When talking about estate planning, we often get all twisted up in the mechanisms (revocable living trusts, wills, death taxes, etc.). We then lose sight of the bigger picture, which is how to live more richly with the time we do have. When I speak of “living richly”, I don’t necessarily mean living extravagantly. I mean living a fuller life. Being smart with money, and identifying it as a tool rather than as a master can certainly help in this goal.
When you live more richly, not only does it benefit your own life, but you also leave more behind for your loved ones not only in terms of money, but also priceless memories.
The ideas on this list range from the commonplace to the aspirational, but I believe you’ll find all of them very actionable in your day to day life.
1. Control the future by living like a Stoic.
Stoicism is a Greco-Roman school of thought with tremendous practical application in modern day life. When we think of the word “stoic” today, it has a connotation of joylessness. This meaning of the word would be a mischaracterization of the original Stoics.
Stoicism’s main idea is that while we cannot control what befalls us in this world, we have full control over our reaction to what befalls us. Stoicism is about realizing that this fact gives us great power. We cannot, for example, be unhappy unless we choose to be unhappy.
Stoicism is an inherently practical philosophy, not a pie-in-the-sky ideology for professors to publish on. It teaches us that when obstacles get in the way, we can choose to turn them into opportunities. Take the example of someone who recently lost a job. While no one would be immediately happy about such an occurrence, a Stoic would choose to react to it as a kick in the pants to get moving on finding a more fulfilling position, or maybe an opportunity to change careers, or even an opportunity to take control and become self-employed. Even if times remained rough for an extended period, a Stoic would focus on the positives in his life, whether those be family, friends, or even something as basic as being grateful for access to food and clean water, something which many in the world lack.
You probably never learned about Stoicism in school. This is precisely because it’s so straightforward and applicable to everyday life. Professors and authors typically prefer more opaque topics which can be the subject of wildly varying interpretation, regardless of utility.
Probably the most famous Stoic was the Roman Emperor Marcus Aurelius. His Meditations is probably the best known text on Stoicism. It’s essentially a book of life advice. It was written as the Emperor’s personal thoughts in battle, and was never intended for public publication. As a result, the text does have some references which don’t make sense without context. [Much like if I were to read your personal diary, I wouldn’t understand all of the references.] As a result, it makes sense to get a translation which gives context and strips out some of the less actionable personal musings.
If you’re looking for a modern day introduction to Stoicism, I would recommend The Obstacle is the Way, by Ryan Holiday. It’s a great guide through living a practical, Stoic life in modern society, and is full of great examples. As the title implies, there is a specific focus on transforming life’s obstacles into opportunities, which all begins with a simple mind shift.
Before I found Stoicism, I consistently struggled with an unending drive to achieve. While such a drive sounds fantastic and is the subject of some great stories, without context it will destroy you. Stoicism gave me the power to pursue my goals as strongly as before, all while having the proper perspective when setbacks inevitably arise. In the past, if I had spent a large sum to expand my business into a new market and I missed my targets, I’d beat myself up about it. Now when a situation like that arises, with proper perspective I can truly appreciate any lessons I learn in the process, applying them to future successes. Every time I see someone frazzled in his work, I think about how much Stoicism has improved my quality of life.
Stoicism has had a huge impact on my life, and I recommend exploring it. Here are three resources to get you started:
- An introduction to Stoicism from Ryan Holiday’s blog
- The Obstacle is the Way, by Ryan Holiday
- The translation of Meditations, by Marcus Aurelius, which I personally keep handy
- Letters from a Stoic, by Seneca (pictured)
- Stoicism 101 from NJlifehacks
2. Stop thinking you’re smart enough to “invest” actively.
We move from the aspirational to the more commonplace.
Much ink has been spilled in the debate over active vs passive investing. I’m not going to re-hash it here.
When I drop money somewhere, I view it either as a business or an investment, but never both. I don’t analyze business expenditures the same way I analyze investments.
For instance, if I decide to spend $X to expand my firm into a new market, that’s not an investment. It’s a business expenditure. I’m spending that money because I believe I have knowledge that there is a strong probability of success, and because it’s my business, I have some level of control over that success. Because I’m in the trenches day in and day out, I have specialized insight that enhances my likelihood of success.
