The Relationship Between Money and Happiness

My happy place costs around $20, excluding tax. A few cold beers on a beach with family or friends is enough to make me feel satisfied in life. I suppose there are finer beaches than along the Detroit river, which is closest to me. But I’ve drank beers on beaches in other states and other countries and what mattered most were the people who kept me company.

Is it fair to say money is a contributing factor to my happiness? It pays for the beer and allows for time off to go to the beach. Yet, what truly makes me happy is the presence of people I love.

Perhaps, we can’t make a clear assessment on one specific experience. As much as it makes me happy, I don’t want to drink beer on the beach every day of my life. I have a wife, I have children, I have a home, I have many other goals and dreams, all of which money provides for, to the tune of much more than $20.

Maybe the money-happiness relationship then should be evaluated over an entire lifetime. The French philosopher Michel de Montaigne, who some call the original blogger, wrote in one chapter of his Essays that “men are not to judge of our happiness till after death.” What he meant was that conditions were always subject to change. You may have lived a happy life up to this point, but that could all change tomorrow. So, it makes sense to wait until someone dies first. With that in mind, Montaigne went as far to wonder if perhaps our judgment about whether a person has been happy has more to do with how that person dies.

Ingvar Kamprad, the founder of IKEA, died in his sleep. His derived happiness from his work, of which wealth was essentially a byproduct to his ambitions. Take it from the self-made billionaire who reportedly drove a Volvo and insisted on writing on both sides of a piece of paper:

“Happiness is not reaching your goal. Happiness is being on the way.”

So, can money buy happiness?

I believe the framing is wrong. The better question is: how important is the pursuit and accumulation of money to living a happy life?

Fortunately, it is a question that has intrigued researchers for a long time. Our perceptions are shaped by fables and love songs about money’s impotence when it comes to happiness. The truth is not as simple as that. Here is what science says on the relationship between money and happiness.

Well-being rises with income.

Leave it to the nerds at Wharton to prove the Notorious BIG wrong:

As people earn more money, their sense of well-being increases. That’s the conclusion of a study from the University of Pennsylvania’s Wharton School published in Proceedings of the National Academy of Sciences.

This contradicts the well-known 2010 study from Daniel Kahneman and Angus Deaton that suggested our sense of well-being essentially plateaus after an income of $75,000 a year.

Instead of evaluating happiness in a broad reflective way like Montaigne, the Wharton study remarkably collected 1.7 million data points from more than 33,000 participants on how they felt day-to-day and how satisfied they were in life overall. It studied both experienced (emotional, in-the-moment happiness) and evaluative (overall life satisfaction) well-being in relation to income. Their findings showed all forms of well-being continued to rise with income, indicating people tend to feel happier the more money they make.

The reason high-earners are happier is because they feel in more control over life and better protected from hardships. Put another way, money helps create the conditions for being happy.

Still, the study says money is far from the primary factor when it comes to happiness.

As the study’s author and lead researcher Matthew Killingsworth said in a university press release:

“Although money might be good for happiness, I found that people who equated money and success were less happy than those who didn’t. I also found that people who earned more money worked longer hours and felt more pressed for time…

If anything, people probably overemphasize money when they think about how well their life is going.”

Relationships are the biggest source of happiness.

Okay, money is important but not the secret to happiness. How could we learn more?

How about we pick out 268 Harvard sophomores. Then follow them, their surviving progeny and some other participants for 80 years while tracking their physical and mental health along the way. What can that reveal about happiness?

This: “Close relationships, more than money or fame, are what keep people happy throughout their lives.”

That fact is evidenced around the world. In the Ipsos’ Global Happiness Survey 2020, more than half of respondents said their greatest happiness came from their health and physical well-being, which is understandable considering the pandemic. But the following two cited sources of greatest happiness were their relationship with their partner or spouse, with an equal percentage saying it came from their children.

Joy derived from relationships spans all income levels, too.

Consider the findings in a study from the United Kingdom’s National Foundation for Educational Research that children living in poverty were as happy as classmates from wealthier homes. Their sense of well-being was less influenced by wealth than close relations with their parents and friends.

This explains why many economically disadvantage countries report higher than expected levels of happiness. These are cultures that emphasize nurturing relationships over your own self.

Quality time with loved ones may be the truest definition of being rich.

People with jobs that provide meaning are happier, regardless of salary.

Another thing to consider is how our work and earnings relate to happiness. It turns out our attitude that other things in life are more important than money is also reflected in the workplace.

The majority of workers, regardless of age and income, said meaning was the biggest contributor to workplace happiness in a CNBC/SurveyMonkey Workplace Happiness poll.

“Following your passion” may not be the best career advice. But “find a career that makes you feel passionate” may be.

Money buys happiness, depending on how you spend it.

Look around you right now. If you’re at home, you will likely find a host of items that at one time made you happy but now mean nothing to you: that Peloton collecting dust in the corner, that collection of Seinfeld bobbleheads, or even the car sitting in your driveway.

The fleeting happiness from buying things is a feature of the hedonic treadmill.

The answer isn’t to simply not spend money. What researchers determined in a study published in the Journal of Consumer Psychology is that people should be mindful of how they spend money. People are happier when spending money on experiences instead of things. We feel a deeper and more lasting connection to purchased experiences (ex., going to a concert, traveling, visiting an art museum, etc.) than material purchases.

Experiences make a home in our memories. We anticipate them, which is in itself a source of happiness. Plus, experiences are often shared with others, bringing us back to the significance of social connections.

That’s not all the study found.

Possibly the most direct way money can buy happiness is to spend it on others – donate to charity, take a friend out to dinner, buy someone a gift. In congruence with our need for social connections, the act of giving was highly associated with higher levels of happiness.

When we do something for someone else, we give a gift to ourselves. It explains why many retirees – who generally have more wealth and more time – choose to volunteer. In a Merrill Lynch/Age Wave study on giving in retirement, retirees were three times more likely to say “helping people in need” brings them greater happiness versus “spending money on themselves.”

Essentially, it is both true and untrue to say money can buy happiness. Money, when used appropriately, creates opportunities to build a happier life. However, money is not the most important contributor to a happy life.

If all the hustling and life hacking and goal crushing isn’t providing you greater access to real sources of happiness, then you may be overvaluing money in your life and should really think about what you’re missing. It just might help to do it over a few beers on a beach with friends.

