The relationship between have and be

“If I have more love/money/friendship/fame, will I be happier?”

Whenever we see “have” preceding “be” in such questions, we can be sure unhappiness is lurking around the corner.

Flipping the order, however, changes everything.

The question we’d ask now is – “What kind of person do I have to be to have more love/money/friendship/fame?”

By being trustworthy and caring, it is likely we’ll attract love and friendship into our lives.

By being skilled at something valuable and disciplined in our practice and execution of the skill, it is likely we’ll attract the financial security we seek.

And so on.

There is a chance we’ll win the lottery and have what we desire before being the person who deserves it.

Waiting to win the lottery, however, isn’t good strategy.

Better to flip the question and be the kind of person who deserves what we want to have.

Managing expenses on Google Spreadsheets

There are many personal finance tools that help automate managing our expenses with fancy graphs and stats on our expenses. Mint, for example, uses data from your credit cards to generate graphs about your spending across categories. Each of your credit card apps likely do so too. But, if you’re in it to be on top of your expenses, I’m still a big fan of managing expenses on a Google Spreadsheet.

I’d shared a simple Google spreadsheet template in a post on calculating expenses 6 years back. We still use an evolved version of that template (happy to clean up + share an updated version if it is valuable to you). And, managing our expenses involves entering each expense. This process has friction built into it by design because the friction inspires consciousness.

We get all the other benefits – we always know exactly how much we’ve spent across major categories. And, we have a wealth of historical data cut in a way that makes sense to us.

We recently compared notes on how we do this with a couple of friends and they tested the “old fashioned” spreadsheet approach as well. Their first reaction after switching was that their spreadsheet made them acutely aware of the areas where they wanted to minimize expenses. This is so true – it is effective to the point where you soon realize you don’t need a budget.

Every technology tool creator’s goal is to make our lives more convenient. But, it is on us to both find the right tools and add the necessary amount of friction to use these tools consciously.

And, as far as topics that are as important as personal finance go, the more the consciousness, the better the long term outcome.

Throwing money at problems

In the past 2 seasons, Jose Mourinho, the manager of Manchester United Football Club, has spent upwards of $400M in recruiting new players. And, his predecessors had spent an additional $400M over 3 seasons (take a moment to let those numbers sink in). But, he wanted to set things right.

While there has undoubtedly been some progress in the past two seasons, watching the team play has often been a joyless affair of late. A recent article described this well – If a team reflects the personality of its manager, then United need help because Mourinho’s demeanor and personality since arriving at Old Trafford has been anything but the bold, courageous and charismatic that the club demands. It has been downright miserable and tetchy.

After a relatively mediocre season, he has reportedly asked for an additional $250M to spend over the summer. His response is simply to throw more money at the problem to make it go away.

However, money doesn’t make all problems go away. Having a certain amount can help with a few problems, sure. But, throwing money at your marriage doesn’t a happy marriage make. And, good luck trying to spend your way into happiness.

And, more importantly, money can never be a substitute for good leadership and a great attitude. Some of the best funded teams fail because they approach problems with poor intent and attitude.

Improving our attitude remains one of the best ways to improve our performances.

Compare purchases to put them in context

We think of money differently depending on the context. For example, we may fight for a three hundred dollar discount when buying a new car. But, the same discount when buying a house would feel ridiculous. It is still the same three hundred dollars, isn’t it?

The downside of this approach is that we may be biased toward making certain kinds of investments over others. And, one tool I’ve begun to find helpful is to compare purchases to put them in context.

Let’s imagine you want to spend $100 on a hobby. It is tempting to think you’re rationally evaluating the cost/benefit of the $100. But, we’re not rationally evaluating anything – instead, we have a certain dollar amount threshold tagged to hobbies. So, I begin asking myself – what are other areas where I’m spending $100 or more? Let’s say I’ve got a vacation coming that’s got a budget of $1000. How would I think about adding $100 to the vacation with a new, cool add on? How much does that compare with the added benefit from the hobby?

Or, what about that gadget you’re considering buying?

After two or three such comparisons, it becomes obvious as to how much you value the expense you’re considering. In my case, for example, I found myself biased against making a couple of expenses that had some short term hassle and longer term benefit. I also realized I had a bias against annual subscriptions over one time payments.

My goal with expenses is to do so consciously. And, comparing purchases helps with that.

I hope it helps you too.

Penny saved is worth more than a penny earned

We’ve all heard the adage – a penny saved is a penny earned. While it is normally attributed to Ben Franklin, it turns out that the real author is likely 17th century Welsh poet George Herbert.

The important thing, however, is that the adage is flawed. As Andrew Tobias explains in his excellent personal finance book “The Only Investment Guide You’ll Ever Need,” these were written at a time before taxes were institutionalized. Now, a penny saved is worth a lot more than a penny earned because you’ll need to earn much more than one penny to ensure you save as much after taxes.

