8th November, 2021
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Welcome to the Idiot Money newsletter. This week, becoming wiser with money by understanding that wilful inattention and ignorance are good shortcuts for a lot of things, but how you live with money isn’t one of them.
Because spaced repetition is cool (and because apparently I'm not above doing a clip show) for this, the 60th edition of Idiot Money, a recap of some stuff from the early days.
“There is a great pressure to come up with concepts that help men understand their dilemma; there is an urge toward vital ideas, toward a simplification of needless intellectual complexity. Sometimes this makes for big lies that resolve tensions and make it easy for action to move forward with just the rationalizations that people need. But it also makes for the slow disengagement of truths that help men get a grip on what is happening to them, that tell them where the problems really are.” – Ernest Becker, The Denial of Death
[From Idiot Money #12]
Simple rules make better conclusions than starting points. You believe you want to wallow in impractical ignorance. Really you want to become practically wiser.
What matters is not the simplicity of the steps you take, but whether they take you where you want to go. A simple step taken blindly is worse than the same step taken with your eyes open.
‘Stupidity well packaged can sound like wisdom’. When it comes to financial advice, what you believe you want – assuming the aim is to turn your resources into whatever your version of a Good Life looks like – is not what you really want. Nothing is more worthy of effort than learning to challenge your accumulation-based assumptions.
Fears grow in the dark and dissolve in the light. Paying someone to do all your financial stuff for you works about as well as those that pay for a personal trainer, not to make them more likely to do the work, but as an excuse not to.
No one believes they’re wasteful, at least not when they’re doing the wasting. So simply saying ‘stop’ stops nothing. Telling people to ‘cut waste’ – whether it’s emptying a cupboard of crisps or a wardrobe of unworn clothes – doesn’t work. What’s worse, it’ll make you think it has, at least well enough for now. You’ll scratch ‘sort finances’ off your itch list, believe you’ve changed as a person, and stop yourself from paying the very attention the itch was suggesting you should.
Spending consciously will lead to spending less. The opposite is not true. It’s the consciousness, not the crap, that’s important.
[From Idiot Money #13]
We don’t talk about money because we’re so attached to it as a measure of value, and therefore fear what we say about money says about us. The antidote to that attachment is talking about it from a place free of such fear.
We suffer both in silence, and because of it. So many of our worries about money stem from the fact we assume everyone else knows what’s going on, but because we never talk about it, we never know this isn’t true.
This silence creates all sorts of problems, from believing that more money makes the worries go away, to never quite getting around to working out how investing works, and so either never starting to do it, or paying someone far too much to do it for us while never understanding how badly we’re being ripped off.
Talk about money as a facilitator of trades – an investment of one thing in the hope of gaining something better that justifies it. And about how we make better trades, better decisions. What works and what doesn’t?
Use money as a spur to challenge (and where appropriate change) worldviews the only way they can be changed: one word, one phrase, or one concept at a time. For example, catch yourself using ‘treat’ to mean ‘costs money and worsens health’, or ‘better’ to mean either ‘pays more’ or ‘costs more’, rather than ‘makes life better’, and ask if you mean what you said; if not, tell your brain to do it better next time.
[From Idiot Money #14 and #16]
No one wants to be told important things are easy. Because what sort of an idiot hasn’t done important easy things already? Where to go for dinner? Happy to debate it for a week. What to do with a lifetime of earning and spending? Let’s pretend that saying it needs ‘proper time to think about it’ excuses never actually prioritising that time.
Believing the financial system to be designed against you is not a completely brilliant excuse for doing nothing but swear at it. Here’s some stuff you can do (details in the post):
Insure what you can’t afford to replace
Stop putting off the legal stuff
Save up a cash emergency fund
Merge your pensions into one (probably)
Use your entitlements to free money and free tax avoidance
Have an investment strategy
Invest habitually
Review
Consider getting professional help
…and of course above all of them, learn to live an examined life.
