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!
About Banker On Fire
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
Find out more about me and this blog here.
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