Are You Financially Resilient?

A young woman in the Land of Oz asks her way to Kansas. “If I were you,” she is unhelpfully told, “I wouldn’t start from Oz.” But if Oz is where you are, you have no choice; from there is where you start. That is how it is with many financial hardships. We must start where we are, in the thick of it. 

After battling stomach cancer at the age of 72, the artist Henri Matisse was confined to a wheelchair. This made it difficult to paint or create sculptures. But his passion for making art was undeterred. So, Matisse cultivated a new artistic medium: paper cut-outs. By cutting out shapes and forming collages, he created a late-stage body of work that is equally celebrated as his early paintings. 

Matisse’s artistic reorientation was an act of creative resilience. The kind of resilience that’s becoming more of a necessity in our financial lives. Research from the National Endowment for Financial Education shows that 96% of Americans experience four or more income shocks — health crisis, job loss or other life transitions during their working years — by the time they reach age 70.

Often people face these shocks in less-than-ideal starting points. Most Americans say they would have trouble paying for a $1,000 emergency expense. The median household retirement savings for those nearing retirement (55-64) is $134,000, according to the 2019 Survey of Consumer Finances

I like to think of financial resilience as the ability to overcome a financial hardship and still make the best of life. It is more art than science, because each person’s situation is different. But we all proceed from the thick of it. 

And conditions seem to be getting thicker. 

For one, life expectancy is rising, which means younger generations can expect to save more for retirement than previous ones. Of course, the downside of living longer is the chances are greater for experiencing unfortunate events. 

Simply starting to save for retirement is a challenge for most young adults, who typically enter the workforce saddled with more than $30,000 in student loan debt.

Meanwhile, many people who grew up with the post-war years, when a degree was expected to translate to a good-paying job, a yearly vacation, some college savings for the 2.5 kids, and a comfortable pension or retirement fund, are finding that isn’t always so.

A survey from Allianz Life found that more than 50% of Americans are forced out of the workforce earlier than they planned. The leading reason was unanticipated job loss. Something that was experienced by around 900,000 Americans between the ages of 60-69 as a result of the pandemic, according to the Bureau of Labor Statistics. An unexpected exit from the workplace can mean missing out on additional years of peak earnings, potentially lower retirement benefits and the need to start drawing down assets early.

It is important to conceptualize your finances in concrete terms: how much to save in a 401(k), what type of investments to buy, when to file for Social Security, etc. But it is also important to think abstractly, because it is difficult to account for adversity — a pandemic, a cancer diagnosis, the automation of your job.  

Although our financial pictures are all different, the elements of financial resilience can be crafted along the lines of a paint-by-numbers kit:

1. An emergency fund of 3-6 months’ worth of expenses. The entire purpose of this money is to alleviate the pain of an unanticipated financial hit. 

2. Insurance coverage — health, home, auto, life. Sure, it’s not as sexy as gaining triple-digit investment returns, but insurance will likely save your ass more than the market. Take time to understand what your policies cover, and compare coverage by more than just the price.

3. A decent sized nest egg. The appropriate amount varies based on your desired lifestyle. But for someone who makes less than $100,000, it’s a good idea to save around 7-10 times your salary by the age of 65. Retirement savings are not only to help fulfill your goals or dreams, but also preserve your lifestyle as your age and health leaves you more vulnerable to financial shocks.  

4. Updated job skills. Skills help us earn better pay and keep us in the game. A Brookings report estimates approximately 25% of U.S. jobs will be highly impacted by automation in the coming decades. So, it is worthwhile to learn a new skill or take an educational workshop every couple years.

5. Some kind of financial planning. Seems obvious, right? Unfortunately, many of us for myriad reasons are simply winging it. A plan won’t prevent adversity. But financially speaking, when you have a full awareness of your situation — your cash flow, bank account balances, etc. — you are better able to adapt. 

As with Matisse, resiliency is finding a new angle. It is creating a new path so you can keep moving when the world around you, as if a whirlwind, suddenly changes. Or, in the wise words of Rumi:

“As you start to walk on the way, the way appears.”

Stories That Make You Rich or Go Broke

Why do you make certain decisions? How can you make better ones? Perhaps, you need a better story.

I think finance is synonymous with storytelling. Wall Street publishes more stories than the publishing industry.

Exhibit A is the GameStop saga, where a group of day traders bid up the beleaguered video game retailer’s stock price high enough to cause mayhem for short-selling hedge funds. For a brief time, it was a bigger story than the global pandemic and new American president.

The significance of it all will be debated for years. What is undeniable though is its example of how stories can shape us – for better or for worse.

GameStop was a classic David-and-Goliath story featuring a merry band of retail investors taking down the big, evil elite on Wall Street. Or, it was a story about equality and dismantling a rigged system. Or, maybe it was actually a tale of smart professionals seizing a golden opportunity. Or, maybe it was story of intrigue and conspiracy. Or, maybe it was a clash of titans, billionaire versus billionaire.

The story of GameStop will be known as the genesis of a major paradigm shift, ushering in a new era for the stock market. Or, it will be a stupid, non-event.

Then there are the stories within the story, like a 10-year-old whose GameStop share returned 5,000%.

Don’t forget the Reddit group responsible, r/WallStreetBets, fraternized through stories, stories of their major gains and major losses, often told with absurd memes and irreverent idiosyncrasies.

Of course, now that the GameStop stock play has come to a crashing end, it’s easy to dunk on inexperienced investors who took it for a ride. And to pan the press for perhaps blowing it out of proportion.

But ask yourself: Why do you do what you do? Why do you admire a specific person or associate with particular groups? Why do you follow certain routines? Why do you believe one thing but not another? Why do you buy the things you buy?

The same reason people opened Robinhood accounts this past couple weeks to start trading: A story.

Stories help us understand the world around us, pass along information and build relationships. When an unexpected event occurs – say, a group of retail investors fleecing some hedge funds – our desire for a cohesive narrative grows. We crave clarity, certitude and even identity through stories.

Research has shown that compelling narratives cause oxytocin release and have the power to affect our attitudes, beliefs, and behaviors.” That is the same hormone released during labor, bonding mothers and newborn babies.

Wonder why people read tabloids? It’s like a textual dopamine hit.

A good story can make you rich (not just in a financial sense, but as in a life filled with joy). A good story can equally make you go broke (again, not just in a financial sense, but also broke in spirit).

