Money Is Everything … Until You Master It. Then It’s Nothing at All.
I have been accused at times of worrying too much about money. And my retort is always the same: I do’t worry about money at all. But I do spend time carefully managing it, as I do with any other valuable resource. The alternative of having no concern for money and devoting no time to prudently and wisely managing it seems to me to inevitably lead to financial hardship and ruin. But avoiding these adverse outcomes through concerted effort does not mean a lifetime of worry about money. To the contrary—it means a lifetime free of worry related to money. I have a set of rules and guidelines that manage my financial behaviors, and a process for the related administrative work. I attend to money matters, I do not worry about them. There is a significant and meaningful difference.
Categories of (Money) People
I have observed three distinct categories of people in terms of their governing money-management psychology:
1. People that constantly worry about money (because they have no control over it). This group spends and consumes with reckless abandon, and as a consequence is perpetually worried about how they will fund tomorrow’s excessive consumption. This group is trapped in work and often trapped in debt. It’s a miserable existence. But most of them are blinded to the reality that it does not have to be this way.
2. People that never worry about money (and have no control over it). This can be great fun. Until the music stops and the reckless behavior catches up with you. Then there will often be a painful reckoning. But it’s fun while it lasts, which can often be a long time.
3. People that spend zero time worrying about money (because they have mastered it). This group understands that money is a valuable resource and a tool to be used responsibly and wisely. They understand what it can and cannot do, and have cultivated a healthy relationship with it. They have a zen-like peacefulness in their money outlook, and are master of their own (money) domain. (Note here: While there may be a fourth group comprised of people that worry about money (but have mastered it), I have not seen much or any of this breed.)
Why the Hell Aren’t People Interested In Managing Their Money Resource?
Every time I get a new power tool that I haven’t used before I am initially intimidated by it. The raw power and potentially destructive force are, well, scary. But as I study the device and learn how to safely and correctly harness its power and apply it to my will, the fear diminishes and the elation of the possibilities of what I can do with the tool emerge. Money is similar—you must devote some amount of time to learning how to safely and responsibly use the tool in order to deploy it in a productive fashion and to eliminate the fear that can result from potential misuse.
Anecdote No. 1: In a recent conversation with a friend we moved (somehow) to the topic of money management. We’d had a couple of (good) beers and so we were loose. He informed me that he has an “advisor” that manages his money. I asked if he knew how much he paid his “advisor,” and whether he acted as a fiduciary (I already knew the likely answers). My friend’s response: nope and nope. (Now I definitely knew the answers). Under the mild-to-moderate influence of some fairly high-gravity fermented liquid refreshment, I (diplomatically) declared that he was likely being fleeced. I carefully explained why—that he was paying a commission for investment products that likely benefitted his broker more than him, and that he was likely underperforming the market as a result—but it became clear that this line of discussion made my amigo uncomfortable. So we moved on, and haven’t yet returned to that topic. In trying to understand my friend’s psychology here, all I can conclude is that he thinks he’s done all he should have to do: he’s gone to a “professional” to manage his money, and that’s it. What else can he do? To consider it any further would be too cumbersome and maybe painful.
Next anecdote: Another conversation with a different friend. This time a high-earning attorney. In passing I mentioned something in relation to our state’s 529 plan (it was relevant to whatever we were discussing … honest). I got a strange look. I stepped back: “Sorry, you’re familiar with 529 plans, right?” Response: “Oh yes, our financial advisor has mentioned them. But we’re prioritizing retirement savings right now.” Ok, fine. For some folks this makes perfect sense, because as we all know, you can get a loan for college but for retirement, not so much (although with reverse mortgages and other cheap credit options available now, maybe this is no longer true). But I know this family. They earn a high six-figure income (I know the legal market). They routinely take vacations to exotic locations costing in excess of $8k a pop. I understand that people will choose different values and will spend and save according to those values, but with four kids within 10 years of college, this family should be directing some savings toward that objective. I did not tell him that. (“I’ll just write about it on my blog! What could go wrong?!”).
