The two points in this post will, I believe, make a big difference to your lifestyle in retirement.
Invest Wisely
Obviously, we’re all pursuing better control over our finances in order to build wealth for the future. Wealth gives us choice. Choice in how we spend our time, choice in where we live, choice in how we grow old. And building wealth requires us to invest wisely. Two little words with so much going on underneath.
I’ve done four episodes in this ultimate guide season about investing, so definitely check those out. And there’s tons more about this in the Build Wealth phase of Meaningful Academy to get your teeth into.
Investing wisely is about long-haul wealth building. It’s about controlling costs and tax. It’s about managing our own behaviour so we don’t make stupid mistakes by moving money around at the wrong time. It’s about understanding asset allocation and the need for diversification.
It is not about finding the next big thing. It’s not about spotting patterns in the markets, or learning someone’s ‘secret foolproof system’ to make it big in day-trading. There’s so much of that crap online these days – anyone who’s interested in learning about how money really works has to try and filter this stuff out, and it’s difficult when it’s made to look so damn sexy.
If I think about it, I’m doing my best to make the unsexy rudiments of personal finance look appealing – not an easy task! But everyone I’ve ever come across that has retired well has made money the steady way.
If they’ve achieved FI quickly, it’s because they’ve been high-earners but low spenders, and been able to put significant amounts of money away quickly. If they’ve retired at something like the normal time of life, it’s because they built wealth slowly and consistently, enjoying the journey as they’ve done so.
But none of them have hit it big on Bitcoin, or angel investing or whatever. I have a couple of minor lottery winners as clients, but not the mega-millionaires. Those folks who do achieve wealth in that way are always the outliers.
That way of becoming wealthy is the exception, not the rule, whereas consistent, steady wealth-building always works, without fail. It’s essentially guaranteed, given enough time and consistency – why wouldn’t you go for that?!
So, we all need to learn this stuff; to understand what makes money grow over time and try not to have our heads turned by the sexier, but ultimately untested and less reliable methods.
These are the three steps: Spend less than you earn, insure against disaster and invest wisely – these are the simplest distillation of how to win with money that I can come up with.
But I have a few more things to say in this ultimate guide to money and life. So, let’s turn out minds to life in general, while understanding that the next four points also have ramifications for our material wealth.
Pursue Knowledge
The motto of the enlightenment was Sapere Aude, roughly translated as ‘dare to know.’ While I’m no scholar of that period, the point was, I think, not to accept knowledge which was spoon-fed to you, at that time largely by the religious establishment. But instead to pursue knowledge, continually bettering ourselves by learning from great minds and good examples.
If you’ll forgive me, this is why you’re here, right? My 20-odd years at the coal face of financial planning have given me some knowledge, and I was blessed with the talent of being able to explain stuff, or so I’ve been told. So you’re here, learning from me, for which I’m very grateful and humbled.
And I imagine if you’re listening to me, you’re listening to others and reading books and watching videos, and participating in group discussions online. This is good, and especially so when it’s done with a challenging mind.
The last thing I’d ever want you to do is just to accept everything I say blindly. You should challenge everything you hear or read. We need to re-find our inner child and relentlessly ask ‘why’ and not accept ‘because I say so’ as a response!
One of the most difficult things to do is actively to pursue information which might run counter to what we already believe. Confirmation bias, where we do the opposite and only take in information which confirms our current position, is dangerous and yet insidious, and we need to guard against it.
We also need to guard against the potential for too much knowledge to be paralysing. We can continue to pursue knowledge in the hope that the next podcast we listen to or the next book we read will give us the magic formula, or the final push we need to actually get on with whatever it is we’re learning about. I get emails all the time from people who know all the theory and yet are afraid to press the button and begin investing.
Part of pursuing knowledge is learning by DOING. Making mistakes and learning from them is an essential part of our development in childhood and this continues into adulthood.
As adults we like to think that we can intellectualise everything and think through all our potential mistakes in advance, plotting the perfect course through the minefield. But this rarely works. Practice always makes perfect.
I know exactly how a guitar makes sounds. I know the relationship between the notes on the fretboard and how those notes come together to make chords. I know about harmonics and damping and strumming techniques. But I can’t play the guitar to save my life because I don’t do it.
And you can have a flawless understanding of market history, asset allocation and the tax system, but until you actually have money invested, it won’t do you a jot of good. So let’s pursue knowledge both by learning and by doing.
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