Sometimes on this blog, I refer to “The Path”.
More literal minded readers may have wondered which path I am talking about. But The Path is a concept rather than a physical thing.
So let me explain what I mean by “The Path”.
The Path is the route that each of us takes through life. If we get things right financially, The Path will take us out of the Prison Camp towards the treeline of freedom and the rail station of happiness.
The Path also takes us over time from the bottom towards the top of Maslow’s pyramid.
The Path helps explain progress; linking people and times that are so different they seem worlds apart.
The Path is what separates (and can bridge between) a cable TV watching, doughnut munching, debt-fuelled iphone addict trapped in The Prison Camp at one end and a Zen Warrior like Bear Grylls or Mr Money Mustache at the other end.
Or what separates the young Luke Skywalker from an experienced Jedi. Or a kid from Omaha from Warren Buffet.
The Path is a way of thinking where we take responsibility for our own direction through life. Following The Path is not always easy. There will often be obstacles blocking the way. What matters is our response to those obstacles.
Following The Path requires focussing on what we can control and improve (ourselves and our direction) and worrying less about what we can’t (the stuff happening elsewhere, away from our Path).
Sometimes the way ahead on The Path is not obvious. We may get distracted. But as long as we have a vision for where we are trying to get to, we can keep moving forward in roughly the right direction and we can make adjustments to our direction as we go.
The Path doesn’t just lead to getting rich, it works for all types of self-development including health and fitness, relationships and other Jedi skills. As you move along The Path, benefits in one area of your life tend to lead to spin-off benefits in the others.
There is not one single Path…just as there is no one single religion with a monopoly on the truth. There are many routes to financial independence and different ways of living once you get there. The good news is that, unlike getting into heaven, you can prove that its possible to achieve financial independence (see the FI-o-meter).
There was a lively debate on the importance of compound interest a few weeks back between Ermine at Simple Living in Suffolk and Monevator which illustrated different paths to FI. The interesting thing was that both understand the maths of compound interest so in the end the discussion came down to a difference of perception and philosophy. It revealed how different people saw the world and, importantly, how they saw their own Path.
As I understand it, Ermine’s Path to FI was achieved mostly during a few years of hard core frugality whilst in The Prison Camp, during which there was only limited time for compounding to start to work its magic. It was a sprint not a marathon.
In contrast, Monevator’s Path involves an earlier start and then a longer period with a somewhat lower saving rate than Ermine. Monevator seems happy with a longer timeframe to FI because along the way he is his own boss. This way, he allows compounding to do more of the heavy lifting for him over time.
So 2 different paths, neither of which is “right” or “wrong” for everyone else. Effectiveness is the measure of truth and we should all experiment to find out what works for us as individuals.
I think about financial independence as a problem to be solved in 4 dimensions. The four dimensions are:
- Maximising income
- Minimising spending
- Investing the surplus
- Realising how much is enough
Different people are better at the different dimensions. To use a football metaphor, some people are natural defenders: they are wired for frugality and caution. Other people are natural attackers: they are wired to influence and sell so they can earn a lot. The reason that achieving financial independence is tough is that you have to combine and balance very different skills and opposing character traits.
I initially majored on elements 1 and 3 in my journey towards financial independence. When I left university I took the path of finding the best paying job that I could land and hold down.
The Escape Artist did not end up in finance by chance (nor because I was good at maths). No, the young Escape Artist was a bit like the bank robber who, when asked why they robbed banks, answered: because that’s where the money is. For me, working in finance had the helpful side effect of forcing me out of my comfort zone and to get numerate.
But we humans take many years to “round out” and develop different skills and different aspects of our personality. It’s always a long road. A journey of a thousand miles starts with a single step. No sportsman is going to be able to take up a sport one day and then rock up to the Olympics and win a gold medal later that month. There is always a long path between starting out with baby steps and eventual success.
We learn and grow over time as we walk The Path. I started to earn good money in my 20’s but I only got good at reducing spending in my 30’s. And I only stumbled across how to figure out how much is enough in my early 40s. Imagine my surprise when I realised I was already financially independent.
The Path is rarely straight, open and clear like the desert highway into Las Vegas. Its more like driving down a twisty turny country lane in the dark where you don’t know what’s round the next corner. If you’re sensible you steer the car based on what you see in front of you now rather than trying to guess which way the road might turn ahead. The important thing is to keep going and take each bend as it comes.
The Path metaphor also allows for the possibility that we sometimes get a bit lost along the way. That’s normal. You can always ask someone else who is on The Path for help with directions. It’s much easier when like-minded people travel together and help each other along the Path.
Perfectionism can be a trap that distracts us from The Path. People often try to plan and control everything. But, when travelling, waiting to find a perfect route doesn’t make sense. So when I cycled France earlier this year, I didn’t spend ages reading maps looking for a perfect route. Instead I just tried to keep my compass pointing north as much as possible via a series of small choices about which road to take. If I’d waited to find the perfect route, I’d still be in France looking at a map right now.
Perfectionism can also be an unconscious excuse for inaction or for sliding back into bad habits. For example, imagine someone giving up alcohol (an achievable goal that would be hard for me). Let’s assume they fall off the wagon one night (not hard for me to imagine). Our natural tendency might be to say…arrggh, I failed!…so I might as well have another drink to make myself feel better…after all, I may as well be hanged for a sheep as a lamb.
By thinking of The Path, its possible to visualise the lapse for what it is: not failure, just an imperfection in the route that requires a course correction. OK, we stepped off The Path and went the wrong way for a bit but we can look at the compass and then head back in the right direction.
Another example of the problem with perfectionism is where people want to start investing but will only start after they’ve read and understood everything on the subject.
This is a bit like saying you will only study GCSE physics after you have had your unifying theory of quantum mechanics, black holes and dark matter (in which you show where Einstein, Newton, Hawking et al have got it wrong) published in Nature and collected your second Nobel Prize.
The Laws of Learning tell us that we have to learn actively and take action before we can really know a subject. You only really understand compounding after you have started investing. You have to experience the boredom at first and then (after 6 or 7 years) feel the tingle of excitement as you see the J curve start to head upwards and realise oh my god this is actually working!
If you are looking to get started in investing, trying to read and understand everything before you start is not just impractical, it may even be an avoidance mechanism or a means of self-sabotage.
Why would anyone self-sabotage? Maybe because we can’t fail if we never try something? People are often scared of the responsibility for failure. This helps explain why intelligent people pay thousands of pounds a year to financial advisers and fund managers. The performance may be disappointing (and the fees outrageous) but at least the client can blame someone else.
But when it comes to financial independence, there is no failure. We should be more worried about failing to try than trying and failing.
Other avoidance mechanisms include sitting on cash waiting for the perfect opportunity to put your cash to work. The Escape Artist is all in favour of buying things when they are cheap. But the reality is that novice investors who are scared to invest in normal times are not going to be brave enough to invest in scary bear markets.
So if you want to get started in investing, by all means read a book. Just don’t read 10 books before taking action. Better to start by opening a practice account and then, as soon as you are comfortable with the process of virtual investing, buying your first share or Vanguard ETF with real money. Get started on The Path and you can then adjust as you go along.
It’s great to reach out and get help along the Path. That’s why every top athlete has a coach. I give financial coaching and I’ve seen how powerful it can be. But just as each athlete has to run their own race, we all have to walk our own version of The Path.
The hard part is finding The Path in the first place and then sticking with it. But if you can do that, it can take you further than you ever thought possible.
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