Prioritizing Goals with Death

Before his death from esophageal cancer, the hard-drinking polemicist Christopher Hitchens wrote that living with a mortal illness was to live in a “double frame of mind.” You are at once preparing for the end while taking every step you can to survive. Or, as he quipped: “Lawyers in the morning and doctors in the afternoon.”

Such dualistic thinking is not reserved for those who are terminally sick. We are all tasked with trying to balance present and future desires. How can we enjoy life to the fullest today without jeopardizing our future goals, and vice versa?

The binary choice between short-term and long-term and what our hearts say versus what society expects, surrounds everything in life — our relationships, our careers, our health, our money. Do I want to get married or not? Should I take the job I love or the one that pays more? Should I eat this box of donuts or go for a run? Should I spend money now or save it for later? And all of those decisions compete with each other.

We are left to prioritize our goals, which is hard. It’s hard to choose what goals to aspire to as the human brain is not always rational, the future is always uncertain and our lives frequently change.

When the balancing act becomes overwhelming — that is, you’re faced with difficult choices — you may want to take a walk, preferably past a cemetery.

Why? Because research suggests an awareness of death can help people identify and nurture the things that will lead to a more meaningful and healthier life.

What’s So Good About Thinking About Death?

If there is one silver lining of the pandemic, it may be the heightened awareness of death. The risk of infection and time under quarantine prompted people to reevaluate their lives. As a result, many people changed jobs, moved to new cities and adopted new habits.

Stoic philosophers encouraged people to think about death every day. Epictetus advised parents to indulge their fear of death as they put their children to bed: “What harm is it, just when you are kissing your little child, to say: Tomorrow you will die?” Marcus Aurelius, in Meditations, reminds himself: “You could leave life right now. Let that determine what you do and say and think.

They believed habitually recognizing your mortality would help lead you to living a good life. It would increase your sense of gratitude and direct you toward virtuous behaviors.

Studies indicate the Stoics were on to something.

For years, a predominate theory stated that thinking about death filled us with fear. To cope, people turn to violence, greed and other destructive behaviors, such as chasing after material goods and/or frivolous experiences — what is often referred to as the hedonic treadmill.

However, recent research has uncovered findings that argue the opposite. A report from the Society for Personality and Social Psychology analyzed various scientific studies that show potential benefits from thinking about death. It concluded that “an awareness of mortality can help us re-prioritize our goals and values.

In one field experiment, researchers observed people who were either walking through a cemetery or along a street a block away. Actors near the chosen participants held scripted conversations about helping others or another control topic. One actor would then purposely drop a notebook. What they found is that a significantly greater number of participants in the cemetery would help pick up the notebook than those walking outside of view of the cemetery.

The report notes that other experiments have replicated the study’s findings, showing that “the awareness of death can motivate increased expressions of tolerance, egalitarianism, compassion, empathy, and pacifism.”

The benefits are not only psychological. Thinking about death can also promote better health. Further studies found that a reminder of death can motivate people to make better health choices, such as using more sunscreen, smoking less or increasing levels of exercise.

Instead of developing a bacchanalian YOLO attitude, people who have an acute perspective of their limited time on earth seem to become more conscious of the virtue in their decisions.

Don’t Just Take My Word for It

Perhaps, death acts as a fulcrum between the present and future, helping us to prioritize that which we will value at all times.

That seems to be the message of people, like Hitchens, who openly discussed their lives after given only a short time to live. Based on their words, we can gather that an enhanced awareness of death will essentially do two things:

  1. Help you to love the right things; and
  2. Motivate you to love them the right way

In When Breath Becomes Air, the neurosurgeon Paul Kalanithi, who was diagnosed with terminal cancer, writes:

“Everyone succumbs to finitude. I suspect I am not the only one who reaches this pluperfect state. Most ambitions are either achieved or abandoned; either way, they belong to the past. The future, instead of the ladder toward the goals of life, flattens out into a perpetual present. Money, status, all the vanities the preacher of Ecclesiastes described hold so little interest: a chasing after wind, indeed.”

According to Kalanithi, life should not be about jumping from one goal to the next. Instead, when aware of your own finitude, you cherish what matters most to you and stop wasting time worrying about all things that won’t matter in the end. Not your reputation, not your car, not your wealth compared to others. Consider another Bible verse, this one from Jesus, who asks: “Which of you by worrying can add a single hour to his life’s span?” (Luke 12:25).

Accompanying this clearer view of what matters most is an eagerness to nurture those things with whatever resources are available to you — time, money, energy, etc. Shortly after also being diagnosed with terminal cancer, the celebrated neurologist Oliver Sacks penned an essay in which he declared, with the time he had left:

I have to live in the richest, deepest, most productive way I can.

The Russian novelist Fyodor Dostoevsky shared both Kalanthini’s and Sacks’s sentiments about death. He didn’t have a terminal illness, but knew what it felt like to know you are certain to die soon. Sentenced to death for circulating literature that was prohibited by the tsar, he paraded out into a public square in St. Petersburg with other inmates to be executed. Then in a twist of fate, the tsar pardoned their lives as a callous way to build adulation among the people.

Still, after staring death in the face, Dostoevsky underwent a life-altering transformation that he describes in a letter to his brother:

“Life in the casemate has already sufficiently killed off in me the needs of the flesh that were not completely pure; before that I took little care of myself. Now deprivations no longer bother me in the slightest, and therefore don’t be afraid that material hardship will kill me.”

His near-death experience in a sense killed off his desire for trivial things and gave him a newfound confidence to live without the fear of not having those things.