Therefore, the power of the story is something we should all understand and respect. It can give us meaning and motivation. It can help turn the world in your favor (ex., convincing your boss for a raise). But, as many historical atrocities show, it can cause people to do terrible things.

I think the GameStop saga exemplified three major elements of an effective story. A good story may have one or all three. Knowing these elements can help you craft your own stories and keep you from falling victim to one.

1. Duality (good vs. evil)

Political propaganda is the apotheosis of this element, as it is used to define an enemy. As Aldous Huxley put it: “The propagandist’s purpose is to make one set of people forget that certain other sets of people are human.”

It’s good versus evil. The Rebel Alliance versus the Galactic Empire. The Lakers versus the Celtics. Or in the case of GameStop, the people versus Wall Street.

This dualistic storyline, of one thing in opposition to another, doesn’t always involve people. It can also take a more intangible form, such as the status quo versus a better future, which was the theme of Apple’s famous 1997 Think Different campaign.

But life is not so black and white; life is very gray. Therefore, any story presented in a dualistic framework – a sales pitch, a Trump fundraising email, an invitation to join a cult – is a good indication there’s more to the story than meets the eye. Be alert.

On the other hand, we don’t like ambiguity. We prefer simple either-or statements. So, for achieving a certain outcome – to earn approval for a work project, to attract investors in your start-up or to even adopt healthier habits – it’s easiest to change minds with a dualistic story.

2. A higher purpose

Gregor MacGregor was an 1800s fraudster who tricked British and French investors to invest in the fictional Central American country of Poyais. He conned investors with the story of a beautiful, civil and European-friendly territory ripe for opportunity. Part of his pitch to British aristocrats was that such an investment would not only be good for their financial health but also good for the strength of Britain and for the spirit of the Poyaisian people.

His story called to a higher purpose. Name it a theme or a motif, it’s what gives a story universal appeal.

GameStop was portrayed as a story about fairness and accountability, earning it references to the Occupy Wall Street movement.

But what is a story’s strength, is also its weakness. If the facts of the story don’t support its purported altruistic message, as in the case of GameStop, then you can tell the narrative is probably bullshit.

I’ve written before about the stories we tell ourselves. I am a diligent saver and I am an innovative entrepreneur are both positive stories, but they’re only effective if you have a reason why. No one saves money to save money. You should have a higher purpose as to why.

For example, why do you want to save and invest money? Those things aren’t meant to be done simply for the fun of it, but rather to serve a purpose. Once you have a specific purpose or goal in mind, you can work your way backward and come up with a plan to get there.

3. The reward

A common structure found among myths and folklore of many cultures is the Hero’s Journey, made famous by Joseph Campbell.[1] From the Odyssey to Star Wars, this storytelling model follows a character’s call to adventure and transformation into another world and back again, passing through different stages.

One of those stages is the reward, earned by the hero after overcoming a fear or slaying a dragon…

…or buying options on a cheap retail stock.  

The GameStop myth follows this narrative arc: a call to adventure on Reddit, crossing into a special world (the stock market), slaying the titans of Wall Street and earning a reward of triple-digit returns.

Unfortunately, some of these heroes stayed too long in that special world, only to return to the ordinary world without their shirts.

The quest to achieve a reward that will transform your life is an alluring narrative, which advertisers know quite well. Deficit advertising is a marketing technique designed to make you feel as if something is missing in your life. Why do you need to buy that truck? Because your life is missing the excitement of a white-knuckle, adrenaline pumping joyride up a mountain.

For any reward, you have to give up something.

Imagining yourself on a journey is a helpful mindset when working toward a goal. The good thing is, especially when investing, you don’t need to make it a risky adventure. Investing money in a diversified portfolio for the long term is unlikely to be as exciting as day trading, but more likely to be rewarding. The real prize, however, may be all the mental and emotional energy saved by never having to make investing some kind of game.

So, what can we learn from the GameStop experience? Well, perhaps, it’s better to ask what stories are you listening to? Can you tell a better one?

[1] As I was writing this, Dave Nadig published this excellent article where he also notes the Hero’s Journey similarity as posited by Lily Francus.

3 Retirement Myths of the Social Media Era

Social media has altered our perceptions of success, relationships, politics, culture and even retirement. But know this: no matter what type of designer retirement you think you have put together for yourself, bereavement, illness, ennui and financial challenges happen to everyone. No amount of wealth, success, power or planning can make you impervious to them.

Leave it to a couple rambunctious, overtired children to accentuate that bit of wisdom to me.

Like many parents, I typically read to my children before bedtime. Sometimes we take turns making up our own stories. Trouble arises, however, when they’re not ready to fall asleep and continually ask what happens next in my story.

The boy slayed the dragon and saved his village. And then? There were no more dragons left to slay, so he got a job bagging groceries at the local market. And then? Um, he worked his way up to manager. And then? He saved enough money to open his own supermarket franchise across the kingdom. And then? A new supermarket competitor arrived offering a cheaper, more convenient shopping experience and took all his customers, putting him out of business. And then? To pay bills, he resorted to signing autographs at comic conventions and starring in commercials for whole life insurance and annuities. And then? GO. TO. SLEEP.

Perhaps, if you have children, you know the feeling…

But what a pertinent question. And then? What happens as heroes and heroines “live happily ever after”? What possibilities lie beyond just the memorable parts of life? What about the quotidian and minutiae that fills most of our time and experiences?

In the era of social media, everything is treated like a fable or fairytale. Life has become one long P.R. campaign. People tend to project the image of a life far better than the one we authentically experience.

For retirement or financial independence (pick your term), a lot of attention is focused on the tip of the iceberg – the ideal lifestyle – rather than the unsentimental parts that actually make up most of one’s life.

Think about those stylized photos of older adults frolicking on the beach and strolling down cobblestone streets. Or those intricately staged selfies posted by early retirees above Machu Picchu or aboard a sailboat cutting across the Caribbean.

It’s hard not to revel in these stories (hey, I wish I were writing this under a cabana in the Maldives too!) and ignore the inconvenient parts of life, dismissing them as something that won’t happen to us.

In a sense, it’s a combination of confirmation bias and optimism bias (optimistic confirmation bias?). When thinking about retirement, there is a tendency to focus only on the positive instances while being over-optimistic about the occurrence of those positive instances in our own lives.

