23rd May, 2022
Last updated
Welcome to the Idiot Money newsletter. This week, becoming wiser with money by understanding that the ratio of your income to expenditure is not a guide to how well you’re using your money, including:
Why The Micawber Principle is really The Micawber Fallacy.
Happiness is the result of becoming wiser, not becoming a miser.
Numbers-based solutions are still ‘solutions’, but to problems we shouldn’t worry about, based on strategies for games we shouldn’t be playing.
The ratio of your income to your expenditure is not a guide to how wisely you’re using your money. Advice on how to spend it or not spend it doesn’t work. Returning your attention to how you are allocating your resources in service of your relationship with money does.
In Charles Dickens’s David Copperfield, there’s a famous passage where the character Mr Micawber says: ‘Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.’
It’s so famous it’s even referred to as ‘The Micawber Principle’.
There’s a lot to like about The Micawber Principle.
It connects money to living a good life in relative, rather than absolute terms, i.e. it says that simply accumulating money and stuff does not automatically translate to living better.
It also acknowledges that living expensively is not the same as living well.
And it suggests the importance of expenditure, rather than focusing solely on earning more and more money, only to waste it to justify the costs incurred in the making: costs like time, physical and mental health, and relationships.
Principles, however, are rules. And as covered in more detail here, there are good rules and bad rules.
The point of rules is to rank reactiveness over reasoning, so you don’t have to work things through to sensible conclusions when you’re in no mood to do so: you can just jump to those sensible conclusions, having done the working through beforehand.
If you’ve not done the working through, however, blindly following a rule means the conclusions you jump to may not be very sensible. And to blindly follow The Micawber Principle – to believe and consequently act as if ‘living within your means’ means that all will be well – is to increase your self-deception around your finances, not dissolve it.
Living beyond your means isn’t living well. But nor, necessarily, is living within them. It could even be worse.
When living within your means is the result of obsessing over the price of everything the result isn’t happiness, it’s an entrenchment of picking the numbers path over the narrative one, and the consequent reinforcement of deceptive patterns of beliefs about money. And if you obsess over anything, it compounds into a shitstorm in your brain.
Happiness is the result of becoming wiser, not becoming a miser. The Micawber Principle rightly divorces the Good Life from an absolute quantum of money; but it wrongly enforces the attachment of our expenditure to our income: enforcing the idea that it is the ratio of your expenditure to your income that is important, rather than how you choose to spend your money.
The ratio of your expenditure to your income is relevant only when you’re actually poor. Beyond that, believing otherwise leads to some seriously silly places, like strengthening the story that all consumption is inherently good, that somehow achieving the goal of living well is better when it costs you more to do so, and that the aim of financial planning is to spend your last penny on your last day, to fail to see that aiming to ‘die broke’ is to live broken.
Just as there’s nothing inherently good about consumption, there’s nothing inherently good about frugality either. Living within your means is obviously important, but it should happen as a side-effect of making wiser life choices; it is not a measure of the quality of those choices itself.
Frugality for the sake of it may rid someone of the false belief that quality of life equals access to comfort, but it is still defined by equating cost of living with standard of living. It just reverses it. It turns it into higher savings rate equals higher standard of living.
The frugalista’s chance of wasting money resources is diminished, but the chance of wasting time and energy resources isn’t. This is much safer than the extravagant alternative, but it’s still focused on a numbers scorecard, and is therefore still doomed to fail.
Dropping the attachment to the numbers scorecard opens us to the opportunity to use a more meaningful one. For example (to borrow from Bruce Lee) to ‘seek elegance rather than luxury, and refinement rather than fashion’.
As H.L. Mencken quipped, ‘There is always an easy solution to every human problem – neat, plausible, and wrong.’ Numbers-based solutions are still ‘solutions’, but to problems we shouldn’t worry about, based on strategies for games we shouldn’t be playing.
Because of the ways we’re wired, and society is set-up, we’re tempted down neat, plausible paths that lead to playing the wrong games, and making mistakes with money that range from dumb to disastrous. The Micawber Principle should be renamed The Micawber Fallacy.
A heathy relationship with money can be confusing to conceptualise. It often helps to compare it to a healthy relationship with possibly the only thing that our lives revolve around as much – food.
The world has almost as many nutritional prophets and proselytisers as it does obese people. If dietary advice is working, it’s doing so awfully subtly. That the advice isn’t working isn’t because it’s too confusing or contradictory. The problem isn’t knowing which fad is best. The problem is that the unifying feature of all the advice that could work, and that’s probably responsible for 95% of any results, is the one bit of advice addicted minds don’t want to hear: cut the crap.
While not everyone will benefit from going vegan, or keto, or carnivorous, or herbivorous, or other-fad-that-worked-for-its-promoter-ivorous, everyone will benefit from cutting out sugar and pretty much every ‘food’ that comes in psychedelic plastic wrapping that makes it look like it’s dressed for a rave. Every body knows what it really wants: something nutritious, not something engineered to abuse our addictive tendencies. Your cells ‘want’ hyperpalatable poison as much as your lungs want be to tarred. However, when the deceptive signals have become embedded in our brains, what the body really wants is as easily overruled as the part of a crack-addict’s brain that suggests selling one of its organs to a back-alley doctor for the next hit isn’t such a smart idea.
The same is true of advice on how to spend it, or not spend it. Any advice beyond not buying stuff that makes your life worse (perhaps starting with psychedelically clothed ‘food’) however well-meaning, is useless; a projection of prejudices, not practical wisdom.
Advice on how not to spend it is most notably expressed via the cult of extreme frugality – the ingenious ‘life hacks’ of the internet’s thriftiest underground communities. This is often accompanied by sound principles for both saving and investing, and often opens up important opportunities for examination, e.g. proving you can live just as well on less money makes it much easier to quit a crappy job.
However, as long as the focus remains on the frugality, it’s tackling – often in a painful ‘sacrificing’ way – the symptom, rather than the cause. The only sustainable answer is to do something about the self-deceptive wiring that screwed everything up in the first place, and will continue to do so the second the sacrifices prove too painful. Frugality still focuses on the arbitrary number of a price tag as an indication of the role something plays in a life.
Living within one’s means is an almost certain side-effect of buying what you want, not what you’re addicted to. Penny-pinching is putting the proverbial plaster on a broken leg. And extravagance is the tip of the iceberg of poor life choices. The real danger comes from the unthinking, addictive roots of all financial decision-making, the results of which aren’t always as obviously seen as supercars, square-footage, and seven-course tasting menus.
No diet – in the sense that most people understand the concept, i.e. as a temporary prescription akin to a course of antibiotics – ever works. No diet based on denial can ever work. If you believe yourself to be a person with a sweet tooth, or who is hard-wired to like cake, crisps, and cola, no amount of denying yourself these things, however steadfastly you do it, will change these unhelpful – and unnecessarily true – stories that you are telling yourself about who you are and how you react to certain stimuli. If you continue believing that you are a person for whom the appeasement of such addictions is a reward, or a ‘treat’, rather than the satisfaction of a fix in the same way a smoker needs nicotine or a junkie needs heroin, then you will always be short-changing your body’s desire for health.
The same applies to cutting your expenditure. If it’s equated with denial, it won’t work. You can’t win a battle that never ends. Because even if you can keep up the fight, you’re still exhausting your valuable energy in an unnecessary cause, and that is no sort of victory. A trim-looking credit-card statement, like a trim-looking stomach, can be a sign of success, or of failure. It is, as always, not about the numbers.
