It is okay to worry about personal finance. Navigating the treacherous waters of life balance, financial well-being, investing, and debt may seem exhausting for many and even impossible for some. If you want to worry a bit less, read this article.
Life Balance and Financial Well-Being
I always say that the best attitude towards life is when you do not regret your past, enjoy your present, and feel confident about your future. To achieve this happy state of mind, you should arrange your life priorities, including your relationship with money, in the correct order.
Humans are biological and social beings. More specifically, humans are primates with some occasional flashes of intellect. Primates compete for access to food, sexual reproduction as well as for dominance within their social groups. Our occasional flashes of intellect are reflected, for example, in our ability for abstract thinking, long-term planning, sharing food with non-relatives, and our appreciation of humor. (Humor is my favorite human trait. Some argue that an individual with a good sense of humor cannot be a bad person. At least, he or she is a good entertainer).
We also know that money runs the world. Money is power. Money can buy everything except love. And a lot of money can actually buy love too. Just look at billionaires and their numerous wives, girlfriends, and love affairs.
Still, the most expensive things in our life are health and time. In general, there is no guarantee that big money can buy either health or time. Just recall the fate of Steve Jobs (RIP). This implies that you can compete with big money in this field. Therefore, take care of your health. In this way you can also increase your life expectancy because neglecting your health is the biggest time thief. The length of your life is not predetermined or fixed. You can extend it easily, if you try. Thus, health should be your greatest priority. Furthermore, some scientists even argue that aging is not a natural process whatsoever. It is rather a disease that can be delayed or even reversed.
Taking into account all these factors, the correct order of life priorities is as follows (see Picture 1 below):
1. Maintaining physical health. Without it the quality of life drops massively.
You can follow five simple rules to live a much healthier and longer life:
1) avoiding harmful substances (tobacco and cannabis smoking, alcohol and drug abuse); 2) following a simple and healthy diet in a Mediterranean or Nordic style; 3) exercising on a regular basis; 4) drinking plenty of water and healthy liquids; 5) getting enough sleep. This approach is not that complicated. It takes a little bit of an effort in its early stage. But you will enjoy it pretty soon because regular doses of internally released “fell-good” endorphins and cannabinoids can work wonders.
2. Maintaining mental health. It largely depends on maintaining your physical health.
Research shows that regular physical activity is the best way to relieve psychological and emotional stress. Certainly, your job satisfaction, financial situation, and social support network play an important role too. Still, “there is a healthy mind in a healthy body,” as ancient Greeks used to say.
3. Finding the job you love. The best professionals are the people who enjoy what they do.
People become most successful when they pursue the activities they enjoy by putting in extra effort and becoming more competitive in this field.
4. Earning a decent income. Income is the result of your professional success and networking abilities.
Professional success depends on whether people pursue the activities they enjoy. Networking abilities imply the abilities to maintain a network of useful and profitable social connections. This certainly requires putting in that extra effort too.
5. Achieving social success. Public and social recognition is actually important.
It is the expression of social dominance that is highly appreciated by primates living in social groups. This explains a celebrity worship syndrome very well.
6. Personal relationships. If you are physically and mentally ill, jobless, financially unstable, and feel unappreciated, it will be difficult for you to build high-quality relationships.
If you are sick and poor, your relationships have a very good chance of being “complicated”. It may sound cruel. And there are certainly exceptions. However, these exceptions usually just confirm this basic rule of life. So staying healthy and staying out of poverty should be your priorities. When building and maintaining any relationships, it is better to be healthy and wealthy rather than sick and poor.
7. Hobbies. For lucky and happy people their work is their favorite pastime.
We all need to rest in order to reload our minds and our bodies. The best way to rest is a change of activity. Switching from mental work to physical work, for example, will help in relaxing your mind. Still, to minimize your post-holiday hangovers and post-vacation depression, you should enjoy your work.
And the most important thing is to actually live in accordance to this list of life priorities.
Personal Investing
Nathan Rothschild, one of the members of this famous banking family, was credited with saying that “the time to buy is when there’s blood in the streets.”