But no one can escape the “and thens”: health issues, unexpected hardships, financial misfortunes, changing interests and goals, death.

As we work toward creating a more ideal life, it’s easy to fall for myths about retirement. It is important to indulge your dreams and goals, but through a realistic lens. In other words, consider the whole story.

That way, you avoid neglecting life right now for a future that isn’t achievable or that you find out you don’t actually want. Plus, when you humbly recognize every moment in retirement is not all sunshine and lollipops, you will better appreciate the times when it is.

Under the influence of social media, I think these are three big retirement myths to watch out for:

Myth #1: The quality of your retirement depends on how much money you have

Social media has certainly expunged many taboos. I think it’s generally a good thing people are more comfortable openly sharing personal things like their savings and net worth, as long as people understand that that isn’t what’s most important.

Contrary to some finance experts, there is no magic savings target or level of wealth that dictates the type of retirement you experience. Once you hit that mark, then what? Money is useless without purpose.

Wealth is a means to an end, not the end itself. Or, as comedian Chris Rock said, “Wealth is not about having a lot of money; it’s about having a lot of options.” What options are important to you then determines how much wealth you need.

In the book, Top Five Regrets of the Dying, hospice nurse Bonnie Ware writes that her patients cared more about relationships and happiness than money, fame or success. The most cited regret was: “I wish I had the courage to live a life true to myself, not the life others expected of me.” That was followed by “I wish I hadn’t worked so hard.”

You will regret missed opportunities to be yourself and spending time with those you love much more than having saved $750,000 instead of $1 million.

Wealth is an essential part retirement, but if that is all you concentrate on, then you’re liable to end up feeling rather poor.

Myth #2: The purpose of retirement is to be happy

“The purpose of life is not to be happy. It is to be useful, to be honorable, to be compassionate, to have it make some difference that you have lived and lived well.” Those are the words of Ralph Waldo Emerson, and they’re applicable to every stage in life. Hell, they’re worth a share on social media.

As noted in a 2014 article published by the American Psychological Association, research has found some people experience “anxiety, depression and debilitating feelings of loss” after retiring.

In addition to the financial aspects of retirement, it’s important to also plan for the social and psychological shifts, such as coping with the loss of your career identity, forming new relationships and finding things to do to pass the time.

The average length of retirement is approximately 20 years, according to the Center for Retirement Research at Boston College. That is 7,300 days, or 175,200 hours, or 10,512,000 minutes.

That is a lot of time to pass, but also a lot of time to grow, learn, meet new people, try new things and even discover a new purpose. With that undoubtedly comes challenges and feelings of discomfort, followed by accomplishments and feelings of satisfaction.

Some struggle is a necessity for many people. Consider older adults who you would think are mentally and physically tired of work. A FlexJobs’ survey of over 2,000 professionals at or near retirement found that nearly one fifth (17%) plan to keeping working solely because they want to, not because they need the money. People 55 to 64 years old made up 26% of new entrepreneurs in 2017, according to the Ewing Marion Kauffman Foundation.

Myth #3: Everything goes according to plan

Social media is where people generally share stories of their success and positive experiences told in nice, neat narratives. It can appear as if everything transpires without a hitch.

But the third of surviving wives who reported less financial security in the first year after losing their husbands didn’t expect it. The half of parents who found themselves financially supporting adult children as their retirement prospects dim didn’t expect it either.

When life doesn’t go according to plan.

A retirement plan is great document, until it isn’t. It is difficult to plan steep market drops, housing market crashes, disability, divorce, major home repairs, new goals and interests, a child in financial trouble and death.

Instead of putting faith in a plan, it is better to build the flexibility to roll with life’s unplanned punches. As Dwight Eisenhower famously stated: “Plans are worthless, but planning is everything.”

Financially, that can mean setting aside funds for likely unplanned events, such as home repairs, while buying insurance for the things we just can’t anticipate. Psychologically, build a strong support network and develop a growth mindset to help accept and adapt to changes in life. For example, the loss of a spouse, or physical ailments that leave you unable to do some of the things you once enjoyed — or planned to enjoy.

The uncertainties in life stress the urgency to enjoy it. We can never know when it is the right time.

There is no reason to fear you may not live up to some unrealistic ideal. Appreciate the moments you have now and be grateful for the graces that arrive in the future. And then, the endings will take care of themselves.

One Question to Improve Your Money Habits

Goodbye, dear reader.

Scientists have announced a previously undetected asteroid is on a collision course with Earth. It will strike within minutes and wipe out all life on the planet.

Take the short time you have left to first hug your loved ones. Then, since you’re a person who understands the importance of good money habits, kindly write a brief note with the single best piece of financial advice for the next “intelligent” lifeforms that eventually take over.

What will you say?

What can you write that has the most amount of information in the fewest words?

Once you’re done, memorize the message. Because it can help you improve your own money habits.

This is the story of how.

During a lecture for undergraduate students at the California Institute of Technology, the charismatic Nobel prize-winning physicist Richard Feynman posed this question:

If, in some cataclysm, all of scientific knowledge were to be destroyed, and only one sentence passed on to the next generations of creatures, what statement would contain the most information in the fewest words?

What was the purpose of this question?

For one, this was in 1961 at the height of the Cold War, when duck-and-cover drills in case of a nuclear attack were the norm.

Mainly, however, it was the result of Cal Tech assigning Feynman with the task of revitalizing its physics curriculum to attract more students. These became known as The Feynman Lectures on Physics. His mental exercise was meant to help students – both physics and non-physics majors – create a new perspective and meaning of what they learned.

Consider what Feynman said:

I believe it is the atomic hypothesis (or the atomic fact, or whatever you wish to call it) that all things are made of atoms—little particles that move around in perpetual motion, attracting each other when they are a little distance apart, but repelling upon being squeezed into one another.

In that one sentence, you will see, there is an enormous amount of information about the world, if just a little imagination and thinking are applied.

How everything works and how anything is made – energy, metals, electricity, etc. – can be derived from that one statement.

(I recommend listening to this episode of Radiolab that poses Feynman’s cataclysmic question to historians, writers, scientists, musicians and artists. The various answers are compelling.)

What if you had one statement that guided you through nearly every financial decision in life?

I know this may appear like a frivolous exercise with no practical value in tangible activities like, say, investing or saving money. But it is a useful tool for developing and fortifying good money habits, which lead to successful financial outcomes.

