Ryan: dollar cost averaging is buying at the same time each month or each week. And kind of just instead of buying in lump sums, saving up and buying in a lump sum, it’s just breaking it down and investing at the same dollar amount of a specific periods of time. And so if you look at that, for example, and let’s say you’re invest. $2,000 a month effectively. What we’re saying is you shouldn’t stop that because the price is going down.
Would you stop that if the prices were going up? And so what Bobby would do is he’d basically just go, hang on. Price is going down. Why would I buy something that’s reducing in value? That’s gonna cost me. But what Bobby needs to go back to is has his thesis changed around what the world is doing, where the world is going.
And the vehicles that will help create that world essentially. And so Bobby is very much just waiting what’s happening today or this month, or even this year, more so than the longer term trajectory of that vehicle. So Bobby would just stop investing in himself. Bobby would stop investing in opportunities that will save him money.
And Bobby would also stop investing in assets that can grow and work towards the future. He wants.
Terry: There’s a classic one there at the moment. I was just talking to one of our members this afternoon, actually. And she was saying price of Bitcoin, what do you think? Blah, blah, blah, blah. Is it a good time or is it a bad time?
Cause the price is falling. And my comment has been basically, so the thesis for me personally is Bitcoin is insurance against a failing Fiat system. That’s very fragile. and has any of that changed? Not really. Actually. It’s probably even strengthened because we’ve had two interest rate hikes and the whole world is shuttering , but NASDAQ has fallen off a cliff equity markets are falling off a cliff and Bitcoin has completely shit itself.
My comment is basically okay. So if the premium on your insurance fell by 70%, but the pay. Increased by a three. Would you be happy with that? because that’s essentially how I see it. The thesis hasn’t changed, right. It’s just got a lot more cheaper for me to buy my insurance. And so why do I care about the pro?
I didn’t buy Bitcoin to trade it out today or tomorrow I bought it for a long period of timeframe. So I think that’s the key one. There, you just get sucked into the short term thinking and you really forget that most of the 10 year decisions, at least so. Commenting on them or analyzing ’em or assessing them.
This could all be a rounding era in 10 years. You just dunno the difference between where you bought it at six months ago and where you bought it at now, it is irrelevant
Ryan: and that’s true for all the assets, right? Might be that you’re looking to purchase a home or buy an investment property or shares or whatever it might be.
That same principle applies. It’s just that it’s even more heightened with Bitcoin right now. Absolutely. So what does Bobby do there?
Terry: Bobby’s probably gonna go, oh my God. I should sell out all my Bitcoin that I bought six months ago at the top. I should just sell it all now while I can, because I just gotta get something back for my money and it’s all gonna go to zero.
And it has only gone one way. I’ve got two data points, the data point that I bought six months ago and the data point that I see now. And if I just draw a straight line that goes down to zero and holy shit, I better sell right now.
Ryan: yes. And that’s a pretty good insight. That is what naturally most people do. I’d say naturally, everybody does, except for the experts in this that are kind of detached from it. But if you actually own the asset, then you do hold on to do two data points more strongly than anything else, which is the price you bought it for. And the price it is today. And you do, you draw this linear line that ignores so much of reality and you follow that line and that’s where your brain and that’s where your feelings go towards.
So sometimes you’re just like on cloud nine and it is dandy and you’re frivolous at that point. The other way and which we’re kind of experiencing right at this second yet. It’s plane crash. Isn’t it.
Terry: It’s just bat down the hatches is crypto over it’s dead.
Ryan: So that’s a, a pretty solid thing that Bobby would probably do. What else would Bobby do?
Terry: I reckon the last one here is like, we’ve been talking about all these overreactions to the downside. I think you can overreact to the upside as well. So Bobby might become overly aggressive, overly hubristic, and just take on a lot more obligations than she can handle that can look like a number of things that could be, or I’m gonna load up on debt right now.
and we don’t know how it’s gonna play out. Yeah. Or you might just over expose yourself to one asset class. So maybe Bobby. You know what I hear what you’re saying there, Terry, I’m not gonna be that Bobby, but what I am gonna do is I’m gonna drop a hundred percent of my net worth into Bitcoin That’s another overreaction. Isn’t it?
Ryan: but absolutely. Yep. So kind of thinking that this is the greatest opportunity that’s ever happened and putting the house on it is essentially what you’re saying.
Terry: Yep. It may be the greatest opportunity, but putting the house on it, those are two different things.
Ryan: Yeah. And so it’s probably alluding to the fact that it could be a period of time in front of us that requires some. Leanness is what I’d probably say, like the fact that this period of time stagflation and what it could mean as in the after effect, maybe like we’ve talked about quantitative easing steps right in, and we see another five, 10 years and things push up or could be the next two years that they go, you know, cause we’ve been probably pretty surprised by some of the reactions from the central banks that they’ve gone for. Such rate changes. Our thesis still holds true. We’re very surprised at how quickly. Pushing it up trying to kind of surprise people with it.
Terry: I think it makes sense if you can’t go far and you better go fast, if you wanna shock people into changing their behavior, that does make sense to me. So if I only knew that mathematically my limit was, I could only get to 2% before the world goes to shit, then I’m gonna want to go fast as possible. So people shit themselves.
