Some things about money.
“The best thing you can do for the poor is… not be one of them” – Andrew Matthews.
“There’s never enough time to do all the nothing you want.” – Bill Watterson.
“Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men.” – Lord Acton.
“Don’t ask me how I made my first million.” – Lots of people.
General things about money
About the relationship with money
- You earn 1,000 Euro. You start a second-job to earn more money to get your family a vacation and someone to paint your house.
- You earn 1,000 Euro. You reduce your family expenditure a lot, and spend more time as a family, instead of working more. You don’t go on vacations, but you spend more time as a group, for example by painting your own house.
While the first option is often chosen, there are reasons to go for the second option. It’s not a fault-free option, but it is something to consider.
There are various reasons for wanting money:
- For buying the peace of mind. Are you sure you need money for the peace of mind?
- For a secured future. Having 1,000,000$ may give you some peace of mind, but it should still not suffice for the peace of mind. The future is no longer predictable. You’ll never get this, even if you get to 1,000,000$. There’s no more certainty anymore.
- For religious purposes. I firmly believe that if you are prosperous, you will do some good in this world.
- For ecology/planet. I think that’s an anti-reason. Pretty much everything you do in this pollutes. I don’t think they go well hand in hand these two.
- For power. Unfortunately, it corrupts. It’s very tricky to be humble with power.
- For doing / buying / having … You should really look into this and see if you really need the item. Look at things this way – if you’d have zero income and at least some health left, what would you do? In my opinion, while you would certainly won’t have an easy life, you could still be quite happy.
- For envy. Big factor. “How do others fare?”
- For greed. “More! More!”
- For you know no better than this. You don’t imagine better things than having money. And you don’t focus on discovering things which may make you happier.
Some dilemmas from this:
- Do you really need to have money to be OK with tomorrow?
- Looking at your past, are you sure tomorrow might be scary, so you need the money?
- Reversing the above question – are you sure you need X product now, instead of saving money for the future?
- Are you sure money won’t ruin your mood? (more)
- Are you sure that when you’ll touch your whatever objective, you won’t transform into something which will make your overall situation, with your objective fulfilled & all, even worse than it currently is? (more)
Why should you aim to have money?
According to the latest research published in Science, just thinking about shaky finances can drop IQ by the equivalent of 13 points. That may help to explain why poverty can become a vicious cycle, with lower income people tending to make seemingly irrational and risky decisions, particularly when it comes to money. (source – How Financial Woes Change Your Brain (And Not for the Better) | TIME.com)
How to have money?
Know stuff on how to avoid spending too much
Some good resources on this:
- Financial talk for the rest of us (not to spend in general)
- zenhabits (living a minimalist lifestyle)
- Get Rich Slowly – Personal Finance That Makes Cents (I don’t read this, but it comes up from links quite a lot to me)
Do you need it?
- You should really know whether:
- You really need product/service X.
- You really do need more money.
- Understand this – there’s nothing cheaper than not buying it at all.
- On the other hand, you should know if you aren’t wishing for too little, and instead of staying and doing nothing in the week-ends, perhaps it would be better to become better or do something better. (details – in Romanian – Nu ți-e foame!: Olivian Breda)
Know stuff in order to know how to place your money
How to invest? Key principle
“The fact that firms are free to enter or leave an industry at any time ensures that, in the long run, all firms in the industry will tend to earn zero economic profit. Their goal is not to earn zero profit. Rather, the zero-profit tendency is a consequence of the price movements associated with entry and exit. As the Equilibrium Principle— also called the No-Cash-On-the-Table Principle (see Chapter 3) — predicts, when people confront an opportunity for gain, they are almost always quick to exploit it.” (“Principles of Micro Economics” – Robert H. Frank & Ben S. Bernanke)
Thus, on the long run, the profit brought by investing in any type of activity should be equal, after removing the risks.
So, if you put money in bank deposits you get 5% per year. If you invest in auctions, you have higher risks and you may earn 9% per year or 1% per year. If you invest in a business, you may succeed and get 11% per year, or you may fail and lose the initial investment altogether. If you bet on how a currency will do on FOREX, you may win 100% or lose all of your money. If you play the lottery, you may win and get a very big return of investment, or you may lose your initial sum of money.
The thing is, you often get this – “how to make money quickly” on email. It’s mostly bogus. High returns usually means high risk (of either the activity itself, or the company you give your money to). Economically speaking, you usually, on the long run and for large amounts of money, can’t outperform much more than what a bank would give you. To earn more than the market offers you by investing, you either have a particular knowledge on something (and this wouldn’t come by email, no one gives you gifts like that on the email, with no prior relationship whatsoever) or you take higher risks (which may not be obvious in the email you receive, there are risks which are not in plain sight).
How to invest? Who to trust?
I’d suggest you to be very skeptical on finding a good resource on how to invest. Reasons:
- People tend to be biased. If I do real estate, I will tell you real estate has great opportunities. If I do stock investments, I will tell you they’re great. If I focus on FOREX; I will try to shift your focus towards it. Whenever you receive financial advice from someone, try to understand their biases first.
- People tend to over-estimate their abilities for a good judgment. You read some information about stocks, you read some books, and you decide to give stocks a chance, because, you presume, you are much better at this after reading this:
“Researchers in Britain who pitted the investment strategies of monkeys against the market in an experiment have concluded that the monkeys, over time, were better at picking stocks.
And while there was no harm to any animals in the experiment — they used computer monkeys — there was extensive damage to the claims of investment houses to have detailed, well-thought-out strategies for where to put money.” (Monkeys Make Better Stock Market Traders Than People: Study | Gizmodo Australia)
If someone comes to you telling you “Hey, I know how you can make money, we can beat the market, and we’ll be better than most”, I’d be very skeptical. The mix between “But he said FOREX is great! I trust him!” and “I’ve read 10 books and 3 blogs on FOREX. I’m an expert now!” can be dangerous. Remember you can’t easily beat the market, and reading 10 books is an activity anyone on this world can do.