When it comes to business expenditures, I take an active approach.
On the other hand, when I invest $X into Tesla stock, it’s a pure investment. The distinction is that I literally have no control over Tesla’s success or failure. No amount of hard work or research on my part will cause Tesla to succeed or fail. I may think I have some special knowledge about Tesla’s future success, but if I believe that my knowledge exceeds information already priced into the market, I have to be fooling myself. If I really did have such knowledge, Tesla (or some other major tech company) would be insane not to elevate me to the C-suite. To think I have some special knowledge regarding an industry where I’m not down in the trenches each day is simply arrogant.
The problem here is that I’m not willing to dedicate all of my capital to my active businesses (this would be pretty risky), and I’m not willing to have my non-business capital languish away in a CD. That’s where passive investing comes in.
When you invest passively, you’re admitting that you have no inside information. You’re willing to take a decent return in exchange for not having to put in nearly as much effort as an active business. The lack of effort is key. Passive investing is just easier. [Credit to David Ning for introducing me to this.] Choosing the easier route here isn’t lazy; it’s brilliant. Save your mental energy for the things where you have real talent. Maybe even make those talent centers into active businesses.
When investing passively, choose an asset allocation to reduce volatility. Volatility is key. If you experience a 30% loss, most people think you need a 30% gain to get back to even. This is wrong. If you experience a 30% loss, you need a 42% gain to get back to even. Volatility will kill you, so accept underperforming the S&P 500 in bull markets in exchange for having smaller losses in bear markets. In the long term, you’ll come out on top.
If you do insist on investing a portion of funds actively, you frankly may as well get into angel investing. While very speculative and not for most people, at least in an angel investment, with the appropriate time commitment, you can have a lot more “inside” knowledge into a company’s operations and management than in the publicly traded market. Angel investing is for the few with real talent to pick winners, and don’t invest anything you’re not comfortable losing.
Some people will engage in active investing through an investment advisor, believing they can beat the market. However, if your investment advisor were capable of beating the market over the long term, he’d be in such a select group that he wouldn’t need to ask for your money to invest. If you aren’t comfortable setting a passive asset allocation on your own, find an investment advisor who specializes in passive investing. I can give a referral if you contact me.
3. Work less.
Modern America seems to lionize the workaholics. But no one ever gets old regretting spending too little time at work. We get old regretting the things we missed with friends or family.
Further, spending more time at work doesn’t even result in getting more done. The shorter period of time you have to complete a series of tasks, the more focused on those tasks you will be. This often results in an increase in quality.
This is because when time is constrained, we only focus on important decisions with regard to our work, and we don’t sweat the inconsequential details. Because our brains can only expend so much mental effort in one day, the more small choices we ponder, the worse we’ll be at making the important choices. By limiting our choices to major issues, we make better decisions, and work better.
A few years ago, I started putting artificial restraints on my workdays. I literally limit the amount of hours I allow myself to work in a day, and I require myself to spend the rest of the day on things I enjoy. It was easily the best decision I’ve ever made. I’ve found that I’m now actually getting more work done, and I have more time for my outside interests. My business has literally soared, all while I’ve had more time than ever for my weightlifting.
If you think this doesn’t apply to you because your job is different/special, you’re probably wrong. You’ll be shocked how things don’t fall apart just because you’re not available at all hours. And on the off chance you’re not wrong, unless your job involves literally life and death situations, it may be time to start looking for a new job.
Here are some resources on this topic you should check out:
- “The Choice Minimal Lifestyle”, from Tim Ferriss’ blog
- “Work Less to Get More Done”, from Scott H. Young’s blog
- Essentialism: The Disciplined Pursuit of Less, by Greg McKeown
- The Paradox of Choice: Why Less is More, by Barry Schwartz
4. Save for retirement by shifting your mental perspective.
Lectures about saving for retirement are mind-numbingly boring, but all of you apparently need to hear them.
You’re probably not going to be able to work full-time forever, and you may live to be 120.