Another man told that he would soon die echoed Dostoevsky. He even came to regard an awareness of death as a valuable decision-making tool. His name was Steve Jobs, and he told a group of college graduates and the world this:

“Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Almost everything — all external expectations, all pride, all fear of embarrassment or failure — these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.”

What death seems to teach us about living a good life isn’t necessarily to prioritize the achievement of goals and all the accolades and rewards that come with them. But rather to honor your values, follow your passions, dedicate yourself to only things that give your life the most meaning — today, tomorrow, always.

Time is a limited commodity, which means every day is valuable. There is nothing to lose, nothing to fail at, when it all feels like borrowed time.

5 Real Reasons You Won’t Reach Financial Independence

We are not perfect, and those imperfections often manifest themselves in our finances. But never fall for the illusion that wealth is wholly dependent on your character and behavior.

To explain what I mean, let me ask: Have you met the Welfare Queen?

She is irresponsible and shameless, engaging in behavior counter-productive to financial self-reliance. She is a fraudster, gaming the system any way she can to receive tax-payer money and never work a day in her life. She is everything wrong about government largesse.

You’ve never met her and never will. She is not real. She is the fictionalized version of an exaggerated incident. The Welfare Queen is a subversive trope, famously used by Ronald Reagan during his presidential campaign to criticize welfare programs. Do some people take advantage of federal programs? Absolutely. But it is disingenuous to portray some infractions as the norm.

Caricatures, like the Welfare Queen, are a way to tell a simple, clear story. They are also a way to charge the emotions of a desired group of people.

At their best, caricatures can help people easily understand complex topics. At their worst, they can advance harmful, racist ideologies. At their not worst but not good either, they can purposefully exclude important variables and create false impressions. As it is in personal finance.

Self-anointed financial gurus like to rail against their own trope: the hapless saver who will never achieve financial independence because of unaddressed character flaws and financially irresponsible behavior. It’s almost a form of wealth shaming. The reason, they say, so many people don’t save enough for retirement is personal choices. Coincidentally, the solution for improving your behavior and growing rich is to buy their books, sign up for their courses and dish out loads of money to attend their conferences.

But that’s not the real story any more than the Welfare Queen is. Maybe this caricature needs a royal name, too. How about the Wealth Jester? The person who is susceptible to foolish financial gestures that puts their future in jeopardy.

The truth is there are a variety of factors at play when it comes to building wealth. Certainly, personal decisions and habits make a difference. We, however, are also faced with forces that are far beyond our control. To think otherwise is to wrongfully fall for the Wealth Jester narrative.

Here are five bigger reasons people are unable to achieve financial independence.

1. Don’t earn enough money

How is it all your fault if wages are set so low you can’t save?

The ugly reality is that many people simply do not earn enough to become financially independent. Once the bare necessities are covered, there is little left over.

Less than 40% of American households have the means to cover an unexpected $1,000 expense — much less build a nest egg.

This is a structural issue, not just a result of being unambitious or unqualified.

The gravest example is the financial lives of people of color. Workers of color are paid significantly less than white workers, which contributes to a wide wealth disparity among race demographics. Data from the Federal Reserve’s 2019 Survey of Consumer Finances show the median wealth gap between white and Black households is $164,100!

Further, younger generations are the most educated in history. Yet only half of millennials earn more their parents did at the same age.

Line chart showing far fewer millennials earn more than their parents at the same age

The reason is not avocado toast and daily coffeeshop purchases. No wonder the predominant advice today is to hustle, hustle, hustle. For a lot of people, it’s the only way to make enough.

2. Lack of access to a retirement plan

How is it all your fault if employers don’t provide a retirement plan to save and invest?

Once upon a time, some workers could expect to tough out the 9-to-5 for a few decades before riding off into the sunset with a pension. Today, the private pension is on its deathbed with only 17% of workplaces offering one, according to the U.S. Bureau of Labor Statistics (BLS).

Unfortunately, the much heralded 401(k) hasn’t filled the gap entirely, as 46% of workers lack access to a defined-contribution plan and 32% of workers lack access to any type of retirement plan.

A paper from the Center for Retirement Research at Boston College identifies the lack of access to retirement plans as one of the primary reasons retirement account balances fall far short of their potential.

Given the opportunity and incentives to invest, more people likely would. As the New York Times reported, a study of Oklahoma’s program that provided college savings accounts to newborns found that “families that had been given accounts were more college-focused and contributed more of their own money than those that hadn’t been. And the effects are strongest among low-income families.”

3. Medical reasons

How is it all your fault if you suffer from an accident, illness or the inevitable effects of old age?

Severe medical issues present a multi-faceted threat to your financial life. One study attributed more than 66% of bankruptcies to medical reasons, as people struggle to pay high medical costs and/or lose time working.

A debilitating health event, such as cancer or a car accident, can lead to exorbitant medical costs and the eventual need to drain bank accounts and retirement accounts and/or sell your assets.

Further, JP Morgan’s Guide to Retirement shows health problems are one of the primary reasons people leave the workforce earlier than planned, which means missing out on years of additional income and savings, plus the early draw down of retirement accounts. In other words, technically retirement, but perhaps not truly financially independent or even comfortable.

4. Job loss

How is it all your fault that many companies see workers as expendable as single-use plastic?

Speaking of older adults leaving the workforce early, the top reason is job loss.

A survey from Allianz Life found that more than 50% of Americans are forced out of the workforce earlier than they planned. Unanticipated job loss was the leading reason, followed by health issues.