You are creating a mental reminder. A reminder is an essential part of the habit-forming process, as it initiates the desired behavior, especially during times of stress.

Think of it as your own financial mantra. Don’t believe in the utility of a mantra? Well, they’re proven to help some of the most successful humans on the planet achieve lofty goals.

Value of mantras

Lots of professional athletes use mantras and positive self-talk.

Quarterback Russell Wilson reportedly repeated to himself, “Why not us?”, during the Seattle Seahawks Super Bowl season in 2014. Whenever things become difficult, ultra-endurance athlete Rich Roll reminds himself that “Mood follows action.” And Hall of Fame coach Phil Jackson emphasized this to his players and himself: “Create the best possible conditions for success, then let go of the outcome.”

An analysis of dozens of studies published in the Perspectives on Psychological Science journal found that positive self-talk effectively improved athletic performance.

And the benefits are not limited to sports. For example, one study showed that self-encouragement reduces public speaking anxiety. Former Disney CEO Robert Iger attributed a major part of his success to this five-word mantra: “The relentless pursuit of perfection.”

A phrase, adage, aphorism, maxim, motto, mantra, or whatever you want to call it, can help you develop the necessary resiliency to pursue your long-term financial goals.

The best piece of financial wisdom

So, what is one piece of financial wisdom you live by and would want to pass on to Earth’s future overlords once their financial system is up and running?

If you devise an answer from scratch based on your own experience, then you will probably come at it from one of two angles.

One is negative, as in expressing a major regret. Your statement serves as a warning about what to avoid. For yourself, it is a reminder to never make the same mistake, and/or a reminder to work toward recovering from said mistake.

According to a Bankrate survey, Americans say these are their top financial regrets:

Any look familiar?

The positive option is to express what makes life happy. Your answer could provide inspiration for making life meaningful.

In the 2019 Ipsos Global Happiness Study, people surveyed around the world said the greatest source of happiness is their health and physical well-being.  

Perhaps, something else makes you happy.

Regardless, life is complex. Money is complex. It is hard to encapsulate everything into one statement. Here is what some notable people mentioned was their best piece of financial advice:

“Marry the right person. I’m serious about that. It will make more difference in your life. It will change your aspirations, all kinds of things.” –Warren Buffett

“The only true job security is a superior skill set.” –Tim Ferriss

“Not having a financial plan is a plan — just a really bad one!” –Alexa von Tobel

“The first step to getting rich requires discipline. If you really want to be rich, you need to find the discipline—can you?” –Mark Cuban

“My habits protect my life, but they would assassinate you.” –Mark Twain… on the dangers of trying to emulate the habits of someone else.

My financial wisdom for future generations… and creatures

If I am going to pose the question, it is only fair that I also answer it.

This was hard. First, I wanted to in some way encourage charity. Something along the lines that true success and wealth will come from helping others. But the more I thought about it, the more I realized a somewhat inconvenient truth about money is that to help others, you also have to help yourself. Someone must accumulate the money.

Therefore, I thought about the one thing that influences everything: time.

So, here is my answer: Patience is a superpower.

Sure, it sounds like something you’d find printed in a fortune cookie or on workplace poster featuring a cat.

Yet, I think it is a motivational message that encompasses every aspect of financial success — in less than five words. It relates to letting your investments compound rather than trying to bet your way to wealth. It relates to spending money mindfully instead of impulsively buying stuff. It relates to giving yourself the space to find out what life you want to lead rather than chase the life of someone else. It relates to overcoming big challenges for yourself or for your community one step at a time.

I believe these are things you are unlikely to regret when the world is about to end.

So, what is your one sentence?

The Power of Framing in Money, Life

In a consumerist culture, happiness is closely associated with wealth. The more you earn, the more you can buy, the happier you will feel.

Yet, there is a reason why studies show older adults are happier, and it’s not from accumulating massive levels of wealth.

The secret is found in a quote attributed to Roman emperor and Stoic philosopher  Marcus Aurelius: “Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.”

What he seems to be articulating is actually a superpower within everyone to change the entire world around us in an instant.

My most recent article published in Kiplinger explores this superpower, which is commonly known as the power of framing:

The framing effect is the psychological principle that our decisions are influenced by how choices are positively or negatively presented. It is related to the groundbreaking research of Amos Tversky and Daniel Kahneman known as prospect theory, which states the pain of a loss is twice as powerful as the pleasure of a gain. What that means is that when given the choice, people prefer a sure gain over a probable one, and they prefer a probable loss over a definite loss...

Framing is considered one of the strongest cognitive biases that impact the decision-making process. It can influence everything from our political and social attitudes – what we call spin – to how we spend money and even what type of health insurance we choose.

While all of this may sound alarming, there is a major silver lining. We are not relegated to being only involuntary victims to framing. Instead, we also have the ability to use it as a tool to make better decisions and become happier people.

You don’t need an app, online program or self-help workshop to start re-framing your life. It is a habit that you can develop with small, consistent efforts.

There are a variety of ways to frame situations that are conducive to your financial goals. For example, if your friend is getting married in Aruba, and it’s not in your budget to go, instead of thinking to yourself, “We’re missing our friend’s destination wedding,” tell yourself, “We’re choosing to stay committed to our financial goals.” Or say there’s a hot shoe sale going on. Tell yourself, “Yes, that’s a great sale , but it’s still spending money I don’t need to spend.”

But there is much more. Framing can also help you find greater peace of mind and happiness – every day. Research indicates that people become happier with age, greatly because they start to perceive the world in a more positive and impartial light. Journalist John Leland came to that conclusion while spending a year interviewing six New York City residents who were 85 and older. He documented his experience in the book Happiness Is a Choice You Make.

“Older people are more content, less anxious or fearful, less afraid of death, more likely to see the good side of things and accept the bad, than young adults,” Leland writes. 

In the full article, I go in more detail of how framing works in your financial life and tips for seeing the world with a new frame of mind.

Read it here: One Trick That’ll Help You Live a Wealthier and Happier Life: Framing

Managing Your Personality in Your Portfolio

Whether we can admit it or not, the way we invest is heavily influenced by our personalities.

As I struggle with the hardest Dry January in history, I’ve thought a lot about people I’ve known who could freely indulge in alcohol or drugs yet still meet all life’s obligations. They always made it to the party, always confidently got behind the wheel, always woke up the next morning in their own bed, always kissed their spouses and children goodbye and made it to work on time…  

…until the time they failed to see the on-coming headlights.