Within days of this conversation I saw the data indicating that only 32% of parents in the US even know what a 529 plan is. Only 14% plan to use them. And only 16% of “affluent” US investors have a 529 account (“affluent” defined as having more than $100k in liquid investable assets outside of home equity). The proffered explanation for this: financial advisors don’t push this option to clients because they don’t stand to personally gain from these investments. So even if you are outsourcing your financial management to a so-called “pro,” you have an obligation to know enough about the basics to keep him/her honest. If your advisor has not made it clear to you he/she is compensated, and/or has told you that college saving isn’t critical (and he knows you have kids that you want to help send to college), you should strongly consider firing him/her immediately.
Anecdote No. 3: Conversation with another friend, this time a newly minted “financial advisor” of the “RIA”-type. This means he is a “Registered Investment Advisor” and a fee-only planner. He is paid strictly through a stated fee; no commissions for bad/expensive investment products. And he lives by the “fiduciary standard,” which means he is obligated to act in the best interests of his client, not himself (how crazy is that?). But he’s having a hard time getting business and clients. Why? He’s wicked smart, and undoubtedly would bring great value to his clients. But he’s not super-smooth or overly gregarious. In fact, he’s fairly nerdy and introverted (I can say this because that’s how I describe myself). And apparently the social skills of financial advisors matter more in the business-development game than actual technical knowledge and skill. I get it—relationships make the business world go round. But when it comes to managing your money, why not seek out the smartest and most effective advisor, not the best golfer or back-slapper?
So what’s going on here? Why are more people not interested in diligently managing this critical element of life? One that determines how you’ll spend your days, how much sunshine and fresh air you’ll get to feel, and how much time you’ll get to spend with kids and other loved ones? Well, some people are content to whistle as they stroll past the graveyard. (Damn. I almost wish I was one of them sometimes.) Maybe others are moderately content with their job/career and life situation, and simply view money management as a chore. If they have gone through the hassle of engaging a professional financial advisor, then that’s just all they’re going to do. And of course they’re going to pick the one they like the best (i.e., the most personable) … I mean, how else would you go about it?
But that’s not good enough. Not if you want to master your finances and never have to worry about money again. Money management should be viewed in the same way that we view other critical life activities (some may say chores) such as exercise and diet. I don’t love exercise; in fact most of the time I really don’t like it at all. But I do it. Every day. I pull my ass out of bed and hit the treadmill for a 2.5 mile jaunt (I’m not saying how long that takes me; this isn’t an exercise blog after all). I do it because I know I need to do it. I accept this obligation as a responsibility that I have to maintain a healthy and therefore productive and good life. If my body falls apart because I sit on my fat ass all day typing into this computer, life (sooner or later) is really going to suck. Same concept with your diet—you have to manage it (with or without professional assistance) to get good results.
And just like joining a gym and paying the monthly fee (but not going) isn’t going to help you get firm, having a “financial advisor” that doesn’t know what he’s doing or is leading you astray based on his own self-interest isn’t going to get you to money mastery and financial independence. You don’t have to know it all, but you have to know enough to be sure you have engaged someone that knows enough. You’ve heard the quip that “everybody wants to be huge but no one wants to lift the weights.” Well, everyone wants to be free of money worries, but no one wants to do the financial management work.
Back to the exercise and diet analogy. Discipline in these areas does not come natural for me. But once I created a routine to address both, it really didn’t seem like a lot of work. I hit the treadmill on auto-pilot every morning (podcasts help). Fast food is not even on my radar. Money management works the same way. Once you make a habit out of regularly doing the basics—tracking expenses and consumption so you know where your money is going; spending less than you earn; investing the rest—it will start to feel second nature. And it will start to feel good. Once you reach the stage of money mastery, you won’t have to worry about money any more. Not because you don’t need it or have more than enough, but because you know how to control it as a tool and a resource. Anyone can get there—no matter how much money they have and how much they make—and thereby relegate money to something that just doesn’t have to be fretted over any more. Like the air you breathe: sure you need it—a lot—but you don’t have to think too hard about your supply of it or where you’ll get more. Your supply abundantly serves your needs without consternation and worry.
