A Tough Subject to Write on
I wrestled with whether or not to write this article for a long while. I was worried that it might come off as insensitive given the number of people living in squalor and not by choice. Who am I to talk so lightly about money when I have been blessed beyond belief with a caring family who supported me financially and raised me through childhood?
However in the end, I came to the conclusion that by helping people learn this mindset, that I would be doing more good then harm. I apologize in advance if these ideas offend you. Each person is entitled to their own opinion, their own goals, and there own philosophy on how to handle money and how to live their life.
Gaming the System
If you’re a nerd like me then chances are you’ve played some strategy games in your life. But even games that aren’t meant to be strategy games often have a resource management aspect to them. When you play an action game where you fight other people with weapons, typically there is some type of currency that you use to buy those weapons. More earnings allow you to buy stronger weapons, armor, or other gear which allows progression in the game.
It’s very easy to make logical and calculated decisions in these games. You don’t feel a sense of loss when you spend your credits, gems, gold pieces, or whatever the currency of your game is. Change this to dollars though, and that goes out the window.
Time and time again, people make rash, emotionally driven purchases with their money. They come up with excuses for why they can’t put their money into the stock market. Or how it’s too risky to invest in real estate. Then the very next month, that money gets spent on vacations, clothes, cars, and all manner of other things, and then people wonder what happened to all their money.
The Difference Between Virtual Currency and Real Currency
I have a theory that part of the reason so many people are so irresponsible with their money is because we’ve made it such a serious discussion. When we associate money with anxiety and dread, we look to our vices (that are often expensive) in order to relieve that anxiety. We might drink more alcohol when things are bad financially, or shop when we shouldn’t in order to “escape” those bad feelings and replace them with good ones.
However, at the end of the day, money is just a number like any number. We have sets of actions in our life that we can use to make that number go up or down, we can earn more money, or spend more money, we can turn our money into stocks or houses which will in turn generate more money, or spend that money on ice cream and eat it.
One of the biggest differences between the currencies we use in the game and the currency we use in real life is that you probably have alot more options on what you can do with your money in the real world compared to most games that you can play. Additionally, there is no clearly defined goal in life like there often is in video games.
The Importance of Goals and Prioritization
This may cause something called overchoice, where decision making takes longer and causes more anxiety the more “good” options we see. For this reason, its important to have clearly defined goals, as well as a priority order for those goals. Doing so should hypothetically make decision making easier. The more important the decision, the more thought and potential exceptions you should be willing to make though. (in my opinion)
In Pokemon, you spend your money in order to buy items that will allow you to catch strong Pokemon, beat gym leaders, and eventually beat the elite four. In the civilization franchise you try to use your money to get ahead of other civilizations so that you can be the first to build a spaceship and win the game. However in real life the solution isn’t so clean cut, there is no one way or set of goals that allow you to “win” at life.
This is where you have to step in and take control for yourself. It’s very rare that anything of significant size is accomplished without planning and goals, so it is vitally important that you decide what victory in this game means to you. You’re probably expecting me to tell you that FIRE should be your primary goal. It’s not my place to tell you that though. Your primary goal should be what’s most important to you. For my own decision making, family and travel both rank above FIRE, and I am aware of that and that I will be working more years than necessary for that very reason.
If your at a loss and don’t know what you want or what your goals are like so many others, only then do I recommend that you use FIRE to come up with your win condition. Follow the rules of the game, like 4% (or lower) withdraw rate, 3 fund portfolio, etc. Then ask yourself, at what level inside this framework will money no longer matter to me? At what point can I close the book on this game and go play another one?
Determining Your Win Condition
For some people who are bored of this game and all it entails, that number might be a million dollars, and with that million dollars, they’ve calculated using the FIRE calculator that they can cover their expenses for the rest of their lives. For others, it might not be until they can pull in six figures every year at a 3% withdraw rate that they can safely claim they’ve “won” the game. Others still might fall in love with the idea of assets and liabilities, rates of return, and risk tolerances and will continue playing that game for the rest of their life. The key is that they can’t just want infinite money and so they chase it, these people need to either genuinely enjoy the money game, or they need to be realistic with themselves, set a goal, reach it, and move on.
The point is, people who don’t have huge windfalls like coming from a rich family and having a trust found or receiving a large inheritance don’t get rich by wishing for it or thinking about it. They look at each choice as a tactical decision they are making to affect the outcome of their game.
Each time you are about to spend money superfluously on a coffee at Starbucks, a new gadget you saw on amazon, or a vacation to Mexico because “you deserve it” think to yourself how it will affect your long term game play. It’s a hard mindset to get into, and it’s very easy to get bored with since the time scale is so much larger than what our brains are used to based on the size and time length of a normal game. The benefits though are astounding. Less stress and anxiety is associated will be associated the spending of money (especially if you know you’re spending your money on the right stuff) and better decisions will be made in regard to your finances and your long term financial goals.