We all develop a money blueprint during our early years.
As part of this, we pick up partial truths about money and other things from well-meaning people around us in childhood.
So Granny may have told us that we can’t be too careful and we take that as if it were a literal truth that applies in all situations.
But it turns out that you can be too careful.
Financial independence is like a game of football; if you just focus on defence, you are unlikely to win. You need to be able to combine attack with defence. So the people that do well at this game are those that know when to aim high and take risks…as well as when to play it safe. Aiming for financial independence means setting yourself goals that will seem outrageously ambitious to most people.
Sadly most people are never going to get to financial independence because they’ve been told that saving, say, 10% of their income is what they should aim for. 10% sounds so reasonable doesn’t it? It sounds like an achievable goal that even a consumer sucker could work towards. And a goal that sensible middle class people should be able to hit without too much difficulty.
People like things that are conventional, non-scary and seem reasonable. There is great comfort in the middle of the herd.
Unfortunately, saving 10% may sound sensible but its terrible advice. It’s handed out by people who are selling us things (the media) and by financial advisers who are happy with the prospect of us working for them until we are 65+.
One way to make better decisions is to look at real numbers where possible. The FI-o-meter tells us that if we save 10% of our income then we will never accumulate 25x our spending. Saving 20%, it will take a 21 year old to work until they are 68.
But at a saving rate of 60%, financial independence can be achieved in just 14 years. So a 21 year old leaving college would be free and financially independent by the age of 35.
Another problem with the 10% saving advice is that it encourages complacency. 10% is an easy target for someone in the middle class of a developed economy to hit. It’s so easy that very little change is required.
The advantage of an outrageously ambitious target is that it forces us to examine every area of our life for areas of improvement. It’s only by the aggregation of marginal gains that financial independence is possible. Complacency is one of the greatest threats to the pursuit of FI.
So you can be too complacent about the amount that you save. But you can also be too careful with your savings.
Firstly, by over-valuing safety you may end up sat on surplus cash in a bank account with its value being slowly eroded over time by inflation and tax. This is OK for an emergency cash reserve of say 6 months spending but beyond that we want to put our money to work for us.
Secondly, by worrying too much about existing savings we may not think enough about how to save more. We have a natural tendency to protect what we have. That’s fine but if you only focus on protecting what you have, you may end up focussing on fear and scarcity.
Given that we humans sometimes struggle to hold conflicting thoughts in our minds, focusing only on protecting what we have can cause us to overlook opportunities to make more. For many people, asking: “What should I do with my savings?” is the wrong question and the better question is: “How can I spend less and earn more to increase my saving every month?”
There is a point at which caution becomes paranoia. Some people refuse to save into pensions (and so lose the tax advantages) because they fear the Government will never let them take the money out.
There are lots of other ways in which it is possible to be too careful financially.
Most people buy too much insurance. I prefer to save the money and self-insure where possible.
People over-pay for structured financial products with expensive guarantees. They cling to the illusion of safety of bonds or peer to peer lending or other fixed income products when they’d be better off accepting the volatility and higher returns of equities.
The most striking example that you can be too careful is the people that have enough to quit but carry on working in jobs that are crushing their soul. One reader said it took them 8 years after reaching financial independence to get up the courage to quit. In my book, that’s too careful!
The idea that you can be too careful applies not just in finance but in lots of other areas of life.
In sport, you can definitely be too careful. If you are a racing driver and you never spin off, then you’re not trying hard enough. You can’t find the limits of a car unless you experiment.
We may fear “failure” or being humiliated. Which for the most part is ridiculous. We need to remind ourselves that there is no failure, there is only learning and growing. The biggest risk in fitness (and in money) is that not that you fail, its that you don’t push yourself enough to achieve what you are capable of.
Our physiology is designed by evolution to improve most when we exercise with intensity…when we dip into the red zone. If you want to build muscle, you don’t have to spend a lot of time in the gym but when you do go, you have to exercise with intensity, to push yourself to your (current) limits.
What then happens is that your body says to itself something like:
Ah! I’m being asked to do a task that I can’t currently do…that sucks…so I’m going to need to change….hmmm…lets add some muscle and burn some fat to release the energy I need.
If you want to improve at running, even long distance running, its best to incorporate sprints and hill climbs into your training to provide the short, sharp shocks that your body needs to tell it to rewire itself for greater performance.
You can also be too careful in the area of relationships. If you are young and single and you never strike out with the opposite sex then, like the racing driver example above, maybe your sights are set too low?
You can also be too careful by not showing vulnerability in relationships. One of the elements of developing relationships is honesty and openness rather than putting on a show. But this entails vulnerability. One way to avoid ever being hurt is to avoid any vulnerability, but by doing that you place a limit on the quality of your relationships and hence your happiness.
One of the things I’ve come to realise is that we can’t overcome fear once and never feel it again. Fear is just an emotion and emotions will always come and go…popping into our heads and then moving on. So success is not about eliminating fear, its about taking action in spite of fear.
Successful people still feel fear but they don’t allow fear to paralyse them. If you think of fear as something you feel at the limits of your comfort zone, then fear can be a clue that you are going in the right direction. Adam Gilbert has a great phrase for this: make discomfort your compass.
We can learn to distinguish between situations that actually involve real physical danger and those that just feel uncomfortable. We evolved fear to avoid real physical danger but, in the modern world, almost every situation is physically safe. Realising this frees us to get on with difficult but rewarding stuff.
Earlier this year, I cycled up Mont Ventoux and then all the way up from Provence to the English Channel. Before I did this, I wasn’t sure if this was possible for me…so there was only one way to find out. Turns out it was possible.
With all this in mind, I’ve decided that The Escape Artist needs another physical challenge.
Running a marathon is something I’ve wanted to do for years. But I’ve always found reasons to put it off. Firstly time; I was busy at work and we’re told that running a marathon takes lots of training time (although I’m not sure whether this need be true). Secondly, I was worried about the risk of injury. Truth be told, I still am.
But this may be my chimp brain being overly cautious. Our minds are programmed to err on the side of caution to ensure that we survive….not that we thrive. Like I say, you can be too careful.
So I’m going to run a marathon…just not in a chicken suit.
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