Every day we make choices.
Choices between spending now and investing for the future. Choices between procrastinating and taking action. Choices between patience and impatience.
Think about where you are today and where you could be in 5, 10 or 20 years time.
If you choose to buy your freedom (rather than more stuff) your future self will be richer. Maybe MUCH richer.
There are no sacrifices, there are only trade-offs.
If you don’t spend £500 today but instead invest that and get 10% per year compounded over the next 40 years, that £500 grows to £22,600. If you are 35 now and expect to live to at least 75, then the opportunity cost of everything you spend needs to be multiplied by 45x.
I almost called this post Get Rich with Patience but I then realised that I was only covering half of what you need to know. To get rich you have to be really patient and yet really impatient at the same time.
Huh? To achieve financial independence, it helps to have an unusual degree of 1) impatience with your actions and 2) patience with your results.
To illustrate, I would like to introduce you to 2 of my imaginary friends:
- The Sergeant Major
- The Zen Master
The Sergeant Major is impatient with actions. He pushes us to get shit done.
The Sergeant Major will be familiar to anyone that has watched An Officer And A Gentleman or Full Metal Jacket or pretty much any army bootcamp film or TV reality show.
The Sergeant Major puts new recruits through Boot Camp. He shouts, pokes, prods and generally dishes out whatever it takes to get the soldiers to try harder.
Then we have the Zen Master.
The Zen Master will be familiar to anyone that has watched Star Wars (think Obi-Wan Kenobi, Yoda or the older Luke Skywalker). The Zen Master has as much power as The Sergeant Major (actually more power) but he has a different style. The Zen Master never shouts and is always super-calm even when in the eye of the storm, even when surrounded by chaos.
The Zen Master showed up later in my life; from the age of about 30 onwards. As I got older, I learned to question my first reaction and listen more to The Zen Master. The Zen Master teaches patience.
The Zen Master teaches us to focus on the process and stop obsessing about the outcomes. Earning, paying yourself first and buying a global index fund is the process. Your net worth is the outcome. You can’t control the outcome, you can only control the process.
The purpose of The Sergeant Major is to get you to take action RIGHT NOW. The purpose of The Zen Master is to keep you calm and present in the moment.
The Sergeant Major and the Zen Master are like Yin and Yang. They are opposites and complement each other. Like light and dark, one can not exist without the other. Together they make a great team, capable of helping you achieve just about anything.
Impatience with actions
When I was a student, I took up rowing. It was a brutal shock to the system. But I did learn something: when your body is screaming at you that you can’t go on any longer, you’re only about half way through what you can do. The Sergeant Major knows this.
Rowing (or more accurately, the training regime) taught me a lot about myself. It taught me what I was capable of if I ground it out. It changed me physically and mentally. It introduced me to The Sergeant Major. After that, he never really left.
After I finished university I chose not to take a gap year and got stuck into the world of work. It was only later that I realised that we get rewarded by the maths of compounding for starting early. I was lucky to be fitted with The Sergeant Major who urged me to GET ON WITH IT!
The Sergeant Major does not rest whilst cash is sat around idle being slowly melted by inflation just like an ice sculpture at a party. Similarly, when The Sergeant Major comes across high fees in an actively managed fund or a workplace pension, he does not rest until he has eliminated the enemy, completed the transfer and got their compounding machine set up properly.
Similarly, The Sergeant Major does not talk airily about budgets; he ruthlessly prioritises and tracks his spending. The Sergeant Major does not say “I’ll think about it” and then go watch Netflix. Nope, The Sergeant Major gets it done right here, right now.
Patience with results
The Zen Master helps us with patience.
And patience is super-important for investing, which rewards a completely different set of traits from the rest of life.
The earning side of the equation is all about hard work, hustle and get up and go. But with investing, the last thing you want is constant activity. For the most part, you just need patience.
Once you have set up your compounding machine correctly, you need patience with the results. Don’t just do something, stand there!
The problem faced by rookie investors is that many are impatient and flighty. The biggest risk for the rookie is panic-selling at the sound of gunfire during stockmarket downturns. They feel like investing is important so it should be hard (no, it shouldn’t) and complicated (no, it shouldn’t). It’s really easy to invest simply and efficiently.
People often get discouraged from building wealth when the fruits of our labours seem too far away in time to justify doing the work. But this is a mistake; like a farmer who refuses to plant crops because they won’t be harvested for several months.
Unfortunately, we get amped up by The News Media who compete for clicks and eyeballs in a brutally competitive market, spicing up the stories with an unhealthy mix of scare-mongering and exaggeration.
Imagine a farmer who planted their seeds and then a couple of weeks later reads an article in Farming Weekly saying that CABBAGE IS THE NEW LETTUCE and the hot new crop for 2020. What if the farmer dug up their lettuce seeds and replanted them with cabbages? Investors would laugh at any farmer who did that. But isn’t that what we often do as investors?
The Zen Master also saves us from other bad thinking. One such example would be catastrophising where we construct doomsday scenarios of everything that can go wrong. From there its a short step to feeling like things will go wrong and experiencing the trauma of events that will never happen.
The Zen Master reminds us to cross our bridges as we come to them. The Zen Master does not waste time worrying. The past has gone and can not be changed. The future is unknowable and we are not there yet. Now is the moment of power, the only time that we can change with our actions.
The power of The Zen Master comes from the fact that he understands that the best way to win is often not to fight at all. This is not to say that the Zen Master is always passive. The Zen Master may spend most of their time resting in calm contemplation. But they know how and when to strike.
If you are missing either a Sergeant Major or a Zen Master, I highly recommend doing the work to get both of them on your team. As I often joke, you’re never alone with Multiple Personality Disorder. 😉
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