Every book of financial advice ever written is about one or both of two subjects:
- How to earn more
- How to spend less
Take Mustachianism, a popular “spend less and get to financial freedom” story:
“As it turns out, spending much less money than you bring in is the way to get rich. The ONLY way. And the effects are surprising: if you can save 50% of your take-home pay starting at age 20, you’ll be wealthy enough to retire by age 37. If you already have some assets now, you’re even closer than that. If you can save 75%, your working career is only 7 years.”
I’m not like some, who think all personal finance books (or indeed, all self-help books) are a dirty scheme to help authors make money. Rather, I think people are genuinely in need of answers, and some books do what they intend to do quite well.
Still, these two categories of financial advice — earn more or spend less — overlook an important point: Many of our money problems are, oftentimes, not money problems at all.
What? Money isn’t money?
In How to Worry Less About Money, the philosopher John Armstrong points out that what we think are money troubles may not be money troubles at all.
Rather, just as a runny nose is a symptom for an underlying cause, our money problems may be tangled inseparably with other facets of our lives:
“…we don’t necessarily realize what money means to our deepest imaginations. It might mean status, security, success, revenge, salvation, moral superiority or guilt (to start the list). These are all huge themes in life that get caught up with and played out in our relationship with money…”
To illustrate, Armstrong introduces James, one of the richest people in the UK.
“Over the last three decades James has built up a substantial fortune through his property ventures and various other businesses. He’s among the thousand richest UK citizens. He is terrified of failure and poverty. … He honestly feels he has not got enough. He looks at the statements of his assets and he is filled with anxiety. More is urgently needed. The real solution to his worries cannot possibly be economic. …no matter how much money he accumulates, his anxieties do not diminish.”
To everyone except for James, it is clear that money is not the answer to his problems. Yet, James is blind to this. The belief that the source of his problems is money casts a veil over his eyes, rendering him incapable of seeing possible other solutions:
“The consoling of his terror needs to be pursued along more hopeful lines. Perhaps art or religion or a change in his attitude to his family could make a difference. But because James feels that his worries are about money, he does not turn his hungry intelligence in those other directions.”
Perhaps we can imagine a broken, endless loop going on in James’s head— no matter how much money he gets, there’s no feeling of “I’m safe” or “I’ve got enough.”
Only a fool would argue that the obesity epidemic today is due to people taking in more calories than they expend. If your dietary adviser tells you to “just eat less and exercise more,” I suggest you fire him and replace him with a tape recorder. That level of counsel is not enough to help most people — we need to go deeper.
Many problems come not from the amount of money we have. Rather, they come from how our psychology relates to money. In other words, they are money worries.
For example, some people see money as a holy grail that, when they get enough, will solve all the problems in their lives. Perhaps they believe it will bring love back into their marriage or put smiles back on the faces of their children. What these people miss is that the rich are, arguably, just as unhappy as the poor.
Others see money as the birthplace for corruption, purposely impoverishing themselves as a sort of “FU” to the world.
What we see here is that money is intimately bound to our beliefs about the how the world does and should not work. This belief, though we deny it, can reach an almost religious intensity:
“…from a psychological view, money is a lot of different things. At one extreme, someone might regard money as a kind of god. This is not a matter of explicit belief. Rather, it is revealed in how a person thinks and feels and acts. Or, at another extreme, someone might act as if money is evil, and therefore they feel impelled to fail economically, and derive from that failure some degree of validation.”
Humans are masters of self-deception, and perhaps self-deception is a reason we continue to struggle as much with money at age sixty as we do at twenty.
If our beliefs about money are so important, is there anything we can do to improve them?
Psychology research is teaching us that the image of ourselves that we carry is not a true representation of who we are. Rather, our self-image is an elaborate fiction: an oddly-shaped house constructed from biased perceptions and faulty memories hammered together to form a sense-making narrative.
By recognizing that we are storytellers, we can sift through the narrative of our lives and discover how our own story frames our relationship with money.
Armstrong suggests some exercises we can use to cultivate this self-knowledge:
- Acknowledge the issue. We all feel as if we are fine, but this does not guarantee that we are. The first step to discovery is to acknowledge that something may be wrong.
- Search for associations. On a sheet of paper, write out some words you associate with money. Explore those words — what beliefs, stories, memories do they trigger?
- Examine your history. Look back at your life. What were the key money-related episodes in your life? How might those have affected your past decisions? Who you are today?
- Find a good community. Avoid toxic people who want to “get rich or die trying” or think that “money is the devil.” Instead, find open-minded people who are willing to give you feedback and help you relate honestly to money.
The ideal income
Now, my favorite part.
A powerful thinking tool for financial discipline is to separate “needs” from “wants” — needs are things that are essential for our lives and wants are things that are not.
This does not mean, like I assumed for a long time, that we only focus only on the essentials for survival (a roof, rice and beans, two friends, etc.). Rather, our needs are intimately related to our highest-level needs — our own view of what the Greeks called eudaimonia, or human flourishing.
To discover what we need, we must ask hard questions:
“Ask yourself ‘How good will it be for me to have this thing in my life?’ In other words, the need/want distinction goes right to the heart of questions about identity, ethics and the meaning of life. You can’t address money properly unless you think about these things seriously.”
Aha, the meaning of life.
Now we begin to see why financial authors don’t touch this subject —no book, or even bookshelf of books, is enough to address it.
That’s the kind of question I like.