There frankly isn’t a whole lot that I can say on this topic that hasn’t been said before, but I will add two twists that you can use as shifts in mental perspective to provide some motivation.
First, do you hate paying taxes? Maxing out your 401(k) is the absolute easiest way to pay less takes, as probably 1/3 of the amount you’re contributing to your 401(k) would otherwise be taken by the government.
If you’re the type that truly likes sticking it to the federal government, the history of 401(k)s as a tax saving strategy may provide even a little more motivation. Back in the late 1970s, Pennsylvania benefits consultant Ted Benna devised a very creative way to use some provisions in the Tax Revenue Act of 1978 in a way the government hadn’t originally intended. This plan, which he called a “cash-op”, is what we today call a 401(k). The plan skyrocketed in popularity in the 1980s. Realizing the loss of tax dollars, the federal government twice attempted to invalidate 401(k)s in 1986, stopped only because of public outrage over the proposals. So if it helps motivate you, instead of thinking of yourself as being a boring responsible adult by contributing to your 401(k), think of yourself as a loophole-using tax-dodger sticking it to The Man, all without the threat of federal prison.
Second, do you like free money? Many employers are forced by Department of Labor and IRS rules to choose between offering some level of employee matching or restricting the ability of upper level management to sock away retirement funds. Since most of management wants the tax shelter, many companies choose to offer the match. Not taking the match by not contributing to your 401(k) is literally turning down free money.
I personally hate the idea of setting money aside for when I’m no longer able to work. This is probably because I don’t like contemplating a time when I’ll no longer be able to work (or work at my current capacity). But by shifting my mental perspective, and instead focusing on my hatred of paying taxes, I find it easy to max out my 401(k) each year.
- “Top 10 Things Everyone Should Know about Retirement”, from Lifehacker
- A History of 401(k)s, from Inc
5. Embrace your strange tastes, and leverage them into cold hard cash.
We’re often told to “follow our passion” when it comes to work. But as it turns out, even Steve Jobs, to whom this concept is often attributed, thought it was a bad idea.
The unfortunate reality is that “passion-inducing” careers, like becoming an artist, can make the other parts of your life pretty rough.
Does this mean that such careers aren’t worthwhile? Absolutely not. It simply means that they require a lot of sacrifice when it comes to life outside work. Relationships with friends and family may suffer, and you may not exactly have a carefree life with plenty of free time. For some, that level of sacrifice is worth it.
For the rest of us, a smarter choice is to find something that doesn’t seem so bad to you, but others find tedious or unpleasant. Put another way: the stranger your tastes seem to other people, the stronger evidence they probably are of what you should do.
If you follow this advice, the law of supply and demand will almost always cause you to be well-compensated. And because you’re in demand, you’ll have a lot of control over so-called “quality of life” issues (like the hours you are expected to work).
My own story bears this out. Most attorneys love the supposed glamor of litigating a high profile case. Most of them go into jobs which at least allow the possibility of that opportunity, and as a result one of two things happen: they are highly compensated at a large firm and work 80 hours per week, or they land at a smaller firm where they work slightly less (but still a ton) for far less pay. Because lots of attorneys seek this work, it’s a classic “buyer’s market” where employers can force long hours, or in the alternative far less pay. When I catch up with friends from law school, I almost always see my former classmates in one of these two situations. In either event, these former classmates typically have very little control over their most valuable commodity: their time. [See point number 3 above regarding the value of time.]
On the other hand, most attorneys hate the idea of tinkering around with the minutiae of tax strategies far from the spotlight of the courtroom. Unlike most attorneys, I don’t mind such tinkering at all. By my focusing on something that I don’t mind, but others find unpleasant, I’m able to earn a great living working very limited hours. That in turn gives me the time to have a strong variety of outside interests about which I’m passionate.
- “What Doesn’t Seem Like Work?”, by Paul Graham
6. Follow the most controversial advice you’ll ever hear on debt.
Every personal finance guru on the internet will tell you to avoid “consumer debt” such as credit card debt or extravagant auto loans. That discussion has been done to death, and I’m going to going to rehash it here.