How does someone remain oblivious to risk and live under the presumption of good outcomes? I suppose it’s easy when that’s all you know.

I can’t say the stock market, cryptocurrency or anything else is a bubble right now. But I can say a lot investors seem oblivious to the potentially adverse consequences that lie in wait. New brokerage accounts are at an all-time high and TikTok investing videos made by teens attract millions of views.

Insurrection. Pandemic. Millions unemployed. Killer hornets. The cancellation of Caillou. Still the market marches on. The party continues.

Considering the historical events that transpired over the past 12 months, it’s hard not to feel uneasy about the unperturbed rise of the stock market. Except, what do your feelings matter anyway? As Josh Brown said about the callousness of investing in a recent podcast: “The stock market doesn’t care how you feel.”

He’s right.

However, you should care how you feel. It’s worthwhile to ensure you make investment decisions for the right, rational reasons, rather than chasing hot stocks or following the herd. Because eventually your luck can run out.

The Stock Market Mirrors Our Personalities

The stock market is propelled by tides of greed and fear. This concept is a famously illustrated in line charts people often share when the market hits an all-time high or sharply declines.

It’s easy for an investor to say that’s not me. I’m smarter than that. I have my emotions in check.

But it may be more accurate than we’ve realized, as our personalities seem to operate on the same undulating trajectory.

Look at this illustration from Dr. Camilla Pang, a postdoctoral scientist in bioinformatics, who recently published the book, An Outsider’s Guide to Humans: What Science Taught Me About What We Do and Who We Are.

Dr. Pang compares our personalities to a playground swing, oscillating between euphoria and despair. The extent of those highs and lows depend on the amplitude of our personalities.

She writes:

Just like people, oscillators can be predictable and they can be unpredictable. They have an expected path to follow, but one that is subject to change depending on the external forces being exerted on them: in the swing example, you might drag your feet on the ground, creating friction, or propel yourself outwards, revving into a salient rhythm. And, just as our personalities can be subdued or extreme, oscillators can have amplitudes (peaks and troughs of their arc) that are spiky or shallow.

Because just as, on the swing, we are quite literally riding a wave of simple harmonic motion, our lives and personalities have their own inherent wave patterns.

Think of the people you know who always seem to be in control of their emotions, never get overly bothered by problems and are essentially “steady.” That is a low-amplitude personality, one which never departs too far from its resting equilibrium. Neither the emotional forces propelling this person nor those dragging them back are ever too great. This is a slow, steady, smooth ride on the swing: no sudden jerks or motion sickness.

By contrast, a high-amplitude person is someone with more energy to burn, whose emotional peaks and troughs are more extreme, and who is also probably traveling faster—at a higher frequency. This is the kind of ride on the swing that can make you feel sick, as the soaring highs are tempered by unsteady downswings and sudden jolts of force when you’re not expecting it.

Whether you are a high- or low-amplitude personality—and both have their strengths and weaknesses—it’s important to understand the rate at which your temperament swings… To make our progress through life as natural as the “good” ride on the swing, we need an understanding both of our own amplitude and that of the people around us.

Many investors today are riding on the cusp of a mental peak, unaware like a functional alcoholic of the risks not realized yet, when everything swings the other way.

Some self-awareness can help you strike a balance between high and low, risk and safety, for smooth, steady progress toward your financial goals. It can help you avoid taking unnecessary risk and following the herd mentality of the market.

Investing on emotion is not a good investment strategy. Credit John Maynard Keynes for arguably the greatest investment quote ever: “Markets can stay irrational longer than you can stay solvent.”

Managing Your Personality When Investing

Conventional finance wisdom says you can control your emotions or change your way of thinking. But that is difficult to do. As an article from the University of California, Berkley explains, “…once our minds are made up on important matters, changing them can be as difficult as stopping a train hurtling at full speed, even when there’s danger straight ahead.”

The good news is that we are not at the mercy of our personalities. There are several ways to manage — or neutralize – our personalities within our portfolios.

One common option is to automate your investment process as much as possible. For those saving in an employer-sponsored account, contributions can be automatically deducted from your paycheck. This is a form of dollar-cost averaging. You invest every month regardless of what the market does. You can also automate your asset allocation by investing in a target date fund. Although target date funds are not perfect, they beat picking funds randomly or based on past performance, or not investing at all.

True, that guarantees you’ll never become an overnight market whiz millionaire.

So, if you are overwhelmed by the desire to speculate on the market, there is no harm in to creating a “play fund” separate from your retirement funds. Consider this a speculative account that has no bearing on your long-term investment objectives. The Wall Street Journal’s Jason Zweig recently recounted the timeless warning of Benjamin Graham to “Never mingle your speculative and investment operations in the same account, nor in any part of your thinking.”

Instead of getting mixed in with the investment flavor of the month, a diversified portfolio of cheap index funds is likely to better serve you over the long run. A classic study, “Determinants of Portfolio Performance,” found asset allocation choices accounted for most of a portfolio’s return, not by market timing or security selection.

Of course, your personality may make it hard to stay the course over the long run.

Perhaps then, the most effective option for you is to work with a financial adviser. Essentially, it is akin to putting a human buffer between you and your portfolio. One the primary roles of a financial adviser is to act as an objective voice of reason. With most financial advisers you can give them discretion over your investments based on the policy agreed to at the start of your relationship. Before making an investment change, you can speak with a professional to discuss your thoughts and feelings in the moment.

There’s no shame in handing over the keys to your portfolio if it is in your best interest.

What You Appreciate, Appreciates

A fundamental principle for growing wealth, love, happiness — everything — lives in a remote corner of India.

More than 40 years ago, a humble farmer named Jadav Payeng started to plant trees on a desolate river island. Known as “The Forest Man of India,” he planted tens of thousands of trees — bamboo, cottonwood and other varieties. What was once a barren sandbar blossomed into a 1,300-acre forest teeming with birds, monkeys, elephants and even tigers.

As he told NPR, it was his way of honoring nature. His small act of appreciation, planting seeds every day, grew to something beyond anything he could imagine.

And that is the way with everything in life.

What you appreciate, appreciates. For you and for others. It is an important principle that applies to every pursuit in life, from investing to relationships.

Money, when invested and reserved for the future, can grow exponentially through the power of compounding.

