One of the best tricks that Capitalism ever pulled was convincing you that you needed more.
And by Capitalism, I mean how Capitalism has shaped your lizard brain. That’s the part of your brain that unconsciously directs your actions. The part that squirts out a bit of dopamine whenever you check your portfolios.
Yep, the one fed, whether you know it or not, by marketing and advertising. By what you think your peers care about.
That part? That part wants more.
More money. More house. More than what your neighbor has.
That’s because more is usually better. Usually.
But money is like oxygen, when you have very little, you need more. But after a certain point, when you’ve had enough, more isn’t always better. It can come at the cost of other things in life and that can have disastrous consequences.
Today, I want to share an idea that took me a very long time to learn – to win at money, you don’t need more.
You simply need to identify and reach your goals.
And it’s usually not about getting more money. In fact, many of the most important things in life cannot be bought. They have to be earned.
Table of Contents
Why More Isn’t Better
Before we get to what is better, I want to spend a few moments convincing you that more money isn’t better. Or more accurately, more money after a certain amount isn’t necessarily better.
It’s often hard to predict what will be important to us when we are older. What I wanted when I was 10 is vastly different than what I wanted when I was 20. It doesn’t take a genius to realize that at 40, my wants will be different than when I am 60. Or 80.
But what I accomplish when I am 60 will depend largely on my actions today.
So for guidance, we can look to our elders. More poignantly, we can learn from people who are nearing the end of their lives. It can feel a bit morbid but it’s an emotionally difficult but necessary step to help us understand what we will likely do when we are near the end of our lives.
Two stories have most informed my thinking on this:
- Atul Gawande’s Letting Go in the Atlantic – This article discusses medical treatments for terminal illnesses and how patients top priorities “include, in addition to avoiding suffering, being with family, having the touch of others, being mentally aware, and not becoming a burden to others.” It’s a powerful article.
- Harvard’s Study of Adult Development – This oft-cited study is Harvard’s 80+ year study of Harvard graduates from 1938 and their happiness. “Close relationships, more than money or fame, are what keep people happy throughout their lives, the study revealed. Those ties protect people from life’s discontents, help to delay mental and physical decline, and are better predictors of long and happy lives than social class, IQ, or even genes.”
What I takeaway (among many lessons) from that is that your relationships dictate your happiness, not how much money you have.
And it’s those relationships that are most likely to suffer if you have a dogged pursuit of more money.
Keep that in mind.
Mo’ Money, Mo’ Risk
I get a lot of emails from people asking me where they can get the highest yield. Or they’re concerned about inflation and want to get better rates and better returns.
These are all natural concerns but sometimes, in the search for higher rates or returns, we lose sight of what we should be doing – deciding what we want out of life and getting it.
Some of those things are financial or financial adjacent, like career success. Others are merely supported by good finances, like owning a home, starting and raising a family, or going on vacations with friends and family.
And when we forget what we should be doing, we start taking risks in the pursuit of more.
The scariest emails are from people who come into a large sum of money, usually through the sale of their home or inheritance, and they want to do something with that money for the next 12-18 months.
Some of these folks are otherwise very well educated about personal finance. They have budgets and they have goals but this slug of cash is extra. They didn’t plan for it and so rather than integrate it into their existing plan, they start thinking about what they can do with it.
It’s very natural.
Other times, they don’t have a plan and now just added the cash into their checking account and feel the pressure of it earning only 0.01% APY. They feel like inflation is eating away at their money and that pressure is overbearing. Like little goblins taking away their gold coins one by one.
My standard advice for them is to meet with a fee only financial planner. If they don’t want to pay for one, they can build a financial plan without one. But the key is that they need to establish a plan. They need to think about their goals and what they need to do with the money to meet it.
Otherwise, it’s too easy to fall into the trap of wanting to put it into risky assets. Without a plan, the siren song of MORE calls to them. It’s hard to ignore.
If they don’t ignore it, sometimes they put it into something and it goes up. Their positive result reinforces a negative decision.
But ask anyone who has put money into the stock market within the last 6 months – they aren’t nearly as happy. If they had near term plans for that money, those plans will have to be pushed into the future.