After some financial mismanagement in my undergrad period (that had knock on effects until 2 years after I graduated), I worked hard to be very diligent about spending a lot less than what I earned. It has only been 6 years since but it has enabled me to pay my way through business school without any debt. And, my learning from that is that saving is just part of a conscious lifestyle where you are mindful about every expense. A couple of ways I improve consciousness is by taking note of all expenses manually into an app called “Envelopes” – I still don’t use Mint as it is all too automatic for my taste. Every weekend, I transfer these expenses to a Google Doc that tracks my expenses – again, manually. I wrote about this process back in 2011 and it is one that has worked well for me. Given how much convenience credit cards and frictionless payments have brought to my life, I do go out of my way to ensure there is some friction at least when I’m accounting it.

All this doesn’t mean all saving and no fun. There are three areas I’ve found to be wonderful uses of money – spending it on experiences versus things, spending it on people you love and spending it on people you don’t know. I’ve come to realize that how you define experiences is a personal thing. For some people, driving every day is an experience. It matters a lot which car they drive. For us, we realize that living in a nice home is an experience because we spend a lot of time on weekends at home. Others would rather allocate that money to activities over the weekend. It matters that we allocate some of our money for “guilt free spending.” But, that can only come after we make sure we’ve saved.

Many of these lessons on personal finance are in an infographic/”learnographic” a friend and I created a couple of years back on personal finance.

penny saved, personal finance, money

Personal finance thoughts aside, simple insights like this one repeatedly demonstrate the power of books to change our lives. In the four weeks since I’ve read the book, I find myself repeatedly remembering the fact that dollars saved are worth more than dollars earned as I make spending decisions.

It is an incredibly valuable reminder… literally.

HT: Seth for the book recommendation

Compounding learning

Compound interest is the single most important concept in finance. Time value of money, as an idea, comes close. But, understand compound interest and it’ll change the way you think about saving money for the future. The simple notion behind compound interest is that you earn interest on your interest. This means small amounts invested today that get compounded over time earn a lot more in the long run than large amounts compounded less. It is powerful stuff.

I’d like to make the argument that learning works in exactly the same way.

Let’s imagine you come to me and say – “Hey, I’m going to read a non-fiction book for 10 minutes every day on an interesting subject.”

Great. Do we expect a difference between your understanding of the world and mine tomorrow? Probably not.

Day after? Again, probably not.

But, what about a year from now? Sure, there is likely to be a difference thanks to the accumulated knowledge of 3650 minutes of reading.

What about 10 years from now? Now, there is sure to be a difference. You’ve clocked 36,500 minutes of reading.

Then, what about 30 years?

Little actions carried out consistently over time can have tremendous power. You and I know that. But, learning is a different monster. In that first year, you probably just accumulated a vast amount of knowledge. But, fast forward a few years and that knowledge soon becomes understanding. As you read an interesting mix of topics, you soon begin to realize that science, art, management, psychology, leadership, self-help all become interrelated. You begin to see patterns and links. It is a deep understanding of these links that gives us wisdom. Wisdom is simply an extension of that understanding – it is knowing what to do with all this knowledge in the context of daily life. And, we know that it is one thing to be knowledgeable but it is quite another to be wise.

This is why we see a tremendous difference between people’s wealth, success, happiness and energy as they age. For most of the population, education ends when they finish schooling. But, for the folks who take it upon themselves to learn with greater vigor once formal learning is complete, the effect of their learning over time compounds. Put it simply, if Jeff Bezos or Bill Gates read an interesting book on human behavior right now, they’d get a LOT more value out of it than you and I. That’s because they have so many interesting mental models that allow them to test findings and incorporate learnings. It is these mental models that differentiates masters/learning machines and everyone else. 

Every single day, we have a choice, both with money and with learning, to use the power of compounding or not. Not being aware of the choice is not an excuse. And, not choose is, really, choosing..

A few thoughts on making money work for you

Working for money is not a nice place to be. You only work for money when you can’t do without it. When you live well below your means, you firmly ensure that it works for you. The good news is that you can work towards turning the relationship around with a few changes to your lifestyle. A few ideas –

1. Drink more water. The cost of carbonated beverages and alcohol add up over time. Water is largely free, incredibly tasty and, as an added bonus, great for your health too. Easy way to save $35-$40 per week / $1600 per year.

2. Eat food at/from home. If you need a lot of food to be energetic, consider taking a few simple sandwiches and fruits with you. The biggest benefits come when you begin packing lunch. And, definitely eat dinner at home. That can save about $140 a week  / $7280 per year.

3. Develop a taste for low cost fun. Every weekend needn’t be expensive. Try board games, pot luck dinners, and simpler gatherings. Yes, I recognize that this list appeals more to introverts. Mix it up a bit perhaps.

4. Allow space in your budget for some guilt free spending. This way, you keep your willpower reserves intact and also enjoy your money.