This graph shows how earnings on earnings will increasingly grow over time if you leave them in your account
Source: Vanguard

Generosity is contagious, as acts of giving and kindness have been shown to inspire observers to help others later — potentially spreading by a factor of three.

Happiness, too, can spread through a network like a cold, for when one person is happy the odds of people connected to that person becoming happy increase.

Gratitude for positive things and experiences leads to having more positive things and experiences.

Social connectedness (i.e., friendship) generates a positive feedback loop of social, emotional, and physical well-being.

Love in a long-lasting marriage endures through small daily acts of connections and passion.

Habits build upon themselves, which grow most effectively through gradual and consistent baby steps, as shown in Stanford behavior scientist B.J. Fogg’s Behavior Model from his book, Tiny Habits.

Tiny habits and the Fogg Behavior Model - BJ Fogg - Minds for Change

Passion for work doesn’t have to be found or followed when it is more likely to be cultivated and enhanced over time through mastery.

Longevity is increased — possibly by more than a decade — by practicing healthy lifestyle behaviors every day, as low-risk behaviors are inversely related to mortality risk.

Creativity begets creative thinking.

Self-confidence rises in those who practice confidence.

Knowledge compounds by learning at least one thing each day so that you go to bed smarter than when you woke up.

Purpose and meaning proliferate in life when you engage in actions that are purposeful and meaningful.

Time becomes more plentiful when you are more protective of your time.

What you appreciate, appreciates.

There are many more qualities and studies out there that can prove this point. The key takeaway: If something truly matters to you, working at it in small steps with both grace and consistency will pay huge dividends.

It moves you closer to the process than the outcome, which helps keep you from quitting when progress seems inconsequential or invisible.

This principle is also a powerful tool for determining how to live your life well. After all, what you spend most your time and effort on becomes your life.

When you know what great things are possible in the future, you gain a greater sense of responsibility for your actions today.

If you want to grow something in your life, heed the wise words of Robert Louis Stevenson: “Don’t judge each day by the harvest you reap but by the seeds that you plant.”

A Lesson to Remember in a Year to Forget

The Chicxulub asteroid had a diameter of possibly 50 miles, or maybe as little as seven. So, the equivalent distance of a nice day drive or morning jog. We will likely never know with certainty. What we do know is its impact on Mexico’s Yucatan peninsula was powerful enough to trigger the extinction of 75% of the species on Earth and alter life on the planet for millions of years.

Had Chicxulub arrived 66 million years later, in 2020, we would have probably thrown it a parade and an inauguration party.  

In truth, we owe this cataclysmic asteroid a token of gratitude. From the human perspective, it was an ecological gift, as mammals came to rule a land now free of hungry dinosaurs. Had it not been for Chicxulub, we may not be here. Or, rather, I may be typing this with razor-sharp claws protruding from the scaly appendages of my reptilian body.

Out of the ashes, new life emerged. Which is to say good things can come from bad events. This is true in life and money. There are always lessons to learn and opportunities to realize. Recognizing them helps us create a better future.

The past 12 months may serve as a reminder of that lesson. 2020 has been a no good terrible year in many ways: as a health reckoning, a political reckoning, a social reckoning, and a financial reckoning. In America, more 17 million people have contracted Covid-19 and more than 300,000 have died. Almost 8 million Americans have fallen into poverty since the pandemic since May. More than 10 million are unemployed.

Unfortunate things happen, but they can shape us in unimaginable ways that would not happen otherwise. You can see flashes of it now with a vaccine developed in record time, creating a blueprint for all future viruses.

That is not to say we should be thankful for 2020. It has been heartbreaking and dispiriting, especially because much of it is a result of human incompetence. Still, the year is not without wisdom; to learn nothing would be equally tragic.

It brings to mind the profound words of Marcus Aurelius: “Accept everything which happens, even if it seems disagreeable, because it leads to this, the health of the universe.”

A study from Oregon State University suggests that how a person responds to a difficult life event, such as a death, divorce, health crisis or loss of a job, helps shape the development of their wisdom over time. Of 50 adults, ages 56-91, who experienced a difficult life event, most changed their outlook and actions afterward. Their “social environment helped to shape their responses to the difficult life event.” These interactions ranged from “unsolicited emotional support from family, friends or strangers” and “seeking out others with similar experiences” to “seeking expert advice” and “learning from society at large.”

The researchers concluded that “some of these social supports and interactions influenced a person’s development of wisdom. Those who received unsolicited emotional support, for example, developed wisdom around compassion and humility. Seeking others with similar experiences exposed some participants to new ideas and interactions, supporting deeper exploration of their new sense of self.”

Not always observable at the time, difficult life events lead us to the wisdom needed most to succeed. You have to wonder how different things would be if Michael Jordan had not been cut from the varsity high school team, or if Steve Jobs had not been fired from Apple to then flounder with NeXT. It is almost necessary. If we never felt pain, our wounds would most certainly kill us.

Therein lies financial wisdom, too. Every financial mistake and misfortune is cause for deeper personal exploration. Though an expectation for bad things to happen will serve you best. After all, the most important part of financial planning is not to achieve big, treasured future goals; it is to keep from getting knocked on your ass when things go wrong.

As an investor, you have to expect bad market days every few years, such as the 34% drop in March. Those who stay the course tend to have developed an admirably resolute attitude. Market downturns are viewed not only as normal but healthy, as a way to reset asset prices, create new opportunities and temper emotions.

When luck, chance, providence, God, whatever you want to call it, shakes the snow globe of your life, you can make something out of the pieces. For many people, 2020 has been that event to do some financial soul searching. It has revealed what it may take to live a happier, secure life: to question what matters most, to build a bigger emergency fund, to find a new career, to take some risk off the table, to meet with a financial adviser for the first time.

You don’t get to choose your obstacle, but you get to choose how you respond.

Charlie Munger suggested a Stoic response to life’s punches when he said: “Life will have terrible blows in it, horrible blows, unfair blows. It doesn’t matter. And some people recover and others don’t. And there I think the attitude of Epictetus is the best. He thought that every missed chance in life was an opportunity to behave well, every missed chance in life was an opportunity to learn something, and that your duty was not to be submerged in self-pity, but to utilize the terrible blow in constructive fashion. That is a very good idea.”