For older adults, job loss can derail their retirement plans. At this point, they are most likely in their peak earning years, which can greatly pad their savings, and leaving a company early often means receiving reduced retirement benefits.

Should anyone at any age lose a job without a sizeable emergency fund, it can be a devastating setback. And should you struggle to find gainful employment for a long period of time, it is difficult to recover. Especially if you need to resort to making withdrawals from a retirement account, which results in potential tax penalties and lost time compounding.

5. Educational challenges

How is it all your fault if you are raised in a poor school district or struggle to pay for the inflated costs of higher education?

Education can be a major determinant in your financial success. Generally, the more education you receive, the more you earn and less likely you’ll suffer from unemployment.

Based on BLS data, bachelor’s degree holders earn an average annual salary of $64,896. That is $26,104 more than the average worker with only a high school diploma ($38, 792). Over the course of a 40-year career, this equates to more than $1,000,000 in additional income. Further, their unemployment rate is 2.2%, which is nearly half the unemployment rate of high school graduates.

If you are raised in a poverty-stricken city with a terrible school district, the chances of attending an institution of higher education and receiving all its financial advantages are slim.

Even if you are fortunate to attend university, it often comes with a hefty bill for that framed piece of paper. The average student loan debt is more than $30,000, an amount that will take some people 10-20 years to pay off. A 2019 survey from New York Life found the average participant reported taking 18.5 years to pay off their student loans.

Wealth takes time. So, financially speaking, many young adults start two, three, 30,000 steps back from the starting line to financial independence.

What does this all mean on a personal level?

Some people struggle financially because of personal mistakes. Some people struggle financially because of real systemic issues that are not within their power to transform. I’d say most people are challenged with a mix of both.

Many of the reasons we accomplish something are because of forces beyond control — the luck of being born in the right place, meeting the right people, avoiding untimely hardships. It follows that those forces also contribute to when we fail.

This isn’t an argument for discounting personal responsibility. In fact, it’s the opposite. The reasons listed above are ever more reason to take responsibility for the things you can control, such as building an emergency fund, avoiding debt, saving and investing as soon as your financial circumstances allow.

Just ignore the false caricatures drawn by those who benefit from people believing every financial setback is their own fault. Recognize challenges exist beyond simple money steps like budgeting. And, finally, feel grateful for every break — large and small — in life.

When it comes to the large external forces of wealth: Some of us are lucky to start on top of the mountain, or even stand on the flatland of a plateau, while many find themselves looking up from the base of a tall hill or from the depths of a canyon, and others are tasked with running up against the strong pull of a downward escalator.

That’s for real.

How Early Is Too Early to Think About Long-Term Care?

In the discussion of the single most important financial asset — investments, pension, real estate, cash, etc. — I nominate the body. Your body is how you make a living. And in a flash or rising crest, your body can come to dictate your entire financial life.

This is evidenced by the more than 80% of older adults who say maintaining health and wellness is the most important goal throughout retirement, while a common retirement dream like traveling became significantly less important (Employee Benefit Research Institute’s Spending in Retirement Survey).

Who wants to think about that though?

I’m a couple years shy of 40 and fortunate to have good health with a relatively clean family medical history. I should be concentrating on hitting my peak earning years and living life to the fullest. So, why do I want to think about aging and the inevitable decline of one’s health?

Because sometimes the world has a way of reorienting your focus. Observation is an underrated practice for growth — in work, relationships and money. Look at the things and people around you and ask: Is this related to my situation today? Could that be me some day?

Life is a game with many rules but no referee. One learns how to play it more by watching it than by consulting any book.

JOSEPH BRODSKY

That’s what happened to me.

I live in a sleepy neighborhood where many older adults choose to retire in place. Surrounded by neighbors in their 60’s, 70’s and 80’s, the visages of old age are highly visible. One day someone starts walking with a cane. Sometimes someone disappears for days and suddenly a “for sale” sign appears in their front yard. And the alternating red-and-white glow of ambulance lights streaking by at night is not a rare occurrence.

My next door neighbor, Rick, is a retired firefighter. His wife suffered a stroke several years ago and rarely ventures outdoors. They have no children and no close relatives that I know of. This past week, I happened to be outside while Rick mowed his front lawn. Half way through, he cut the engine and shuffled to his front porch to sit down. I could tell something was wrong, so I walked over to check on him. He was slumped over with hands on his knees, breathing heavily. He tied to brush it off. But finally, with much objection, he agreed to let me help finish cutting the grass then and throughout the summer.

It was a simple neighborly gesture, yet with a terrible weight of significance. Someone who once charged through burning buildings was now essentially beaten by the tension of a push lawn mower. This was the day when a mundane house chore had exceeded his physical abilities. A day that is likely in all our futures. He now had to accept what we never want to accept, or even think about.

So, I wonder what Rick, with an ill spouse and no children, will do if he needs long-term care?

If you don’t know or never cared to know, long-term care is the range of health care services for someone suffering from a chronic illness or disability over an extended period of time. It is a growing challenge in America. As we live longer, growth in the number of older adults is unprecedented. In 2016, Census data shows 15% (49.2 million) of the U.S. population was aged 65 or older and is projected to reach 23% (95 million) by 2060.

This being America, there is no simple, obvious solution. On top the potential indignity of diminishing physical and mental capacities, in America, you are given the task of navigating a complex labyrinth of funding options to pay for the care you need without having to place the burden on the shoulders of a loved one.

And so, after the experience with my neighbor, I can’t help but also wonder: How early is too early to think about long-term care?

