#80: Cost-consciousness beats cost-cutting
28th March, 2022
Welcome to the Idiot Money newsletter. This week, becoming wiser with money by understanding that ‘life is more than the sum of its parts’ is profoundly true, so it’s better to pay attention to how it’s true than to gloss over it as a well-worn cliché.
Because spaced repetition is cool (and because apparently I'm not above doing a clip show) for this, the 80th edition of Idiot Money, a recap of some stuff from the earlier days.
1. The six rubbish financial stress responses and the one good one
  • There are six typical stress responses. Here’s how they manifest with respect to money:
  • 1. Fight – Hustle culture. Money is about ‘winning’. Money, even if you’ve got millions, is a constant fight that you choose anew every day, despite the fact you can’t win a battle that never ends. Your money-based model of success is a straight-line down which you gallop as quickly as possible. Make more first, ask questions later.
  • 2. Flight – You denounce money (and thus remain obsessed by it). You say you want nothing to do with money, even though this isn’t something you can control. Flight does not indicate a lack of energy: you’re still running, just in the opposite direction.
  • 3. Freeze – When faced with a money decision, you spin in mental circles, but take no physical action. For example, you know you should invest, but you stay in cash. Where the flight type refuses to even engage with the concept of investing, the fawner continually thinks about it, but do nothing.
  • 4. Fawn – You submit to an adviser. In a testimonial for their website, you even praise them for taking all the decision-making stress away from you. Sometimes this is wise. But it’s highly context-dependent. Taking advice makes people turn off the bit of their brains that thinks for themselves. In finance, this is asking to be ripped off.
  • 5. Fatigue – You put financial stuff off. Money never affects your sleep; in fact, it sends you to sleep. You’re not paralysed; you do the bare minimum, but don’t engage. You don’t delay setting up a pension, for example, but you put working out what it’s actually all about on the ‘pretend I’ll do this later’ list. If you examine your spending, you use your credit-card company’s or your adviser’s cash-flow categorisations, rather than ones that are at all meaningful.
  • 6. Flood – Finances trigger an emotional overwhelm. You try to engage, but every time conclude you ‘can’t deal with this now’. This leaves you prone to manipulation, spending too much, and gambling it all on anything that looks like ‘the answer’.
  • These six responses all spring from a craving for certainty.
  • Because a stress response is a response, you can choose it. And you can choose a better way: Face. Emotions aren’t to be ignored. Rationality isn’t about not feeling. It’s about a more refined appraisal of inputs into our predictive model of our place in the world – and feelings are very much part of these inputs. Give your stress a hug.
2. All investments are gambles, so understand what you’re betting on
  • When working out investment returns, don’t forget that your time and energy is as much a cost as any explicit monetary fees.
  • Amateur investment picks are often more a statement of how much someone likes the company’s products than they are a bet on that company’s future prospects being mispriced. Don’t do this.
  • You’re not betting on a company doing well; you’re betting on it doing better than the aggregated views of the rest of the world’s buyers and sellers think it’s going to do. And of it not turning out to be Enron. Are you happy making that bet?
  • The old-school financial-advisory model – you pick an adviser, who then picks a stock-picker for you – despite having a horrendous track record, endures because people are frightened fools, and advisers are good at sales.
  • The starting point for everyone should be to bet on the value of the world’s companies in aggregate, which is basically a bet on capitalism. This is a bet most people are pretty happy making, not least because if it’s a long-term loser, then you’re going to be worried about a lot more than the value of your investment account. It’s easier to start by justifying deviations from this bet than to wonder which of a million other bets to make.
3. Things (probably) not to invest in
  • Cash. If you’re investing to beat inflation, as most are and all should be, cash obviously isn’t an ‘investment’ or a safe storehouse for your long-term money. Cash has some good uses, none of them is an investment.
  • Property. Property’s benefits are regularly overblown and its costs regularly hidden, so we’re misled into vastly overrating property as an investment option. Not definitely bad. Just definitely overrated.
  • Most alternatives (e.g. commodities, collectibles, crypto) don’t create anything much more than mischief, and are almost always bets on the greater-fool theory.
  • Plenty of rich folk cling comically hard to the idea that their cash must at least open doors to the ‘best’ investments like it does the ‘best’ clubs. This is mostly nonsense.
  • If the return from the easily available, almost-zero money-, time-, and energy-cost option has left you wanting to risk additional money, time, and energy chasing something else, it’s at least a tiny bit possible that the problem you’re trying to solve has sod-all to do with the return.
4. Investing has obvious benefits and hidden costs
  • When comparing investment returns, you should capitalise your time and energy costs and factor them in.
  • You and your money are part of the same pool of resources, all aimed at the same thing: living a Good Life. Divorce the two, and you divorce your relationship with reality. This rarely ends well.
  • Investment decisions without a cost-benefit calculation are idiotic. And the better life already is, the better your investment return must be to justify its non-monetary costs.
5. Attachments are the enemy of good financial decision-making, especially the attachments you don’t believe are a problem
  • Attachments to possessions are unhelpful. Attachments to patterns of thinking are dangerous. The most dangerous are the patterns we don’t see because we’re busy congratulating ourselves for not being attached to possessions.
  • If you do not see your attachments, or see them in a misleading way, you will remain self-deceived and at risk of nodding off onto your potential’s self-destruct button.
  • Attachment to simplicity is as widespread as it is dangerous. Surface-level simplicity is great for gaining followers in the fortune-cookie corner of Twitter, but it sacrifices effectiveness of thinking and meaningfulness of living to do so.