Ryan: Yeah. Been saying that, which I completely agree with and probably just looking at the next three months or the next six months, or is it the next three years that things just get quite lean. Maybe that increase in the interest rates, curbs, inflation and productivity can sustain to a point, but not really move.
And there is this neutral period. That’s not growth, but it’s also not hard decline, but things are a bit tight and they stay tight for a while. So it’s kind of just not knowing what that period of time can be really isn’t it. And not being too aggressive now thinking that, yep, this is heavy right now, but it’ll pass quickly.
Maybe it takes a little bit of time to come out the other side. So basically Bobby, when he overreacts, he gets sucked into short term, sometimes fatalistic thinking judges 10 year decisions on an hourly news cycle. He becomes overly defensive. Doesn’t invest himself, stop investing in cost savers, stops investing in assets, just halts everything, but he also sometimes becomes overly aggressive and takes on more than he can handle.
And, you know, that means, you know, kind of lumping debt and just, you know, setting himself up for rough times later on. But he also under reacts that’s overreacts. He also under reacts. What does he do there?
Terry: Well, I reckon this side of it is Bobby’s just gonna stick his head in the sand and ignore reality. That’s the pattern I reckon on this side. And there’s a few things that go within that. The first one for me is, yeah, I’m just gonna wait this out and I’m just gonna act like this is just a small thing that’s gonna pass in a month or two months, and I’m gonna ignore all the information at hand and I’m gonna just ignore the fact that I could be acting on and controlling the controllable.
Ryan: So wait for the storm to pass. Wait till things are a bit ROS before I really kind of dig into this, make money, a project, do the spring clean.
Terry: I call this one, the deer in the headlights. Just do nothing. just freeze. Just freeze. Just freeze. Wait it out, word it out, word it out. Maybe it will. Exactly.
Ryan: We’re not definitely not saying it won’t swerve and miss, but maybe it will either way I’m running to get outta the road is Bobby . Bobby’s just taking the hit.
Terry: No, Bobby’s standing there freezing and hoping that it all works.
Ryan: And so he’s just doing nothing, basically waiting it out. And I think another one, which is probably very well connected to that first one is just spending like you always have going through the motions, not really having any intentionality in terms of how you are using your money and how you’re extracting value from the income that you’re owning. You know, a lot of that comes down to the wastage that we.
In my experience, you know, we obviously see this firsthand, most people are living with somewhere between 10 and 50% wastage the way I define that leakage or that wastage is basically if you’ve got a very clear vision for yourself in the future. And then you’ve got a very good handle on what you value.
And you’ve kind of been able to go through that process and surface those. Then the spending that exists outside of that, that’s what wastage is or leakage. And so I think what Bobby is doing is he’s not really paying attention to himself, but he’s also not putting in the work to plan for the future and, and think about what he wants to have and the things he, the experience he wants to have.
And basically he’s just going through the motions and he’s just doing what he’s always done. Not really questioning it.
Terry: The extreme of this. Is that Bob could go the other way. I actually believe this is happening in the states right now. Did you know that credit card debt has skyrocketed in the last month?
Terry: So let’s ever think about that. Why would that be? Why would you be taken on credit card debt right now? Do you ever watch the movie? The big short? Yeah, there’s a scene in the big, short where they say secretly, everyone. Wants it to be the end of the world so they can just do whatever the fuck they want.
and I think people, when they feel bad, they just wanna throw caution to the wind because they don’t wanna deal with the caution. They don’t wanna deal with that reality. And actually, so they’ll even spend more money in order to change their internal, emotional state and feel better in the moment rather than deal with what’s ahead.
We’ve got no doubt that some of these credit card spending is actually just getting by, but I also think a lot of. He’s coming because this is just about, oh my God. I just need to feel good and spending. Money’s a way to feel. Good. Let’s do.
Ryan: If you think about, we went into the anatomy of impulse purchases. Oh, I think it was episode seven. Was it how to supercharge your savings? And it’s very much that right. Where the purpose of marketing is basically to create a feeling of discontent, create a void. That means, and we attach that purchase to the recovery. It’s like might go through this trough. There’s something that makes us feel, not that great.
And so all of a sudden we start to see shiny object. And those shiny objects are even shiny than they were before. Cuz they will actually help us get out of this trough of discontent. And so, you know, there’s a lot of shiny object.
Terry: There’s actually really interesting research that shows in periods of recession and depression, spending on small luxuries goes up for that reason, which is
Ryan: and mate, I think you’ve insinuated that Bobby’s American, sorry to all our states, men and women out there. That’s a bit rough mate. I’m not sure. Not sure. Just a few American examples, probably just because a bunch of those dots hit me in the face every day on Twitter.
So Bobby, the Buler, he is trying to wait it out and he’s spending like he always has never really made any new changes.
And what else is
Terry: Bobby doing? Bobby’s gonna neglect to review and negotiate their contracts. So things like my power bill, my power company, things like my salary, the big one, things like my rent or refinancing my mortgage, for example, or even reviewing my insurances. Bobby’s gonna ignore all those things because it’s just gonna be too hard for Bobby.
