Note: This post was first published in March 2021 and updated in August 2022
Struggling with money?
Join the club.
As a personal finance blogger with nearly four years of writing and more than two decades of investing experience under my belt, I would expect to have it all figured out by now.
The reality is, I am just scratching the surface – and so is the vast majority of us.
Here are some of my musings on the reasons that make money so damn hard.
Because no one talks about it
These days, people will spill the beans on almost any subject, no matter how personal it is.
With the notable exception of how much money they make.
Now, that’s not necessarily a bad thing.
Early on my career as an investment banker, I quickly learned that sharing bonus numbers is not a good idea.
The person who makes less is bound to be disappointed. The person who makes more can also walk away upset for having disappointed the other person.
There’s simply no upside.
This lack of communication, however, gives rise to a different problem: lack of context.
Securing a $50k salary can feel like winning a lottery to someone who is just starting out or wrapping up their career.
Not so much for the person in their “sandwich” years, with the dual task of supporting young kids and aging parents.
Equally, a $200k salary will mean different things to someone with no debt versus a physician who has hundreds of thousands in student loans and is finally starting to earn proper money in their late 30s.
And that’s before you take into account the cost of living, marital status, and a multitude of other factors that impact our purchasing decisions.
When we do talk about money, we focus on the wrong things
That is, we focus on spending, not saving.
In my entire life, I’ve literally had one conversation in which a friend told me: “I just hit my savings goal for the year”.
It happened all the way back in 2012 – and I still remember it vividly. That’s how rare it is.
Contrast that to all the times people tell you about how they’ve spent their money.
As Morgan Housel put it, the only thing you know about someone driving a $100k car it’s that they have $100k less than they used to.
The reality is that true wealth is money not spent.
The forgone expensive nights out. The jewelry not bought.
It’s the declined suite upgrade, and the “dream house” not purchased.
Sadly, none of the above makes for an exciting conversation. When’s the last time you discussed one of these with your friends?
Because it means different things to different people
A few years ago, I was visiting my parents and decided to take my dad to view a commercial property I contemplated buying.
At dinner that day, we discussed the pros and cons with him and my mom.
From memory, the down payment came to about $250k. Deep in thought, I characterized that amount as “not that much money”.
Now, I’m not an idiot. I know $250k is a heck of a lot of money.
What I meant by that comment was a couple of things:
- While losing a chunk of the down payment would be unpleasant, it wouldn’t sink me financially.
- The down payment was more than commensurate with the annual cash flows of about $25k a year.
- If I wanted to retire early, I would need to put significantly much more money to work in order to provide for my family with sufficient passive income
My mom, whose salary was significantly south of six figures for the entirety of her working life, took it in a very different way.
For her, that amount represented years and years of earnings. And given she was gearing up for retirement, $250k would make a hell of a difference to her portfolio.
Same number – representing wildly different things to different people.
Because it’s a moving target
Nothing is static.
We change. Our families change. Our circumstances change. And so does the world around us.
A forty-year-old me has a vastly different set of priorities than a twenty-five-year-old me.
Two kids. Private schools. Aging parents, whom I’d quite like to support. Yep, I guess I’m in right in the middle of those “sandwich years”.
Fast forward twenty years, and the parameters will change yet again.
And who knows what the world – and my world – will look like when I’ll be eighty? (That is if I actually make it that far along)
As history shows, humans are pretty bad at predictions. To make matters worse, we also happen to be unrealistic optimists.
In other words, no one plans to fade away before their time.
For this reason, I actually don’t have a pre-determined “number”. Instead, I have an approximate “base” target, as well as a “stretch” target at roughly twice the base target.
The way I see it, by the time I get close to my base target, I’ll have far better visibility to my spending needs and desires.
Might as well not waste time on speculation now.
Because luck plays such a massive role
Provided your investing life spans a couple of decades, one thing is bound to happen along the way:
Dumber people will get much richer than you ever will.
The most frustrating thing about money is that you can have the most comprehensive plan, execute to perfection – and still end up miles behind someone who happens to be at the right place, at the right time.
It’s just the way things are.
On the bell curve of investing outcomes, there will always be data points a number of standard deviations from the mean.
The problem is, we always look at the tail events on the right (i.e., the winners), not on the left. And observing those data points can be painful as hell.
If you haven’t experienced this yet, you better giddy up – because it’s coming.
One of the biggest challenges with money is that it has the ability to give you a definitive answer.
“Once my net worth hits $[x]m, things will be sorted”.
Sadly, we rarely get this definitive, crystal-clear answer.
Now, it doesn’t mean that you shouldn’t focus on money in the first place. Quite on the contrary.
Equally, you need to be fully cognizant of the ambiguity – and the uncertainty – that comes with this wealth-building journey we are on.
Thank you for reading – and happy investing!