The impact of long-term care

If you want to understand what this all may mean for you, there is no better resource than Christine Benz’s insightful Morningstar article “100 Must-Know Statistics About Long-Term Care.”

Here are some of the eye-opening highlights:

Who needs it

  • 70% of people turning age 65 who will need some type of long-term-care services in their lifetimes.
  • 48% of people turning age 65 who will need some type of paid long-term-care services in their lifetimes.
  • 3.7 years is the average duration of long-term-care need for women.
  • 2.2 years is the average duration of long-term-care need for men.

Cost of care

  • 63% of individuals age 65 today will have no out-of-pocket long-term-care costs during their lifetimes… but if you do:
  • $321,780 is the estimated lifetime cost of care for someone with dementia.
  • $51,600 is the median annual cost for assisted-living facility (2020).
  • $54,912 is the median annual cost for a home health aide (44 hours/week; 52 weeks/year, 2020).
  • $105,850 is the median annual nursing-home cost for a private room (2020).
  • $142,254 is the expected median annual nursing-home cost for a private room in 2030 (assuming 3% inflation rate).
  • $256,926 is the expected median annual nursing-home cost for a private room in 2050 (assuming 3% inflation rate).

How long-term care can impact your wealth

  • 20% is the median increase in household wealth over a nine-year period for married people ages 70 and over who did not require long-term care.
  • -21% is the median decrease in household wealth over a nine-year period for married people ages 70 who had a long-term-care need.

Who provides care

  • 41 million people provide unpaid care for family members in the U.S. (2015).
  • $470 billion is the estimated dollar value of long-term care provided by unpaid caregivers (2013).
  • 69.4 is the average age of care recipients.
  • 62.3 is the average age of spousal caregivers.
  • 34% of caregivers are age 65 or older.

As with many American household challenges, a greater burden is placed on the shoulders of women:

  • More than 75% of caregivers are female.

The potentially steep cost and heavy burden of long-term care emphasizes the importance of early planning. Especially, for those with family histories of severe cognitive impairment, a condition that requires high levels of service for long periods of time.

Long-term care funding options

The difficulty is determining how to cover long-term care when you’re only working with probabilities of how much care you need, if you ever need it.

Depending on the severity, there are not a lot of great options.

People generally choose from a handful of ways to pay for long-term care expenses. One of which is not Medicare — at least not as a reliable long-term option. Medicare primarily pays for “medical services,” whereas long-term care primarily consists of “custodial services.”

(Note: This is a simple overview. The various strategies within each option are far too complex to cover in detail here.)

Source: Congressional Research Service

Self-funding

“Self-funding” involves using income, retirement savings, investments or other assets, such as home equity, to pay for care. You can either draw from the wealth you’ve amassed or build a reserve specifically for long-term care expenses.

This option allows people to avoid having to pay insurance premiums or arrange care through a government program. Mainly, those who have substantial income or wealth and clean family medical histories are best suited to pay out of pocket.

Long-term care insurance

Insurance is one way to hedge against the high cost of care. When long-term care is needed, a person’s assets are better protected when more of the costs are covered through the benefits provided by insurance.

Basically, long-term care insurance pays a daily amount, up to a predetermined limit and length of time, for qualified services. Those factors, along with any optional benefits, generally determine the cost of premiums.

Age is another major factor. The average long-term care insurance buyer is around 57. The older a person is, the more expensive the policy will be. Insurers can also reject or place care limitations on those who are in poor health or have pre-existing conditions.

Insurance can provide piece of mind, but could become a financial strain as rates rise with age and should you never use it. The average annual long-term-care premium for a 55-year-old male (initial pool of benefits worth $164,000) is $1,870. For a 55-year-old female, the average annual long-term-care premium (initial pool of benefits worth $164,000) is $2,965.

Buyers must pay for premiums consistently for many years or let it lapse, meaning that money was wasted. That sums up the experience of a third of people with long-term care insurance who at age 65 let their policies lapse.

Those with moderate financial means may consider insurance as a way to reduce the risk that long-term care expenses will deplete their financial assets.

Hybrid life insurance with long-term care benefits

Under a life insurance policy with long-term care benefits, policyholders are guaranteed to be paid one benefit. Premiums paid go toward a policy that can be used for long-term care.

The policy then pays a tax-free death benefit to beneficiaries, depending on how much of the long-term care benefit is used. That means the more of the benefit that is used for long-term care, the less that is available for beneficiaries. As with long-term care insurance, the features of these combination products can vary widely.

People in good health and with good family medical histories who want the assurance insurance can provide yet hope to leave an inheritance may find incorporating life insurance into their long-term care strategy an attractive option.

Medicaid

Medicaid, the government program designed to provide medical care for those with limited resources, is the primary payer for formal long-term care, covering about 42% of all long-term care spending.

Unlike Medicare, Medicaid does provide for custodial care, including long-term care services in nursing homes and services provided at home, such as visiting nurses and assistance with personal care. Medicaid programs and the services provided vary state by state.

But here’s the thing: you may have to use up most of your assets paying for your long-term care before Medicaid is able to help. Many people start paying for care out of pocket and “spend down” their income and assets until they are eligible for Medicaid.

Generally, Medicaid is for those who have limited savings and cannot afford long-term care insurance or were denied coverage. Typically, to qualify for Medicaid, an individual is only allowed to have $2,000 in countable assets. Hence, Medicaid is commonly considered the option of last resort.

The best option varies from person to person, depending on personal factors including: income and assets, current health, family medical history, and whether family or friends can provide support.