I know these words are no salve for those going through a terrible blow right now. But there is hope. There will be a day when the good that comes after is realized. And for the rest of us, as shown in the Oregon State study, it is a reminder that we can help those suffering to see that good.

For, we never know when the time may come for us.

In the short story “Chicxulub,” which inspired this post, author T.C. Boyle writes: “Flip a coin ten times and it could turn up heads ten times in a row—or not once. The rock is coming, the new Chicxulub, hurtling through the dark and the cold to remake our fate.”

Within only a few years, plants started to grow in the 93-mile wide crater left by the Chicxulub impactor. And in the jungles and grasses, under the gaseous haze of sulfur, furry creatures started to stir.

Supercharging Your Financial Bullshit Detector

Please excuse the language.

To me, the hardest part of writing isn’t the writing. It’s the editing. Specifically, the cutting. My ego believes every word is divine while my brain says most are crap. Deep down I know my work improves when I get the red pen and, as Stephen King incites, “kill my darlings.”

A diamond doesn’t become brilliant until it’s cut. But how do you identify what to toss in the trash heap? It’s a creative choice.

As the artist Austin Kleon writes: “In the end, creativity isn’t just the things we choose to put in, it’s the things we choose to leave out.”

Decisively leaving things out can improve our financial lives, too. Because financial planning is as much an art as a science. By that I don’t mean the more creative the solution to your financial needs the better. Rather, money is personal. What works for you, may not work for me. Wealth is in the eye of the beholder.

As a creative endeavor, financial success depends on knowing what to include as well as what to exclude; being able to separate good advice from bad advice; telling the truth from the bullshit.

A good bullshit detector can go a long way in making better financial decisions.

Following Sturgeon’s Law

In what is eponymously known as Sturgeon’s Law, science fiction writer Ted Sturgeon posited that 90% of everything is crap.

That may sound overly cynical, until you really think about it. Of the estimated 2,000,000+ books published each year, how many are worth reading? How many work meetings have you ever been happy to attend? How many emails in your inbox are important? How many hours do we waste scrolling through social media feeds?

Perhaps, Sturgeon underestimated.

Far from being an indictment of human intellect, Sturgeon’s Law is a personal liberation. It can free you from societal pressures to consume every new product, every piece of news, every new fad. Since the majority of everything is bullshit, you can peacefully tune out the noise and focus on what matters most.

Sturgeon’s Law extends to finance, as 90% is effectively bullshit, too. (I’m using the term bullshit liberally here. I mean information that is not only untruthful or deceptive but also irrelevant to someone who trying to achieve financial independence.)

90% of financial and investing advice is bullshit. You can build wealth by following a handful of timeless steps: spend less than you earn, try to max out your retirement account, avoid bad debt, etc. There is no need for complex financial products or elaborate investment strategies. As University of Chicago professor Harold Pollack showed, the best financial tips can all fit nicely on an index card.

Harold Pollack’s index card of finance tips.

90% of stock market performance is bullshit. What the stock market does on any given day rarely matters. A retirement guide from JP Morgan shows that subtracting just the 10 best trading days would cut the S&P 500’s return by more than half. That means most days are non-events. So, you can avoid trying to time the market. You can blissfully ignore most daily financial news. You can stop wasting time checking your account (as Nassim Taleb notes in Fooled by Randomness, you may have a 93% chance of seeing positive gains if you check your portfolio just once a year).

90% of financial marketing is bullshit. Any commercial with a mid-tier celebrity, or piece of direct mail, or YouTube video proclaiming high returns or instant debt relief is bullshit. Certainly, 90% of steak-dinner retirement seminars are traps to avoid. Most financial marketing is an attempt to convince you to allow someone else to make money off your money.

90% of our thoughts and feelings are bullshit. We shouldn’t apply Sturgeon’s Law to only the external world when our internal thoughts and feelings also lead us astray. We are susceptible to cognitive biases that warp our thinking. Our feelings feed irrationality. I know for me, 90% of my ideas are bullshit, 90% of things I want to buy won’t make me happy, 90% of my fears are over nothing, and 90% of my strongest feelings will pass if I just simply pause. Harsh but true. I take comfort in knowing that. A greater self-awareness can help you make better decisions and avoid costly mistakes.

When you internalize Sturgeon’s Law, your financial life becomes easier to manage. It’s a wonderful tool for choosing what not to include. It allows you to brush aside most news, sales pitches and worthless information. And your financial goals seem more possible when the necessary steps to achieve them are reasonably within your control.

Sturgeon’s Law saves a lot of time and effort. It helps you say “no” to all the wrong things, which is an effective financial habit. Listen to Warren Buffett: “The difference between successful people and really successful people is that really successful people say no to almost everything.”

The hard part is that there is a lot of bullshit – and we’re hardwired to notice it. As hunter-gatherers, every rustle in the leaves or snap of a twig was life or death, 90% of everything was relevant. Humans brains are evolved to see patterns everywhere in the world. We’re effectively conditioned to follow the inverse of Sturgeon’s Law.

The trick is to enhance your ability to distinguish between the good and the bad. In other words, supercharge your bullshit detector.

Supercharging your bullshit detector

Along with exercising a healthy skepticism with Sturgeon’s Law, there are means for seeing right through all the bullshit.

Theoretical physicist Richard Feynman was gregarious yet blunt. He didn’t suffer fools lightly, and he knew how to bring the receipts. His method for identifying pseudoscience was to probe the way in which someone explained something. If someone is unable to express an idea in clear, simple language, and can only regurgitate technically rote definitions and statements out of context, then they are likely full of shit.

The Feynman Technique is a valuable formula for evaluating financial services and products. Be wary of the broker who communicates in unsubstantiated jargon, the insurance collateral accompanied with page after page of fine print, the hypothetical investment returns that sound too good to be true.

Certainly, before giving a piece of information credence, take an extra step to investigate the source. For one, we are susceptible to confirmation bias — the tendency to interpret information as confirmation of our existing beliefs. So, you may find yourself gravitating toward sources that match your own viewpoints. Therefore, seek out opposing viewpoints, which will help you think of issues in a more informed and objective frame of mind.

Further, the person dispensing information may have an agenda. So, above all, ask this question: who benefits most? There is only one person who should benefit from a piece of financial information: you. If you’re not the primary beneficiary of a bit of advice or product or service, then it’s best to walk away.

And with that, I hope you benefit from this post, as I tried as hard as I could to cut all the bullshit.