5. Spend money where you spend your time. If you spend 12 hours on a computer desk – invest in a nice screen, a comfortable keyboard, and a nice mouse. Don’t skimp on stuff that you will use a lot and definitely don’t skimp on tools that help you get more done – e.g. if you can clear more emails or listen to more books on your commute on a tablet, invest in one. Similarly, don’t compromise on a comfortable duvet. If you don’t sleep well, the rest of your day is useless.

6. Invest in your long term happiness by spending on great experiences rather than things. Go for that iconic trip to the Canadian Rockies or that road trip to the Gold Coast. They’re memories that will stay with you forever. You get used to regular luxuries (e.g. an expensive car) real quick.

7. Invest in your learning. Don’t skimp on a good education or books on a regular basis. These things generally pay themselves forward with better jobs and higher earning potential.

8. Give. Giving helps us gain some perspective about how much we have. Happiness is key to spending wisely.

9. Invest for the long term in indexes. I gave estimates on the first two items just to illustrate the power of long term decisions. Assume you have around $10,000 this year by saving on food and water and invest in an S&P 500 index that Warren Buffet recommends, that will be worth $102,000 in 40 years assuming a standard 6% real return. Imagine if we did this every year and if the amount were bigger with the aide of low cost fun and other savings.

Money is just a tool. We just need to learn how to use it well so it doesn’t get in the way of our happiness. Live frugal by investing in things you really need. Spend consciously.

It may sound a bit boring.. but, not having to worry about whether you have enough money for this or that sure is a lot of fun.

Network and net worth

Many exclusive clubs and business schools use the idea of tapping into their network to attract members. I am skeptical about this. While I think these clubs and schools do bring together interesting people and probably increase the probability that you will find like-minded (perhaps even like-valued – if you are lucky) friends, I am still not sure access to their networks accomplishes all that much.

What I would agree with is that a network is incredibly powerful. Who you know is generally more important than what you know as it opens more doors to possibilities. So, the question still remains – how do you build a network?

I agree with an acquaintance who pointed out bluntly that “your network is proportional to your net worth.” While his focus was on financial net worth, I’ve expanded on his definition and arrived at the following thesis. Your build your network by building your net worth on 3 dimensions –

1. Build financial net worth. This is true – the more financially wealthy you are, the more easily doors open for you.

2. Build power net worth. Find me a powerful person who doesn’t have a network to call upon. This is related to financial net worth but slightly different in nature. A network born out of power is probably the most fickle of the lot. Ask any discredited politician. Perhaps it is no surprise that many of them work hard to increase their financial net worth while in power.

3. Build character net worth. This is the final dimension and is one that is often ignored. Building character is the longest and most sustainable method of building a network. The hard work lies in building a worthy character and proceeding to do great work. A reputation follows, slowly and surely. And, once such a reputation is built, it is the hardest of the three to bring down. You and I probably know of nice people who have built enormous networks, often by frequently connecting one person to another. It helps that it is fairly easy to tell a person’s character by looking at their track record around work and relationships over the long term. People of character will not always be liked, but, the chances are high that they are held in high regard for their character and work ethic – especially by those who’ve been in close contact with them over the long term.

This thesis has a couple of interesting implications. First, the more important part of building a network is not having access to individuals with high net worth. It is having a high net worth yourself. A beginner politician might be denied entry into a network of the most powerful politicians in the country. But, if the person doesn’t know how to build power net worth, he/she will not survive.

Second, each of these can combine with the others to make a formidable combination. While financial net worth and character net worth often go together, I find that power net worth and character net worth don’t do so nearly as often.

Finally, it is possible for anyone to have an excellent network. While one might not succeed as spectacularly on the finance dimension, we can all aspire to succeed over the long term on the character dimension.

Yes, it isn’t easy and yes, it isn’t guaranteed to work. But, find me a solution that is both on an issue as important as this… and I’ll show you a solution that is wrong.

The Personal Finance Learnographic

First up, the news – We, the Learnographics team, are back with a new learnographic. A learnographic, as you might have guessed, is a synthesis of learnings from a book (or a couple of books ona  topic). In the spirit of starting with “why,” I’d like to share our thesis on learnographics –

We believe that our progress as a species occurs when we find, build and share great ideas. We also believe in the power of learning, reflecting, and sharing ideas in living happy lives. Books are a big source of learning and ideas and we’ve embarked on a mission to spread ideas from our favourite books.

After our first learnographic on willpower last year, we took a bit of a break as we thought about how we wanted to make this process sustainable. Our promise for this year is release 4 learnographics by the end of the year – 2 in the first half and 2 in the second. Producing these is a real labor of love – it involves us reading a bunch of books, synthesizing them, picking a book or two that we think would make for an interesting topic, illustrating them so they are easy to follow, and then sharing them with you.

We picked personal finance as it is a topic that we believe ought to get all the attention it can get. In this case, the learnographic is a synthesis of 6 books, 3 interviews, and 1 blog post.

We really hope you find it useful. Please click on the image below to see the full learnographic.


And, if you like it, please do share and spread the love. :)