The equation (The Financial Athlete #87)

Assuming hormones are functioning normally, there’s a simple and well-known equation for weight gain (loss):

Caloric Intake — Caloric Expenditure = Weight Gain (Loss)

Yo-Yo diets teach people to dramatically reduce caloric intake to lose weight. Under this approach weight loss is assured in the short-term but the long-term results can be disastrous. This causes the metabolism to slow, so your body becomes a less efficient calorie burning machine. Later, your normal, higher appetite resumes and with a slower metabolism you will regain the fat, possibly more than ever.

The proper approach is to aim for a healthy body composition. To do this, work on both inputs of the equation. Control caloric intake by eating a nutritious and balanced diet of organic fruits, vegetables, nuts, high-fiber whole grains, grass-fed beef, fish, eggs, and chicken. To lack nutrition in food increases appetite. So does stress. Eliminate processed foods and sodas in your diet and reduce consumption of sugar. Increase caloric expenditure with exercise and weight resistance. Steadily, you will lose fat and gain muscle mass.

Interestingly, there’s also a simple equation for gaining (or losing) wealth:

Income — Expenses = Net Worth Gain (Loss)

Frugal people focus on decreasing expenses to expand wealth. You’ll hear them say, “Stop buying that cup of coffee each morning at the coffee shop!” and “Pay off your mortgage first!” It may surprise you to learn I support the frugal way to gain wealth more than how most investors try. These investors experience little or no passive and portfolio income. They aim to increase income only through capital gains. The problem with this approach is that it’s like a Yo-Yo financial diet…sometimes way up, or way down with realized and unrealized capital gains. I suppose many enjoy this roller coaster ride. It adds drama to their lives.

The superior approach is to primarily increase passive income (real estate distributions and royalties) and portfolio income (dividends and interest from investment grade short-term and intermediate-term corporate bonds), and to do so from a variety of sources, a point worth repeating.


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