  • The roots of our acquisitive tendencies run too deep to be tackled with a motivational poster and a five-minute meditation. Believing otherwise makes it harder to both admit to, and remove them.
  • It is not the wealth that traps us, nor the possessions that enslave us, but the inability to see clearly the connection between obviously silly mistakes and their subtler forms… such that those subtler forms can even feel like they are countering the silliness, when in fact they strengthen it.
6. The most common misreading of ‘attachment’ is to believe it’s about compulsive desires. It’s not. It’s about a narrowing of your vision.
  • If you misunderstand the problem, your solution is bound to fail, and you won’t know why. So you’ll keep trying the same dumb thing over and over again, wasting your money, your time, your energy, and therefore your life, in the process… none the wiser why you never became what you could have become.
  • All of life is threatened by self-deceptive, self-destructive behaviour because in order to operate in the world at all, we have to take shortcuts… but that same propensity to take shortcuts means we do all sorts of extremely silly things while remaining blind to both that we’re doing them, and that they’re extremely silly.
  • We learn best about money when we see that those doing the dumbest stuff with it are playing the same deceptive, destructive game as the rest of us, only on a bigger screen and with faster Wi-Fi.
  • The compulsive-desire model suggests that the answer to avoiding being suckered by attachments is impulse control. This cons us into thinking that we can ‘quit whenever we want’. The narrowing-of-vision model, by contrast, recognises that the very machinery that helps you make sense of the world by filtering the infinite possibilities of every moment into something more manageable also leads you to bugger stuff up.
  • Making you believe there is no alternative is the dark art of attachment, just as it is of the unscrupulous salesperson: channelling your craving for certainty to persuade you that there is no alternative to the solution for sale.
7. You’re addicted to things. It’s better to admit this than acquiesce to it.
  • It is only when we treat the things we do that we deep down don’t want to do as addictions that we can hope to stop doing them. The alternative leaves us so confused that the solutions we try never work that we keep on trying the same idiotic ones to the same idiotic ends, reinforcing unhelpful behaviours rather than rescuing ourselves from them.
  • Simple, surface-level solutions act not as inspirations to dig deeper, but as substitutes for doing so. Like believing you’re dealing with uncertainty by slamming some numbers into a cash-flow model.
  • Self-deceptive, self-destructive behaviour recedes to the extent that we let go of the whole framework of grasping. The forces that deceive us are overcome not by fighting, or by swapping one addiction for another, but by unhooking from the whole addictive circus.
  • To let go of worries – be that about money or anything else – requires more than being told to chill. It requires letting go of the framework that generated those worries, and will continue to generate new ones, and relaxing into a less friction-fuelled framework instead. You don’t do this by denouncing the objects of your or other people’s obsession. For that is to keep the object as the focus: denunciation is still stuck in the framework of grasping. You do it by playing a completely different game.
8. Lose your addiction not by playing the same game better, but by playing a better game
  • Your money does not exist in isolation from your life. Your life does not exist in isolation from the lives of others. Yours and others’ lives do not exist in isolation from the world. Wise financial decisions are made in accordance with this understanding.
  • Central to becoming wiser are:
    • living an examined life – and what better tool do we have than the unequivocal accounting record of our life choices provided by our credit-card statements?;
    • understanding that everything is connected – both within ourselves, and between ourselves and the world (pull one bit of life in one direction, and the rest will react); and
    • cultivating a way of living that affords caring for what you care about, rather than being blindly led astray by your addictions.
  • If what you do ‘for a living’ leaves you with poorer physical and mental health and worse relationships, ‘living’ feels like an inappropriate term.
  • In money terms: we do dumb shit with money because we’re attached to a deceptive, distorted, view of money, which affects the stories we tell ourselves about ourselves, others, and the world; these distortions are characterised by wishing money were some sort of ultimate certainty in an uncertain world.
  • When you grasp that the ‘perfect’ solution is impossible, you stop wasting your life chasing it. You stop playing unwinnable games of comparison and consumption. You open up from a narrow vision that sees only crappy ways of playing the same silly game, to remembering that there are not only alternative ways of playing, but alternative games.
9. The Good Life is more than the sum of its parts, so don’t try to build it up in bits
  • There’s a common misleading pattern of thinking that leads those that blindly crave certainty to live as if the Goodness of a life were measured by a weighted average across a bunch of isolated domains. Health a bit sketchy? No worries! Offset it with more money! Career in a rut? Focus on your relationship! Social life sucking? Use the time and money to redecorate!
  • The sort of wishful thinking displayed by the ‘offset’ cultists is what leads people to stick with jobs they don’t like for money they don’t need to ruin the health and relationships they do. Or to try to fix family problems by taking them to a different postcode.
  • Being nudged to waste less money, say, is of limited use if a mind stays unconsciously wired for waste; and it’s no good at all if the avoided waste was seen as a denial, which is then compensated for elsewhere.
  • When we stop fobbing ourselves off by pretending these expressions are isolated, independent, incidents, we start to see the flow of life, not the stagnation of an object.
  • When we stop running from money because we see it as scary, complicated, and boring, we start to realise it’s none of these things.
10. And finally…
Idiot Money #38 explained that diets don’t work for the same reason relationships with money are so screwed up: because selling magic beans is easier than editing life stories and that you can’t win a battle that never ends, so anything based on ‘denial’ is doomed.
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