Everyone though should have a discussion with loved ones about how they want to be cared for if long-term care is necessary. And, considering the complexity and costs of long-term care, it’s beneficial to work with a professional, such as a financial adviser or elder law attorney, who can help determine what option is most appropriate for your situation.

One way to improve your chances of making the right decision is to plan as early as possible. That starts with your most important financial asset.

One long-term care solution for today

So, how early is too early to think about long-term care? It’s never too early.

Because it’s never too early to think about making choices to live a long, meaningful, healthy life. Today’s decisions become tomorrow’s realities.

Therefore, one important financial step to take now is to protect that number one asset: your body. Without it, nothing else really matters.

As with most financial advice — live within your means, pay yourself first, etc. — there is no secret to living a healthier life: eat a balanced diet and regularly exercise. Those two things alone have been linked to lower risks of many physical and mental ailments.

But don’t forget about sleep. A recent report found that middle-age adults who sleep six hours or less a night may be more likely to develop dementia in their late 70’s.

There is a strong relationship between health and wealth, as detailed in a paper from Rutgers University.

Some of its findings:

  • The Centers for Disease Control estimates that a 10% weight loss could reduce an overweight person’s lifetime medical costs by $2,200 to $5,300.
  • Inactivity has been estimated to cost between $670 to $1,125 per person per year.
  • Healthy people (non-smokers and those in normal weight ranges) pay lower premiums (preferred rates) for life insurance, compared to smokers and those who are overweight.
  • One-quarter (26%) of respondents to the 2005 Health Confidence Survey, sponsored by the Employee Benefit Research Institute, reported that they decreased their contributions to a retirement savings plan as a result of the increased cost of health care and 45% reported decreasing other savings.
  • According to a study by The Rand Corporation, obese individuals also spend about 36% more than average-sized people on health services and 77% more on medications.

Further, a 2019 study published in the American Journal of Public Health estimates around 66% of Americans declared bankruptcy because of medical issues. For example, being unable to pay their medical bills or losing time from work.

The financial benefits of improved health behaviors are unquestionable. Lower health care costs mean more income available to save and invest for your financial goals. A healthier, longer life means more time to work and take advantage of the power of compound interest.

Of course, none of these unsentimental numbers may convince anyone to change their lifestyle. We all know the benefits of a healthy lifestyle. It is so easy, yet we often fail. (As I type this with a pint of beer, I know I do!)

What will change is that one day it will become personal, either to you or someone you know. As the simplest tasks become too great, we are assigned the hardest task of all — to ask for help.

The Best Finance Books Might Be Fiction

To make better choices and build wealth, have you tried investing time with the works of Shakespeare?

Our relationship with money is forged by experience. Why wouldn’t we then want the broadest experience possible to help us make important financial decisions? Experience by proxy is one of the values literary fiction offers.

Reading can be more than just a way to accumulate knowledge. Some of the most useful money skills you won’t acquire from traditional personal finance and investing books. Qualities such as self-discipline, self-awareness, creative problem-solving, empathy, adaptiveness, among others. All of which science suggests can be honed by losing yourself in a novel.

It is why, when people ask the timeless question, What are the best finance books to read?, I’m likely to recommend the names of Tolstoy, Hemingway and Morrison, alongside those of Bogle, Graham and Hill.

Many notable business and finance personalities are voracious readers. Famously, Bill Gates releases an annual reading list and Warren Buffett often name-drops books in his Berkshire Hathaway shareholder letter. But rarely do high-profile people in these industries recommend literary fiction. The attitude is seemingly reminiscent of a character in the movie Sideways who disparages fiction by saying: “There is so much to know about the world that I think reading a story someone just invented is kind of a waste of time.”

Research, however, shows that reading fiction is very much a worthwhile activity. It can help us develop the abilities to manage our emotions and behaviors and plan for the future. Two necessary traits for good financial decision-making.

Here’s the story of how.

Conflict: We don’t recognize our future selves

In a study published in Social Cognitive and Affective Neuroscience, psychologists wanted to understand why Americans were not saving enough for retirement.

After conducting a series of brain scans, they determined that people’s brains were most active when thinking about their present selves and least active when thinking about some other present person (a co-worker, the UPS driver, etc.). No surprise, there. What was revealing is that when study participants thought of their own future selves, their brain activity closely mirrored the times during which they thought about other people.

This suggests that we tend to consider our future selves as another person. From a financial perspective, we mentally treat saving money for our future selves as if we were giving money to our boss or a Starbucks barista. No wonder we struggle with saving for retirement.

Successfully balancing immediate desires with long-term financial goals that feel far out of reach — like retirement, funding higher education or purchasing a home — requires forward thinking and a deep sense of self-control.

These are the kinds of thought processes necessary for making good financial decisions — and that can be exercised by reading fiction.

Resolution: Reading fiction can improve your decision-making

Reading fiction essentially gives us practice in working out what characters are thinking and feeling in sometimes familiar but more often foreign situations. When we’re fully immersed in a good story, it can feel as if we’re actually experiencing that fictional world.

In the words of Fran Lebowitz:

“A book is not supposed to be a mirror. It’s supposed to be a door.”

That immersive quality is why reading fiction is shown to make people more empathetic. You gain a higher capacity for understanding and feeling what other people feel. But also a better understanding for how you would feel under certain circumstances, be it tragic, horrific, embarrassing, humorous or surreal.

Additional research has found that reading fiction can improve a person’s theory of mind. This is an important social-cognitive skill that involves the ability to attribute mental states, including emotions, desires, beliefs and knowledge. It helps us predict and interpret the behaviors of people, including ourselves.