[From Idiot Money #17]
Don’t worry about choosing the right investments. Choose the right way to look at investments and the right ones may just choose themselves.
The costs of financial inattention can take many forms. For example:
Getting stuck on the short-term emotionally salient. As Charlie Munger said: ‘People make bad choices all the time, usually because of a fundamental inability to operate over longer time frames.’
Believing you’re making conscious choices when you’re not. As Steven Kaas said: ‘You are not the king of your brain; you are the creepy guy standing next to the king going, “A most judicious choice, sire.” ’ In many ways, this is the point of the book: to open eyes to things being choices that people don’t believe are choices.
Confusing symptoms and states. Investing isn’t objectively scary or complicated. Its scary-and-complicated-ness is taken by many to be a state, when really it’s a symptom of something deeper.
In finance, philosophy trumps psychology. Sometimes symptoms can – and should – be tackled with psychological nudges. But because money is so intertwined with our worldviews, we need something that seeks to shape our neurology, not play tricks on it: we need philosophy.
Advice that doesn’t start with neuroplasticity isn’t advice, it’s enablement. Neuroplastic changes are the least emotionally salient thing in the world, and short-term fluctuations in money are the most. The two key points of a focus on neuroplasticity are:
How you do anything is how you do everything. Every daily decision is a vote for a worldview that either makes life better or worse.
It gets easier. Every choice makes one neural pathway easier to go down, and another more difficult. You don’t need to choose the good path for long before it starts to choose itself. But you do need to do it for a bit.
[From Idiot Money #18]
You’re crap at counting. Recognising this is key to making wiser decisions. In terms of how numbers translate to meaning, counting tends to go something like: one, two, three, some, lots, loads.
It would be great if you could appropriately distinguish between a million and a billion, but you can’t. No one cares 1,000 times more about a billion than a million. They’re both ‘loads’. One is intellectually a bit bigger, but in terms of guiding our actions, one unimaginably large number is pretty much the same as the next one.
To make wiser decisions, we often need to be sensitive to this sort of scale, but our decisions are driven by feelings that aren’t up to the job. In these situations, we need to find a way to delegate the decisions to the calculators. This often feels weird and inhuman, but not doing so could lead to inhuman actions. ‘Prominent altruists aren't the people who have a larger care-o-meter, they're the people who have learned not to trust their care-o-meters’ (Nate Soares).
Those living well aren’t those that are better calculators of the opportunity cost of every decision. They’re the ones who’ve learned to better control their decision-making machinery. Who’ve learnt to live examined lives with a view to focusing on what makes their lives better and ignoring everything else.
If we learnt to trust that we were incapable of feeling any different if we hoarded wealth on any part of the ‘loads’ scale from ‘can easily afford the odd holiday’ to ‘billionaire’, we’d probably waste less of our lives trying to gain more wealth simply for the sake of it and do something a bit more meaningful instead.
[From Idiot Money #19]
A lot of people are certain about what their ‘number’ is. I was. Some even get competitive about it, apparently believing saying something like ‘Oh no, my number’s much higher – I’m thinking £50m’ makes them sound like anything other than a miserable idiot.
They’re all wrong. Working with those that have accumulated vast wealth (assuming you’re paying attention to how well it’s worked out for them) robs you of the notion that there is a ‘number’, and, by extension, that it should therefore be the focus of your daily endeavours.
All ‘numbers’, however calculated, are anti-insightful. This includes a total asset value, an income (usually a naively pre-tax one), and even a total asset value ‘calculated’ by multiplying a desired income by 25 because you heard something about a ‘safe withdrawal rate’ of 4%.
These calculations come so easily because they’re not calculations. They’re stories. ‘Needing’ 20k or 200k a year isn’t because you’ve worked out that’s what you need to flourish (aka how needy you are). It’s a slightly less socially obnoxious way of parading how you value life in terms of money – and in every case, high or low, showing that you do, indeed, value life in terms of money.