In these sort of discussions, there are always supposedly “good debts” that are ok to incur. These tend to be student loan debt and mortgages. But the reality is that these two types of debt can be worse than any other.
Student loan debt has a larger negative impact on long term quality of life than any other debt for a couple of reasons.
First of all, the average amount incurred is enormous.
Second, unlike other debts, you essentially get nothing in return for your lifetime of payments. Degrees don’t matter, skills do. In this century, your Masters in English isn’t going to get you nearly as far as a high school graduate who taught himself Ruby on Rails. Rather than fret this, realize that it’s a good thing. More than perhaps any time in history, people are succeeding based on skills as opposed to pedigree.
This all may seem harsh, but a lot has changed over the past 30 years. The federal government’s willingness to underwrite nearly endless amounts of student debt has created a giant bubble. We now have a nearly endless abundance of young people with degrees in non-technical fields. There frankly aren’t, and will never be, nearly enough jobs for this glut of non-technical graduates. The result is a ton of underemployed college-educated young people. This would be bad enough in itself, but in addition to being underemployed, these young people are saddled with a huge monthly payment for what seems like the rest of their lives.
To make things worse, you usually can’t even escape student debt in bankruptcy.
My advice: go to the best college you can attend with no debt. This means your tuition will need to be paid by a scholarship, working during college, or a combination of the two. [Or, if you’re lucky, the costs can be covered by your family.] In my case, back in my youth I was lucky to earn an academic scholarship to Rutgers that covered my tuition, and I covered “room and board” by working during school. The end result was a graduation with no debt.
Graduating without debt was the single most life-changing circumstance in my life. Nothing I have done in my adult life would have been possible had I listened to my high school guidance counselor and attended some expensive Ivy League school. My ability to take risks, like starting my own businesses, is only possible because I do not have any student loan debt. My ability to have a great quality of life, even traveling the world, is also a direct result of having no student loan debt.
If you’re a young person reading this, I am on my knees begging you to ignore your parents and guidance counselors when it comes to the wisdom of taking on debt to obtain a degree. They’re well-intentioned, but clueless as to the harsh realities of the 21st Century. In the unlikely event there is no four-year school you can attend where a combination of work and scholarship (or if you’re lucky, family) can cover your costs in full without any debt, start in community college.
Mortgages aren’t the greatest debt to incur either. We’re all told that taking out a mortgage is a great “investment”. However, between 1890 and 2012, housing prices in the US have only risen 150% in real terms.
Let’s put that in perspective. This means that $1000 invested broadly in the US housing market (if such an investment were possible) in 1890 would be worth $2500 in 2012, in real terms. Over that same period, $1000 invested in a broad stock market index would have grown to $1,781,540. So we can stop with the “great investment” nonsense right now.
Despite popular belief, real estate is also plenty volatile and does often decline in value. It only appears to not be volatile because the change in value of your home isn’t quoted on the internet minute-by-minute like many other investments.
In short: like many things, real estate can be a good “business” if you have real knowledge of what you’re doing in your market, but is a lousy “investment”. [See Point 2 on the distinction between businesses and investments.] Being a lousy investment means it isn’t worth taking on a crushing load of debt.
That said, you do need a place to live. My advice: take out a mortgage to buy a house if your monthly payment (including taxes and insurance) is very easily covered on your current salary. Don’t buy the most house you can afford. Buy the house you can most easily afford. Otherwise, rent. And never rely on your house appreciating over the rate of inflation over the long term.
Large debts of any kind destroy your flexibility. When such a large portion of your income “comes off the top” for debt service, you’re far more restricted in doing things that you actually enjoy and in taking any sort of financial risks in the future. When I look at my own social circle, those with the least student loan debt and smallest mortgage payments (as a percentage of income) universally live the best lives. Those saddled with student debt and mortgages tend to become slaves to their debts. Some of the most exciting things I’ve done in my life, like starting my own businesses, or spending time traveling the Southern Hemisphere, are impossible for those of my friends trapped under their educations and homes.
If you liked this piece, please do three things for me:
- Take action in your own life on as many of the items here apply to you. [Most Important]
- If you have questions, comments, or disagreements with me, ping me on Twitter @vandrewattycpa.
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