Fiction isn’t all about feelings and imagination. It is the process of connecting new and old ideas, forming questions and seeking answers, and reevaluating our prior beliefs. Which explains why close reading is linked to sharper critical-thinking skills.

Put simply, reading fiction is an effective way to develop a deeper sense of self and the ability to see things from different viewpoints. This is what non-fiction, which typically feeds us black-and-white answers, often fails to do.

So, what’s all this got to do with money?

On a personal level, reading fiction may provide a useful resolution to our difficulty reconciling our current selves with our future selves. We can better empathize with the future selves that we treat as an “other”.

Thinking about the future, or a “future orientation,” is incredibly important when it comes to managing money. A stronger tendency to consider future consequences leads to a willingness to delay gratification in favor of our long-term goals.

We become better at self-regulating, the process by which we control our thoughts, feelings and behaviors. After all, being aware of our financial motivations and having the ability to critically analyze our decisions is also important.

For example, when determining how much risk you’re comfortable investing with, it is hard to imagine a stock market crash if you’ve never experienced one. But with a higher sense of self-awareness, you may have a better sense on how you would react and can properly invest your savings accordingly.

Or consider retirement planning. How well can you imagine retirement that becomes boring? What would life feel like if your spouse dies before you? Will you regret not spending money on lifelong dreams out of caution? These questions are better answered when you can truly imagine yourself in those situations.

On a larger level, fiction helps us make sense of the world around us. We become adept at processing disparate information. With a higher sensitivity to motivations of others, we can see beyond the simplistic narrative of events and avoid costly mistakes.

You could make a case for parallels between the Wallstreetbets/Robinhood saga and a book like Game of Thrones, in which all players have dubious motivations and everything is more complex than it first appears.

Ralph Waldo Emerson sums it up best:

“Fiction reveals truth that reality obscures.”

As research continues to reveal what reading does to our thinking processes and as the financial planning industry becomes more of a “life-planning” industry, I think we’ll likely see more fiction on those best-of personal finance and investing lists.

Will reading The Remains of the Day by Nobel laureate Kazuo Ishiguro help you pick the right investments, or pay down debt, or set up sustainable retirement account withdrawals? Of course not. What it can do, however, is help you think deeply on the shortness of life and how you may feel in old age, which then inspires you to waste less money on the things that don’t matter while staying patient and committed to building a life where you no longer have to serve your precious, finite time to someone else. It is an indelible sense empathy for your current and future life.

Sometimes it is in watching another person make the journey that we appreciate our journey more and more.

Sell Your Hot Dogs at a Loss

How we spend money is as important as how we save it. Because we don’t express our truest selves with a 401(k) statement the way we can with a debit card.

What is the meaning of money if you never happily spend it?

In Kitchen Confidential, Anthony Bourdain famously wrote,

“Your body is not a temple, it’s an amusement park. Enjoy the ride.”

His point is that life is too short to unnecessarily restrict ourselves to some sacred ideal. Life should be enjoyed. It’s okay to eat a hot dog once in a while.

For those of us fortunate to have disposable income, we have the choice to save or spend it. A purely financial perspective favors saving. But to live a happy, well-balanced and rich life, an equal measure of focus should be directed toward spending. What looks best on a balance sheet doesn’t always translate to long-term value.

Speaking of hot dogs, what perfectly illustrates this idea is a business story about hot dogs. Not just any hot dogs. Costco hot dogs.

This is the Costco hot dog story.

Since 1985, the big-box retailer has charged $1.50 for a hot dog and pop (or soda for you Ivy League elitists) combo. One day, then Costco president Craig Jelinek protested to co-founder and former CEO Jim Sinegal that the cheap meal combo was costing the company money. The sensible thing to do was to raise the price. Sinegal considered Jelinek’s pragmatic position, and then delivered a curt, passionate, don’t-want-to-be-misunderstood response.

“If you raise [the price of] the effing [fucking] hot dog, I will kill you,” Sinegal said. “Figure it out.”

Jelinek ultimately did. Costco created its own hot-dog making factories to lower production costs. But why was it so important to retain the low price even if it meant losing money? As Jelinek said in an interview: “It’s the mindset that when you think of Costco, you think of the $1.50 hot dog.”

In other words, the $1.50 hot dog is synonymous with the Costco brand. The money-losing frankfurter is a part of the company’s identity. It is a staple for customers to recharge after buying five pounds of Cinnamon Toast Crunch, 50 rolls of toilet paper and a coffin.

There is a unique identity to all of us, too. And how we spend money on expressing that identity has been shown to enrich our lives.

Researchers at the University of Cambridge analyzed 76,000 transactions of 625 customers at a U.K. bank. Each purchase was grouped into 59 separate categories and matched to one of the Big Five personality traits.

Big Five Personality Traits

  1. Openness to experience
  2. Conscientiousness
  3. Extraversion
  4. Agreeableness
  5. Neuroticism

For example, money spent on traveling might be identified as openness to experience.

Participants in the study were also asked to rate their feelings of life satisfaction. What the study found was that participants who made purchases that most closely matched their personalities were more satisfied with life. What’s more, that personality spending-life satisfaction relationship materialized regardless of income, age and gender. It had a greater impact on life satisfaction than total income or total spending.

As the study’s authors explain:

“Money enables us to lead a life we want… psychological fit helps individuals to act in line with their most fundamental needs and preferences as well as to express themselves in a way that maintains and enhances their self-concepts.”