Historians are still arguing whether he intentionally exploited the false rumors about Napoleon’s victory in the Battle of Waterloo in order to make a fortune by accumulating British government bonds that were selling at a steep discount during the financial panic.
Some critics say he had known the battle’s actual outcome from his informers on the continent before the false rumors started to spread. His admirers say he first delivered the accurate news of Napoleon’s defeat to the government and started to accumulate a huge bond position later. The eventual return was 40% in just two years.
Actually, the full original quote was “the time to buy is when there’s blood in the streets, even if the blood is yours.”
What is the morale of this story?
You can get superior investment returns when (see Picture 2 below)
1. you have access to superior information. It requires developing a network of mutually beneficial personal connections. Insider trading is safe and profitable from an investment point of view. However, even in this situation you have to become an insider first. It is not so easy. Besides, you might go to jail from time to time.
2. you have superior analytical abilities. First, you should be good at mathematics. Mathematical equations can describe qualitative economic relationships pretty well. That’s the beauty of mathematics: if you change one variable in a mathematical equation, some other variable in this equation must also change to maintain equilibrium. It is sometimes difficult for people who are not good at math to grasp this essence of economics. This is one of the reasons why there are so many persistent illusions that a portion of freshly printed money or a life in debt will ensure a steady rise in your level of economic and financial well-being.
However, being a genius rocket scientist is not enough. Mathematics allows us to determine WHAT kinds of changes in the economy should occur, while psychology determines the MAGNITUDE and TIMING of these changes. That is why people with a strictly technical mindset often find economics and, particularly, financial markets to be such a “tough nut” to crack. Having lost a significant part of his fortune as a result of the bursting of a financial markets bubble, Isaac Newton, one of the greatest physicists in the history of mankind, could really utter the phrase so frequently attributed to him: “I can predict the movement of heavenly bodies, but not the madness of crowd.”
3. you have superior psychological abilities. Actually, there is some psychological meaning behind Nathan Rothschild’s full quote: you should be buying assets even when you personally are scared to do anything. If you check stock quotes every 10–15 minutes, cannot focus on performing your job tasks, cannot sleep properly, feeling the need to check the quotes of financial instruments at 3 a.m. and begin to notice that the only thing that helps you is alcohol and weed, then psychological stability is unlikely to be your strongest trait.
If you do not have access to superior information, while your analytical and psychological abilities are just average (it is not a tragedy whatsoever), then stick to diversification. If there is a reasonable diversification of your investment portfolio, it is possible to reduce the level of risk, while maintaining the same level of return on investment (see Picture 3 below).
Personal Debt
Back in the 18th century, King Louis XV of France used to say to his favorite Madam de Pompadour that: “After me, the flood.” Back in 2003, U.S. Vice President Dick Cheney reportedly said to Treasury Secretary Paul O’Neill that: “Reagan proved that deficits don’t matter.”
What does it mean? It means that you can borrow heavily, if you do not intend to repay your debt or if you are able to extend it on favorable terms. But to do it, you have to be rich and influential (see Picture 4 below).
For the rest of us Publilius Syrus, a Roman writer in the 1st century B.C., advised that “Debt is the slavery of the free.”
Thus, if you are just an ordinary citizen, do not borrow the money you cannot afford to buy the stuff you do not need. Make sensible housing, travelling, and consumption choices.
You can borrow in order to invest in your health, education, professional development, networking skills, and business. Just do not overstep the bounds of moderation. This is the most sustainable way to increase your income and the most sustainable way to achieve a higher level of consumption.
The average credit card interest rate of more than 24% that is currently charged in the U.S., for example, will never make you rich and influential.
King Louis XV’s grandson and heir King Louis XVI was deposed and eventually executed by guillotine. Thus, if you are smart enough, you should die before repaying your debt. It also means that deficits don’t matter as long as your debt maturity is longer than your life expectancy, while interest rates are low enough so that you can still afford to buy some junk food and pay your “rent” for the right to live in some dilapidated shelter.
P.S. Just do what you love. It will make you go further and deeper compared to others. This is a very good basis for you to be more competitive and more professional in the field of your interest. “An investment in knowledge pays the best interest,” as Benjamin Franklin put it. And it feels good.