If I were to trust some information on how to invest, I’d focus on learning things on economy. Know how the economy works, try to understand the basic principles:
- Amazon.com: Principles of Microeconomics + Economy 2009 Update (9780077354305): Robert Frank, Ben Bernanke: Books
Other than this, just read more on:
- How to invest.
- How to handle money (live cheap, avoid debts).
- How to be a better you (in general).
- Overall, in order to improve your life understanding, just read more.
How to invest? Practical steps
- I’d suggest focusing on having enough money to have a comfort in your mind (3 months living is a minimum, for others this amount can be much bigger).
- I’d also suggest finding ways of saving which are not affected by taxes. Pension funds, life insurance.
- In Romania, saving in Euros, rather than Lei, is an option (Tendință spre economisire a firmelor și a populației, cu accent pe euro, într-un an întreg » CursDeGuvernare.ro), and having a fund which is a mix of life insurance and deposit is good (details – Planul de economisire si protectie, stuff like this has lower taxes from the state). Also, another option with big returns – Cat este prima de stat? | Economisire-creditare | Ghid – Conso.ro (go to your bank and find out if they offer a package mixed between savings and insurance, you should get more money out of this, and you also get insurance, although that’s not the main purpose).
How to have a bigger salary? Key principle
“At the individual level, comparative advantage often appears to be the result of inborn talent. For instance, some people seem to be naturally gifted at programming computers while others seem to have a special knack for fixing bikes. But comparative advantage is more often the result of education, training, or experience. Thus, we usually leave the design of kitchens to people with architectural training, the drafting of contracts to people who have studied law, and the teaching of physics to people with advanced degrees in that field.” (“Principles of Micro Economics” – Robert H. Frank & Ben S. Bernanke)
How to have a bigger salary?
- For performance – I would suggest working more, more intense or by innovating more. But there’s a downside to that – How Many Work Hours Is Too Many? | LiveScience:
“This theory suggests that the more money you make, the more likely you are to work more,”Asebedo said. “It looks at the cost of time as if it were a market good. If you are not engaged in work-related activities, then there is a cost to the alternative way in which time is spent. Even if you understand the negative consequences to workaholism, you may still be likely to continue working because the cost of not doing so becomes greater.”
- For other-than-performance, have solid relationships at the workplace.
How to make money?
- Help others. At times, you won’t get paid (and you’ll build a network of people who will want to help you in return), but the basic thing is helping others.
- Also, making money is a combination of:
- Better skills / experience from practicing things (so, get a new job).
- Better education (instead of getting a new job, read more).
How to be successful?
In my opinion, this is a combination of:
- Differentiate. For this you need to be creative.
- Do what you promise to do.
- Over-deliver. Do more.
- Be hungry (more on this, in Romanian – Nu ți-e foame!: Olivian Breda).
Changing the mindset
People ask themselves one of the two questions:
- How to spend less on product / service X, so that I still derive some pleasure out of it?
- How to get paid more for doing the same job or just slightly better?
How about these two questions?
- Instead of doing activity X for pleasure, how about doing this unconventional, but still with lots of pleasure-inducing activity?
- Instead of having a better job / better salary, wouldn’t it be better to find something which provides much more money? (it’s not easy, or everybody else would do it; but the focus on “how to beat the market” might yield good results)
More than money
Have a broad understanding of what “being better” means.
I think that in order to have more money, you have to be a better you.
In this order, I recommend:
- Read Lifehacker – Tips and downloads for getting things done.
- Read books. Sleep well. Eat healthy. Do sports. Relax, at times.
What’s more than money?
Money gives you personal happiness (short-term focus, instant gratification). There’s more in life than this (long-term focus, bigger goals).
How to spend money on yourself?
“The key lies in adhering to five key principles: Buy Experiences (research shows that material purchases are less satisfying than vacations or concerts); Make it a Treat (limiting access to our favorite things will make us keep appreciating them); Buy Time (focusing on time over money yields wiser purchases); Pay Now, Consume Later (delayed consumption leads to increased enjoyment); and Invest in Others (spending money on other people makes us happier than spending it on ourselves).” (source – To Buy Happiness, Spend Money On Other People – Forbes)
Why should you give money to others?
“And our research shows that even in very poor countries like India and Uganda — where many people are struggling to meet their basic needs — individuals who reflected on giving to others were happier than those who reflected on spending on themselves. What’s more, spending even a few dollars on someone else can trigger a boost in happiness. In one study, we found that asking people to spend as little as $5 on someone else over the course of a day made them happier at the end of that day than people who spent the $5 on themselves.” (How Money Actually Buys Happiness – Elizabeth Dunn and Michael Norton – Harvard Business Review)
Where’s the pleasure in buying a vacation?
“A 2010 Dutch study found that planning for the vacation, not the vacation itself, makes you happy. We really must focus on anticipation (vacation planning) if we’re going to get the best out of our trips and travels! Positive effects of vacations don’t last long. Previous work finds that those of us who suffer from burnout return to our pre-vacation levels of stress and overwhelm just 3 to 4 weeks after the vacation ends.” (source – Plan A Family Vacation: Happiness Is All In The Planning | Seattle Mama Doc)
About the concept of power
You should know that Money Turns People Into Jerks, Says Science | Co.Design | business + design. I wrote about this here – “Good is Good. Bad is Bad.” – What if these are false?: Olivian Breda.
P.S.: Great article on money – Getting Rich: from Zero to Hero in One Blog Post | Mr. Money Mustache.