Put simply, spending money on things (experiences and material items) that align with our personalities make us happier.

Therefore, one way to boost life satisfaction is to think of what you spend money on that is synonymous with your personality. Consider these expenses your “hot dogs.” Shamelessly sell them at a loss. That is, spend money freely on the things that matter most to you. At the same, slash costs unrelentingly on all the things that don’t.

To be clear: I am not advocating for a green light to spend money mindlessly. Saving is the foundation of financial security upon which happiness is built through spending. I am only saying that we should be as mindful of spending as of saving to live the life we want.

Sadly, the author Larry McMurty died last week. An interesting note from his obituary was that he had amassed a library of 30,000 books stored in three houses. Surely, that makes little sense from a cost perspective alone. But he had the resources, and books were his life.

“I doubt it matters where you die, but it matters where you live.”

Larry McMurty, Lonesome Dove

Life is too short to agonize over every dollar spent, especially on things that make life satisfying, or to stress over every financial decision when completely unnecessary to the bigger picture.

These are what Ramit Sethi, author of I Will Teach You To Be Rich, calls $30,000 questions. Instead of exploring how to save $3 on a good cup of coffee, explore ways to increase your salary by $30,000.

So, sell your hot dogs at a loss — and enjoy all the ways in which it helps you profit.

How to Stop Carrying Too Much Financial Anxiety

Your heart starts racing when a credit card rep calls about a payment you accidently missed, and then you turn on the news to see the stock market plummeting 10%, so you log into your 401(k) account in a panic as you berate yourself for not saving more and then wonder whether to sell your stocks to stop the bleeding, which reminds you of John from accounting who told you weeks ago to buy bitcoin, which is, of course, up 5,000%, and you just know he’s going to gleefully boast about it at work tomorrow, and since his son plays with your son on the same soccer team, you suddenly remember that you need to spend another freaking $100 on new cleats, along with league registration fees, but you’re tired of buying all this sports equipment because you don’t even know where to store it, which is one of the reasons why your partner wants to move into a larger home in that one neighborhood everyone wants to live in, except you worry it’s too expensive, but now you realize, after several tense arguments, you may have to surrender, though what you really would rather do is just run away and live in an apartment by yourself curled up under a warm, safe weighted blanket.

Any of it sound familiar?

There are certain financial situations when feeling anxious is a rational response: loss of a job, stock market crash, high unexpected expense.

This article is not about those. In a time of elevated financial FOMO (fear of missing out), many people may suffer from self-induced financial anxiety.

We are anxious creatures. Some psychologists suggest anxiety is a by-product of our transition from hunter-gatherers to sedentary citizens. After the agricultural revolution, we started to spend much more time thinking and worrying about the future. The problem is that we often worry more than necessary, our thoughts high-jacked by innumerable possibilities that never come to pass or undesirable situations that are never as bad as we feared.

Seemingly, nothing makes us more anxious than money.

Money-related issues are the death knell of love. Heck, some of us fear running out of money more than death itself. And it doesn’t matter if you’re rich. According to a Northwestern Mutual study, 85% of Americans reported feeling financial anxiety, spanning all levels of income, race and gender — and that’s before the pandemic.

Financial anxiety is unavoidable. We suffer because we want. Anything you want to achieve in the future is going to cause some friction in the present. But that doesn’t mean you should carry more than necessary.

“The heaviest burdens we carry are often the thoughts in our own head.”

When I’m feeling overwhelmed, I like to meditate on an old Buddhist Zen story.

A Heavy Load

Two traveling monks enter a town and encounter a young noble woman who is waiting to step off from her sedan chair. The rains had turned the street into a giant mud puddle. She stands there with arms on her hips and scolds her servants. They also hold packages for her, so they cannot help her down and across the puddle to keep her dress from getting dirty.

The younger monk notices the woman but dismissively passes by. The older monk, however, lifts her onto his back and carries her through the muddy water. After he sets her down, she shoves him aside and walks away without acknowledging his help.

The monks proceed on their journey, though the younger monk has become noticeably sullen and irritable. No longer able to conceal his contempt, he says: “The woman in town was selfish and rude. Yet you carried her on your back. Then, she didn’t even thank you!”

“I set the woman down hours ago,” the older monk replies. “Why are you still carrying her?”

What are you still carrying?

The story encourages you to focus your energy on the present rather than the emotions of the past or future, to put down what is not there.

It is worth asking yourself, what financial anxiety are you carrying? Is it regret from past mistakes? Is it the heavy weight of worry about your long-term financial goals? Are you worrying too much about the market or the latest financial media hype?

One way I try to stay emotionally grounded about money is to do a little thought experiment based on this story. It may sound silly, but I focus on the cause of my anxiety and then imagine it as a physical object resting on my back. I try to fully visualize its shape and weight in proportion to the anxiety it induces. I ask myself, can I stand with this weight on my back? Can I walk? Do I have a choice in carrying it? If I do, is it worth carrying?

Some of the things I’ve come to tell myself is to:

Put down the weight of the notion that it’s all about you. If you get lost in your own desires (wealth, retirement, success), life around you becomes undesirable. Better to appreciate what you have now, which you once desired.

Put down the weight of guilt from enjoying your money. Extreme financial chastity in spending and saving can mean the loss of your identity. It is not worth beating yourself up over every misspent dollar. Like a bodybuilder, to stress over every calorie consumed and every single rep is its own mental workout.

Put down the weight of permanence. Nothing is permanent. What good times and bad times have in common is that they end. Work hard to create opportunities for success, but don’t worry too much about the outcome. The ride is much more fun that way.

