To dig a tunnel out of the Prison Camp takes a certain amount of persistence. Reaching financial independence (FI) requires a similar mindset (but not as many spoons).
Forget lottery winners, trust funders and pop princesses that got rich quickly thanks to huge dollops of luck.
We can ignore the unrepresentative freak show paraded by the media and focus instead on getting rich the slower but infinitely more reliable way: via graft, frugality and a certain amount of street smarts.
The motivation to achieve this is a whole lot easier (and more fun) if you start with a powerful vision of what you want to achieve. You then need a plan that takes you toward that goal in small steps and to stay on the path despite the distractions around you.
Strong personal motivations come from many different sources and everyone is different so you should first examine and then channel your own motivation. My strongest motivations originally came from an irrational fear of poverty, coupled with hating being told what to do. I dreamt of freedom and time to cycle across Europe, to live without an alarm clock, learn a language and spend more time with family.
As I read around the subject, I began to realise that FI was really possible. For me, it was incredibly exciting it was to realise that this working thing need not be a life sentence. Once I realised this, everything became easier once I thought of each action taking me closer towards my end goal.
Last year, I met a 93 year old D Day veteran who had cajoled the French authorities into allowing him to create a war memorial where he’d fought in 1944. Without any organisation behind him, he arranged the site, found a tank in the UK, got it shipped to France, installed it on a hill top and got the memorial built – all via donations. This was his mission. He had the motivation and vision – everything after that was just a series of small problems to be overcome.
Saving and investing is like losing weight. Its not rocket science and everyone knows that they need to lay off the doughnuts and get on their bike. Most people don’t stick with it just because their motivation is just not there.
The key insight is this. Anything based solely on denying yourself is doomed to failure. You need to reframe each decision: then ask yourself which choice will take me in the direction of the end destination? It helps if you can re-program your mind to give you that serotonin hit each time you make a smart decision.
For example, when you ask for tap water in a restaurant rather than buy the £5 bottle of mineral water that waiter is pimping, you have just won £5 for your freedom fund. At this point, a sound effect in your head with a till register ker-ching! is helpful. If invested and compounded over the next 40 years at 10% pa, that £5 grows to £226.
This is the maths – if you are 30 now and expect to live to 70, then the opportunity cost of everything you spend needs to be multiplied by 45x. It is hopefully obvious in this scenario that you are up on the deal and yet have not denied yourself anything at all – you got the another set of H2O molecules that was equally effective at preventing you from dying from dehydration.
Not buying other stuff becomes a whole bunch easier when you realise that buying it does not generate happiness. More on this in another post, but beyond a certain level having more stuff (a bigger house, more shoes etc) just wont make you happy. If you can accept this, its obvious that keeping the money working for you is the better option.
When you are on the path to FI, people may challenge you on this. Many have swallowed the whole advertising worldview put out there by The Man. The other enemy is ourselves – we are all too human. One of my favourite adverts was the one below for Diet Tango. Like all the best adverts, this contained a core truth about the relationship between product and consumer. We are all pathetic at times. The enlightened escapee realises this and adjusts for it.
I recently heard about a study in California that researched what worked (and what didn’t) in helping people use less electricity. The study looked at the impact on people’s actual behaviours when researchers put up posters in homes urging people to use less energy (e.g. use less air con in summer etc).
There were 3 sets of posters appealing to 3 different motivations:
1. Save the planet – do the right thing for others / the planet
2. Save money – do the right thing for yourself and your family
3. Everyone else is doing it – an appeal to “herding” – to do the same as others
Before the experiment, when asked which of these 3 motives people said was most likely to persuade them, they ranked them in the order above (i.e. planet first, self second, copying third). The researchers then put up the different posters in different homes and monitored the actual subsequent change in electricity use.
Unlike people, the data does not lie and the results were startling. It turns out that the only posters that had any impact were those appealing to the herd motivation. This is unsettling because it reminds us that our emotional wiring is not much more advanced than your average lemming.
The good news is that when we switch on our brains we can override the lemming instinct. Better still, why not use all three of the motivations above at the same time? Its kinda obvious that buying less shit is good for your bank balance and uses less resources.
But most people carry on trapped in the cycle of borrowing and spending because all around them they see people doing the same thing. To make our instinct to mimic work for us rather than against us, we need to find examples of people that are successful that we can learn from.