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20 thoughts on “Why Money Is Hard”
So you ended up sending the children to private school?
Yes we did. Your comment is a good reminder to update my post on the cost of private education.
We were on the fence until the very end. That being said, we had a couple of good years financially and my wife decided she’d rather work a few more years if that means sending kids private.
Unlikely to be a value-maximizing choice financially – a classic case of not behaving “rationally”, at least as far as economic theory is concerned.
The other (slightly perverse) way of considering the investment in private schooling is as a hedge against the alternative option of ultimately handing your children the fees saved and compounded (I think you estimated this to run into the millions). It removes any possibility of this wealth being squandered later down the line.
Yeah. I shouldn’t be the one to say this (as we’ve gone down the private route), but plenty of examples of squandering that expensive private education too!
It’s a tough one, isn’t it? 🙂
Hi BoF. I would also be interested in your rationale on the private schools question. I read your original post and it made me feel uneasy about my choices (two kids in London day schools :gulp:)
I am now early 50’s and I have c7 years of school fees left to go. I went to state school and my wife is not originally from the UK, so the choice to go private was not automatic. The main reasons were that a) the actual education they now receive is significantly better than they would have had they stayed in the local primary they were in. This is not a presumption – we still have friends with kids at the school. b) The pyramid of school -> university -> job -> promotion -> leadership gets more and more heavily weighted toward those with a private education, even in 2021 it appears. Hence it seems to be a highly valuable intangible to provide our kids with.
I do regret the impact on my ability to retire earlier. We will definitely we working until that fixed cost is no longer with us, so I will not retire until I am close to 60. I have to consciously own the decision to defer my retirement in order provide my kids with this education, in order not to feel resentment.
Thank you – this is a good reminder for me to update my cost of private schools post, given that it’s almost two years old.
We are in the same boat as you. After much consideration, both kids will go private.
There are some specific circumstances that led to our decision but think best if I lay those out in a post to provide a complete picture.
Watch this space!
I think this is the best one you’ve written over those nearly two years, awesome work!
Thanks indeedably – means a lot coming from you!
Very good article which makes a lot of sense.
The only thing I disagree with is the idea that you shouldn’t share salary information with your colleagues. The asymmetry in information between employer and employee is why so many people are under-paid (and unaware of it). In the absence of unions who know what we all earn and collectively bargain, it really is in our mutual interest as staff to talk openly with (trusted) colleagues about our pay, no matter how uncomfortable it can be.
I know that I had a few of these conversations at a crucial stage early on in my career, and it was really a turning point in putting my earnings on the right track. Now that I’m further along and more senior, I have looked to help others in the same way.
Yes, great point.
I guess I have my banking “hat” on. In our industry, there are consultants that publish comp surveys every year, so it’s pretty easy to figure out whether you are above or below market.
It gets harder once you move beyond VP level and as you point out, the drawback of being underpaid over years and decades is far more significant than the potential ego hit from a short conversation.
From my 73.5 years perspective you have covered many of the money challenges of ones financial journey ….and when on “long finals” the end of the runway is for sure approaching rapidly and no chance of a ‘go-a-round’….
Yes – we don’t get too many second chances here, do we?
I wish that when I was younger, someone had sat me down and explained how this money thing really works. Sadly, many people don’t have financial role models and need to figure it out themselves.
This is one of the reasons I run this blog. If I can make someone’s journey to financial independence easier (and shorter), I’ll be quite content with myself.
When I retired from full time work I took on about eight hours a week consulting. When I was explaining what I was doing to my three grown kids, the youngest, an education specialist who works with college athletes, was pretty miffed when I explained I’d only be making around $100K for a few hours a week of work. She was making about half that much working more than 40 hours a week and did not share my perspective that $100K was small change. Which is why people don’t talk about money, it is all too easy to hurt people’s feelings, even the feelings of your own kids!
It gets pretty visceral, doesn’t it?
Very tough to bridge differences in experience, industries, and starting points in terms of net worth.
You are 100% right. People love love love to talk about their spending. I’m thinking about buying this, or I just bought that. I wish we were all able to talk about financials a bit more. I was trying to encourage my little brother to max out his 401 (k) and that may be the ONLY time I have ever talked with someone about saving/investing. And even then he was just barely contributing and I was trying to get him to run the numbers and see if he could max it out or at least do more.
Yeah. The missed opportunity is that by talking to the people closest to you, you should be able to eliminate the problem of agency (at least in theory).
Instead, we turn to the internet for advice. Which isn’t necessarily bad but boy, have I seen some real shockers out there. Sadly, some people take it as gospel and it leads to serious financial harm.
Spot on. It is incredibly hard to discuss money especially with people close to you.
The internet has been a real game-changer here. I can only imagine how hard it was to have an honest conversation about money (or find like-minded people) 20+ years ago.
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