So they’ll just carry on and work harder and harder, get more and more stressed and ignore all those things. They could be sorting getting those one time decisions. And the next thing that Bobby’s gonna do is complain a whole lot to everyone around him or her, and just demand that the government gives more handouts.
Even though those handouts will only contribute to the inflationary problem causing the stag IFL that we’re having to deal with. That’s a good one too, spend a lot of time complaining and Are all handouts bad. No handouts are bad if you’re not doing what you can to look after yourself.
Ryan: Yeah. If it’s directed in the wrong place, ultimately, and a lot of that is consumption, isn’t it. And then I think the last thing that Bobby does when he is underreacting is he goes into cruise control at work, not recognizing that periods like this, the people that feel the most.
Other business owners. I think you talked about it on an episode with Lockey Smith about the separation that gets created between risk and someone’s income, the risk on people’s income as business owners. Those people are always seeing the risk are kind of foreseeing the things that are happening in the world and the turbulence and the changes.
And so they’re really sensitive to. They feel it, they see it, but people that are on a salary don’t experience that as much because they’ve got a contract and it’s, you know, relatively fixed, considered stable. But the reality is the radars for a lot of business owners are they’re beeping. They’re doing a lot of beeping at the moment because in these times, You know, money, they can slow down a little bit and all of a sudden there’s less revenue happening, meaning there’s some cuts that have to be made and they’re gonna have to get lean.
In fact, there’s a lot of businesses already cutting, just knowing that there’s kind of this period of time, that exists ahead of them where they need to be very lean and they’re actually preempting that. And so I think Bobby. Kind of ignores those macro signals, those things that are happening in the world, because he’s on a salary and thinks that that’s probably a little bit more fixed and safe than what he really is.
so he just goes into cruise control. Like I said earlier, he stops investing in himself. Doesn’t really kind of look for new ways to learn new skills and kind of take on more opportunities or go the extra mile for different things. He just takes a paycheck cuz it’s it’s there does just enough essentially to get by.
He doesn’t put himself at the front of the line for the income. He’s kind of sitting right back and hopefully that line doesn’t get cut. That’s rough, but I’ve really thrown it hard at Bobby there.
Terry: We were talking to a friend of ours last week and she said that a hundred people got laid off at her company. A hundred. That’s gonna happen if interest rates keep going up and businesses overhead, keep going. They have to find ways to reduce that overhead. And so if you are somebody that is punching in and punching out at this time, and you’re not, like you said, going that extra mile, it’s easy to be seen and noticed for all the wrong reasons.
So Bobby, if you wanna, underreact just wait it out and freeze pretend it’s not happening spend like you always have maybe even spend more than you normally do so you can feel better.
And also while you’re at it neglect to review and don’t near renegotiate any new contracts by any means. And complain a lot, demand more handouts, and just assume that you’ll be fine. If you just keep clocking in at work, that’s a good way to go.
well, mate, this was fun.
This was just a different way to look at it. We were like, well, you know what everyone else gonna be saying, do this, do this, do this. We’ve said all that stuff. You already know all that stuff, but the big mistakes are here. These are the big mistakes you’re gonna overreact. You’re gonna underreact you’ll make all these mistakes.
If you’re not careful about it. That’s kind of made it easier for you to spot ’em if you’re making them and. Do a 180 and do the right thing. Nice. Definitely. There’s a couple in there for me. Like I said, that freeze one. That’s me.
Ryan: I’m definitely one that can easily overspend in periods like that. I reckon.
Terry: Oh, I could see that, man. You’re in fucking France there with your wine in your hand. You’re like, it’s all good mate. Nothing’s going wrong.
Ryan: I’m intu. How many? I actually got a ki and I’m like, you know what? Fuck it.
Terry: it’s all fine. Just put it on the credit card. We’re gonna be fine. Don’t worry about it. Do all that later.
Ryan: good stuff. Good chatting you Bobby. What’s in the next episode.
Terry: You too, bob mate. So the next one we’re gonna be talking about getting on the offense. So we will be delving into this a little bit more because we kind of touched on this here. The value here. To you to getting busy, getting your hands dirty, trying new things, innovating yourself, innovating what you do, creating more value, capturing that value.
This is gonna be the superpower. I think there’s gonna be two parts and it’s gonna be your ability to negotiate renegotiate and your ability to add more value over this period of time. We’ll be heightened. We’ll be accelerated. So we’re gonna be talking about what are the quick wings you can have around increasing your income, but also what are the big win.
And I’ve also got a pretty cool announcement around a special guest. That’s gonna be coming in to help us with one of the most important skills around this. So I’m looking forward to dropping that one on the next episode.
Ryan: Oh, holding onto it. Okay. big name. All right. Good stuff, man. Good chatting to you. And seeing you in the next one,
Terry: enjoy your can mate. See you soon. Well,
see you. Bye….
Hey, if you like Easter eggs. Stay with me here for a sick. I hoped you liked this episode. Ryan. I wanted to have a little fun with it, and that’s why we went in a bit of a different direction and detailed what not to do.
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