So start today. Get on the treadmill and just run for a few hundred yards. Baby steps. If you need more motivation, just consider the alternative: to die early from unnecessary worry; fat, unhealthy, and penniless.
*Footnote: Notwithstanding the title of this post, I do NOT believe that money should be the central focus of anyone’s life, irrespective of what stage of mastery or control over money they have achieved. I needed a short handful of words to use in the title that describe the phenomenon which exists when people don’t have control over money; that is, it often ends up controlling them. Hence the phrase “Money Is Everything.” Whether you do or do not have control over your finances, money should not be the focus of your existence. And the idea behind this post is that once you master it, you are free to devote your time and energy to other, more important endeavors.
Yes, all of this! Money makes the world go around, but being obsessed with it or ignoring it makes for a difficult life. I choose to master my finances on a daily basis and that ensures that I’m not worrying about it on a daily basis. It’s a great trade off. Fantastic post Joe with words that the world needs to hear!
Thanks for the visit and the comment MYMM! Here’s to another money-worry-free day! Joe
Good stuff here Joe and all very true! From what I see most people are their own worst enemy when it comes to money. But when you break it all down its not really that complicated. Come up with a plan or system, stick with it, and fine tune as you go. And good comment about not letting money become the focal point of your life. Its important and has its place but you dont want to obsess over it. Dont let your net worth become your self worth. There is more to life than money.
Thanks Arrgo. Good point regarding not letting your net worth become your self worth.
Part of this is that the financial services spends millions and millions of dollars trying to convince everyone that managing your money is too complicated for the individual investor, which is why you need the help of a professional advisor (for a small 1% fee of course!). Continuing your food analogy, it’s like when you see charts showing you that the government spends $5 million a year advertising good nutritional habits and the food industry spends $3 billion encouraging you to eat chips and drink soda (made up numbers, but you get the point). It’s not a fair fight. Once lawyers figure out that they’re being fleeced, they usually get pretty pissed and then figure out how to do it themselves. As you said, it’s not that difficult – particularly not for someone that’s already spent 3 years in law school earning a JD.
Right on. And these are the stories that turn out GOOD (i.e., the ones that figure out they are being fleeced and get pissed and that motivates them to do it themselves). There are others that fall prey to elite-status thinking–the mindset that Buffett talks about when he says that modest-means people tend to take his advice and invest in low-cost index funds while the high-income crowd never does. The thinking goes “well, I’m a bigshot Biglaw partner making seven figures a year, surely I can get a higher return than all those saps investing in cheap-o funds with Vanguard.” Then they put their money with a high-cost hedge fund and never quite figure out how to determine whether they are or are not consistently keeping pace with the market after fees. I recently had a conversation with an ex-colleague who had always been a shrewd DIY-er, and I was shocked to hear that he had moved to a wealth-management firm. When I asked why he said that they could give him access to desirable hedge funds and private equity. This is a guy that has now been making seven figures for probably 7 years or so, and my conclusion is that he finally gave in to the elite-status mindset. And hey, maybe he wins the lottery and ends up in that very small group of investors that can consistently beat the market after fees going the ultra-active route.
I agree with Biglaw, on the idea that people try to make money management seem complicated. There are non-intuitive terms, lots of acronyms (IRAs, 529s, , ETFs, etc.) and lots of emotions around money. But the funny thing is, once you get a system (at work, I’d say a “process”) going, its pretty darn easy. And most of it can be setup such that its automatic.
For me, I look at our finances, and question what is there to do on them? I track my spending monthly, do an occasional re-balance, and then just go for a bike ride.
But people are drawn to things that are expensive, thinking they must be better. Wine is my favorite example. A great dinner party is to have 8-10 guests over and have everyone bring a bottle of wine with pre-set (randomly assigned) max prices (ie, $8, $12, $20 or $40)….then do a blind tasting. You’ll be amazed at the outcome!
Yep. Money management is the paradigm of an industry that has experienced massive success by convincing the public that the subject matter is too complicated for them to deal with on their own. Once you cut through the acronyms and technical terminology and learn the basics of the tax landscape, you should be able to largely set it and forget it. Every once in a while there is a sea change–like say the recent tax legislation that may change some planning and strategy for some individuals–but other than those limited occasions, it should be kept simple (and largely forgotten after a solid plan is put in place).