After sending this post to my email list (you can sign up here!), reader J sent me this:
I’m 6 months into early retirement and couldn’t be happier. I moved my 401k into government bonds at the end of 2021 because I knew I wouldn’t be investing anymore into it and currently that decisions has saved me a few hundred thousand dollars. Conversely, I look at my wife’s IRA and 403b and feel like I’m catching falling knives, haha, but continue to buy at discount prices every month, knowing it will eventually trend back up and to the right on the bar graph.
Remember – Never risk what you have and need for what we don’t have and don’t need.
Establish Goals, Then Work Towards Them
The trouble with goals is that you have to take the time to think about what you want. You have to think about what is most important to you and when you want to accomplish them.
It’s not easy.
Often, we don’t have a goal in mind so we decide that our energy should be put towards accumulating more. Instead of dong the hard work of figuring out what we want, we simply decide that “more can’t possibly be bad right?”
But that’s how you end up hearing sob stories about people who had paper millions in crypto or Tesla or [insert hot investment asset here] and now have nothing to show for it. Or, even worse, have fallen past their cost basis and now in the red?
They didn’t have a target. They fell in love with more.
Your gains aren’t important, especially if it’s only on paper. They have to support a goal or it’s just air.
You aren’t running a 100 meter sprint with your money. You’re running a marathon where there are a series of 100 meter races. Your goal isn’t to win each 100 meter race, your goal is to finish the marathon.
This is one of the reasons why I think the FIRE Movement is so powerful – adherents always have a “FIRE number” in their head. This is the amount they need to hit before they have the option to retire. Their finish line is often years, if not decades, away.
But when they hit that amount, they adjust their allocation to take risk off the table. This is also what “typical” retirees do. As you near your retirement, you adjust your allocation so that you can retire on schedule. You don’t need huge returns, you need returns that support your retirement date without additional and unnecessary risk.
I can’t tell you what goals to aim for. Only you can determine that.
It can help to talk to a fee only financial advisor because they can walk you through the planning process with common goals, both financial and life goals. Ultimately, you have to come up with the goals and when you wish to hit them.
I’m just here to emphasize that setting goals is hugely important.
Greed is Nefarious, Pervasive, & Contagious
Here’s the other thing that you have to be wary of – the company you keep.
It’s easy to fall into echo chambers because we all enjoy hanging out with likeminded people. I own very little cryptocurrency but I am fascinated by it. I think social media has magnified the cult-ishness of fanbases and that effect has spread everywhere – including (and especially!) cryptocurrency.
At it’s core, bitcoin is like gold in that the value is in its fixed and limited supply. If there is demand for it, it has value. But you add all the cultural aspects like a mysterious creator, huge following, this will change money forever, etc. – and now you have believers (us) and non-believers (them).
As it’s going up, people who hold those assets find each other and share stories about how much money they’ve made. They talk about NFTs and coins and this and that – they are in an echo chamber. They think it’s popular because “everyone” is talking about them… except “everyone” is a circle of friends they found only because they were all into crypto!
Most people don’t know what NFTs are, they vaguely know what cryptocurrencies are, and most are too busy with their lives to care.
As asset prices go up, the chasing of more causes rational people to do irrational things. They get excited. They start using leverage to get more. They sell other assets to get more of this rising asset because they don’t want to miss out.
🚀🚀🚀🚀🚀🚀🚀 to the moon!
And some cash out because they have a reason to – perhaps they hit their goal and want to take some off the table. Maybe they needed the money for something else in life. But not everyone does.
Look at this chart of Bitcoin over the last year:
This isn’t meant to dunk on people who bought at $67,000 (about the peak of that chart) and have been HODLing the entire time. I think the long term prospects of the technology are great – but like airlines and car manufacturers, the technology will outlast 99% of the companies involved.
When You Feel “The Tug”
The next time you feel that tug for more – I want you to think about this poem by Kurt Vonnegut as republished on Bob Sutton’s blog (with Vonnegut’s permission):
True story, Word of Honor:
Joseph Heller, an important and funny writer
and I were at a party given by a billionaire
on Shelter Island.
I said, “Joe, how does it make you feel
to know that our host only yesterday
may have made more money
than your novel ‘Catch-22’
has earned in its entire history?”
And Joe said, “I’ve got something he can never have.”
And I said, “What on earth could that be, Joe?”
And Joe said, “The knowledge that I’ve got enough.”
Not bad! Rest in peace!”
— Kurt Vonnegut
The New Yorker, May 16th, 2005