As a Zen master once said, “It is not the wind nor the flag that moves, it is the mind that moves.”

Minding Your Blind Spots

Your greatest financial ally could be the person you share your bed with.

One reason people make costly mistakes is blindness. I am blind; you are, too. We’re all blind, in some way. And we don’t know it. Except for the self-aware, humble ones.

Horror legend Stephen King has written around 50-60 bestselling novels and won dozens of literary awards. Yet, he doesn’t fully trust his judgment when crafting a new book. In the modern classic, On Writing, he explains his writing process. After completing the first draft, he sets the manuscript aside long enough to create the illusion of reading it for the first time as he begins editing. Once he finishes making revisions, he gives it to his wife, and sometimes a few close friends, to read first.

King’s first reader, his wife or others, can identify any weaknesses he did not see, from plot holes and underdeveloped characters to grammatical mistakes and factual errors, like the wrong manufacturer of a gun that will inexorably kill someone or many someones. Essentially, she helps improve the integrity of his work by revealing his blind spots.

Blind-Spot Bias… I See It Everywhere!

What about you? Who calls out your blind spots?

I have a strong feeling many of the investment mistakes being made today are primarily a result of one pernicious bias.

Blind-spot bias is the tendency to think we don’t suffer from bias, all while we see it in others more than ourselves. It’s a growing problem. Social media has made us more polarized, which is another way of saying more blind. Especially, at it pertains to financial information.

Platforms like Twitter and Reddit often turn into verbal turf wars over cryptocurrency, Tesla, interest rates, modern monetary theory and so on. They become places to argue about everyone’s blind spots but our own. There are those so set in their ways they reject anything new. Then there are those so convinced they are changing the world they ignore history.

It is tribalism writ large. And I think this is dangerous as more people “consult” the internet for help making investment decisions.

The number of families who rely on the internet for investment advice has risen rapidly over the past 20 years, trailing only financial professionals, according to the U.S. Federal Reserve Survey of Consumer Finances.

The trend is both encouraging and troubling. On the plus side, it’s an indication that more people are interested in investing, which is good. More people learn about the market, and more people invest for their futures. Yea!

The down side is that there is a lot of misinformation online. Those with the loudest voices and deepest convictions take up the most space. It is easy to become polarized about money and less aware of your blind spots.

Another published author who actively seeks feedback from others is organizational psychologist Adam Grant. Blind-spot bias is a major theme of his latest book, Think Again.

He writes:

As we sit with our beliefs, they tend to become more extreme and more entrenched… We’re swift to recognize when other people need to think again…. Unfortunately, when it comes to our own knowledge and opinions, we often favor feeling right over being right. In everyday life, we make many diagnoses of our own, ranging from whom we hire to whom we marry. We need to develop the habit of forming our own second opinions.

What’s so harmful about trusting your own opinion?

Ask Stephen Greenspan.

One example Grant uses in his book is the story of Mr. Greenspan, who decided to invest a third of his retirement savings in a promising investment fund. A close friend advised him to avoid the fund, as it seemed too risky. But the fund came highly recommended by a family friend, who was a financial adviser. Plus, the performance numbers were sensational. Mr. Greenspan was thrilled as his money steadily grew. Then the fund was wiped out and the fund’s manager, a man named Bernie Madoff, went to jail.

Grant’s proposed solution is to think more like a scientist — to doubt what we think we know and update our views based on new information. He admits though that mindset isn’t flawless. Because no one is immune to blind spot bias, even people we think are acutely concerned about being right. People like doctors.

A study on blind-spot bias revealed that physicians who receive gifts from pharmaceutical companies say such gifts do not influence their decisions on what medication to prescribe. That is the ethical thing to say, except the majority of those same physicians also say the decisions of other physicians are likely unconsciously biased by the gifts. So, what they really believe is that those gifts do influence those kind of important medical decisions, but just not for themselves, of course.

I think one contributing factor in this study is the gifts, the reward. Rewards, like money or social media attention, seem to reinforce blind-spot bias. Consider media organizations, news personalities, podcasters, etc., that start to lean toward certain ideologies as more entrenched viewpoints lead to higher engagement, which means more ad revenue or supplement sales.

We can find financially induced blind-spot bias in our own lives: justifying time away from family to work grueling hours for a bigger salary; committing to a company that does things that are contrary to our personal morals; spending $1,000 in lotto scratch off tickets for the excitement of winning $100; making terrible investment decisions for the up votes on an online forum.

As Morgan Housel says:

Investing is not the study of finance. It’s the study of how people behave with money.

The Beauty in Our Faults

Whether as a writer or investor, successful people rarely do it all alone. We can’t see everything. Successful people know the value of another pair of eyes.

There is something wonderful about understanding our own faults. And that is the remarkable opportunity in figuring out how to overcome them. With blind-spot bias, the solution is its own reward: forming a deeper relationship with someone who gracefully gives you an honest second opinion, something that is invaluable when it comes to financial decisions.

Such a relationship can be with a spouse or a friend or a colleague or financial adviser. Whomever you choose, the relationship is liable to change more than just your finances but your life in general.

So, share your art, no matter how bad you think it is. Share your financial life with someone, no matter how embarrassed you may feel.

The beauty of our individual flaws is that in them exists the opportunity to connect with others.

As King writes:

“You can’t let the whole world into your story, but you can let in the ones that matter most. And you should.”

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. That’s why you want to start saving early. You can save 100k in less time than you think, setting you up for that 7-10x figure before you know it. 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.