Physicians are known for being awful with finances. Many years of education and none having to do with finance. As such, we are therefore huge targets for “financial advisors” as it is easy pickings for them dealing with these high income individuals.
When I first started investing during residency my financial advisor (recommended by my CPA) put me in front-loaded high expense ratio mutual funds. It was only after I started self-educating that I discovered that I was getting fleeced and changed to index fund investing.
Most people complain that they don’t have enough time to do manage their money. The simple fact is that by reading a finance book which can be done in less than a day, you can save yourself 100s of thousands of dollars. There is no better ROI than that.
Well said Xrayvsn. Joe
Sounds like you need to introduce your first friend to your third friend.
Agreed.
I think the whistling past the graveyard analogy explains it more than anything else. Take exercise for instance, despite your discipline with a treadmill (Why not run outside for Pete’s sake, treadmills are soul sucking torture machines!) there are thousands of couch potatoes consuming nothing but fast food that will outlive you by twenty years or more. And there are thousands of people who do nothing to take care of their finances that will, either by earning more than they can spend or by some inheritance or other windfall, end up dwarfing your net worth. People like to assume that things like health and wealth will work out on their own and there is plenty of anecdotal evidence to support that theory if you only look at the few that prosper in spite of their behavior. Personally I run my 18 miles and do hours of other exercise each week and have my assets invested in a well diversified low fee portfolio because I do not consider myself to be lucky enough to rely on the kindness of fate. Good post, great advice.
Good thoughts Steve. I don’t disagree.
I don’t prefer the treadmill to outdoors, but it’s a routine that I can reliably keep up when the weather turns cold and nasty.
Great post! It aligns with my own money-management philosophy – do whatever it takes just so you don’t have to think about it as much anymore. I will say for anecdote #3, that I’m not going to go out of my way to find a financial adviser who is shy and afraid to put himself out there. I already get enough calls from the pushy people – I have no idea if the quiet guy is better and I feel like I have some familiarity with the people who hound me. Sad but true.
Thanks for the read Lisa! Joe
Well said Joe! It still amazes me how many intelligent folks completely disregard their financial lives and just assume things will work out “like they’re supposed to.” My daughter just started college this year and you wouldn’t believe how many of her friends’ families are taking on six-figure debt to put their kids through school. In this day and age, college expenses should not come as a surprise to anyone!
I couldn’t agree more with your comment about mastering money. Once you have a process in place, there’s actually nothing to do. If you’re doing it right, it’s boring and you have no money worries.
After 17 years in consumer marketing, human psychology still continues to amaze me!
Thanks Jon. Yes, as is probably obvious from the focus of my writings here, the psychology part of money is what fascinates me most! We make it so much more difficult than it needs to be.
Would love to know your nerdy introverted friends contact info as I’m looking for a RIA and am an introverted nerd myself. That’s why I haven’t found an advisor I can trust yet. They either push mutual funds with high fees or know less than I do about finances which isn’t saying all that much as I’m a new investor.
Hi Janelle. My first reaction when people talk about hiring an advisor (fiduciary RIA or otherwise), especially in the context of seeking help with investments, is to tell them they don’t need to. A lot of money is made by people that successfully convince others that investing is a super-complex game where you have to pay pros to get it right. I think that’s total BS, and I’ve written about it here and in other places on this site. And JL Collins wrote a book about the very simple approach to investing that should work for most of us (see my review of that book here). Three funds is really all that you need (domestic equity, foreign equity, and domestic bond). But I do understand that some people will be more comfortable working with an advisor (and may benefit from having someone there to help them stay the course when the seas get choppy). The individual I discuss in this post has since moved to a larger advisory firm (because he couldn’t generate enough business on his own), and I don’t think I’d recommend him today in light of the different standards that he works under at that firm. But I do know some others in various parts of the country that are worth their fees, so if you want some ideas send me a note through the contact form. Joe