Haruspex

This week marks the third birthday of { in·deed·a·bly }. A surprising milestone in many ways.

When I started pouring my thoughts out onto the keyboard, I suspected it would be a short-lived endeavour. A three-way game of chicken. I would either run out of ideas. Lose interest in sharing them. Or life happens events would steal away my attention.

I stand by the predicted outcome, but was wrong about the timing.

In the moment, being early or late is indistinguishable from being wrong!

Around the time I wrote my first story, I remember listening to an interview given by the Wall Street Journal’s Jason Zweig. He confessed that over a career spanning three decades, he recycled the same handful of ideas dozens of times every year, hopefully in a way that neither his editors nor readers noticed.

I smiled at that. Personal Finance was indeed a shallow niche. There isn’t much to it, maybe a half dozen distinct lessons to learn, which if applied consistently will lead to eventual success. It isn’t clever. Quick. Saleable. Nor sexy. But it works.

Thinking about it, that observation is true of most writers, not just those writing about personal finance. By the time any blogger reaches their 10^th post, they have inevitably started to repeat themselves. The longer their writing career, the greater the repetition. It is little wonder that few blogs survive beyond the six-month mark!

This is comforting in a way. You know what you’re going to get, even before reading their newest post.

It is true for the bloggers I follow today.

It was equally true for those I once enjoyed, then outgrew.

After a moment’s reflection, I concluded it was true of my writing as well.

With that in mind, I decided to do something different to the traditional anniversary post talking about writing far too many words, read by more generous readers than I deserve, visiting from all but a few countries around the world.

Instead, today I will explore some of the things I have changed my mind about over those three years. Given how change-averse I am by nature, what follows represents a gradual evolution in my thinking. There is little evidence to suggest my current beliefs will prove any more persistent than my previous ones, so these too are likely to change over time.

The role of money

I used to think of money as a maturity curve.

When you haven’t got much, having any money becomes the goal.

Indelibly linked to survival. Worrying about where your next meal will come from. How to pay the rent.

Any meagre savings that you manage to set aside are simply deferred spending. Hard-won experience informing the perspective that when you least expect it, life will trip you over and empty your wallet. Two steps forward, one step back.

Decision making is framed by scarcity. Your time isn’t worth much, but it is all you have to sell. And sell it you do.

First one minimum wage job.

Then a second.

Maybe add a third, or some side hustles.

Throwing yourself at the problem, brute force style. Working hard rather than smart. An approach that doesn’t scale. Appearing to succeed only until bad luck, exhaustion, illness, or injury inevitably occur. Sending you back to the starting line, worrying once more where the next meal will come from.

At some point many of us realise that it isn’t the volume of time we work, but the value of that time.

Everyone has the exact same number of hours in their day. An hour of the hard-working kid stocking shelves at your local grocery store is worth £4.62. Meanwhile, that same hour of Jeff Bezos’ time is worth tens of millions of dollars. Which would you rather be?

Boosting the value of your time requires the acquisition of skills and experience. Investing in yourself.

A difficult ask when you have bills to pay. Yet that knowledge is not going to acquire itself.

Studying.

Training.

Learning on the job.

Recognising opportunities when they arise and grabbing them with both hands.

Putting yourself in a position where those opportunities can occur in the first place.

Easier said than done when you are grafting away, living hand to mouth. Having a sponsor helps a lot. A benevolent parent. Scholarship. Spouse. Or workplace.

As the value of your skills increases, money ceases to be the goal itself. It evolves into an enabler for achieving goals. Little more than a tool that, when used correctly, helps get the job done.

If the fates are smiling, and you manage to resist the twin siren songs of hedonism and inferiority, then before long your income will exceed your spending. Providing a margin of safety. Gradually becoming a contingency fund. Then the seeds of an investment portfolio, that may one day grow into magic money trees. Shares. Rental properties. Perhaps a business you own.

Eventually, money concerns fade into the background. For a fortunate few, ceasing to be a factor in their thinking or decision making entirely.

To those lower down the maturity curve looking upwards, at this stage you’ve won the game.

Except when you arrive, you realise you’ve only reached base camp on a much longer journey. It was never about the money, the quest was always about something greater.

Happiness.

Contentment.

Purpose.

Fulfilment.

Subjective things all. Every single one of them is a moving target. Luxuries those back at the starting line, living hand to mouth, can little afford to contemplate as they struggle to make ends meet.

But here is the thing. None of those things magically appears on a bank or brokerage account statement. In fact, money won’t buy any of them, though it can eliminate some obstacles to their discovery.

It wasn’t the folks with the big salaries or well-padded bank accounts who had won the game. It was the people who had already deciphered the riddle. Progress along that maturity curve didn’t advance with net worth, but with self-awareness.

A realisation that has led to my beliefs and relationship with money changing.

The role of housing

I used to think Financial Freedom was a reliable cash flow.

Capable of sustainably covering needs, housing, investing expenses, taxes, and wants.

Property was simply an investment class. A potentially great way to build and create wealth.

Leveraged property was even better. Using other people’s money to tax effectively generate capital gains.

In many Western countries, homeownership is a key element of the standard life script.

Part enforced savings. For many, along with a workplace pension, mortgage capital repayments are their only form of saving.

Part status symbol. It doesn’t get much more tribal than “where do you live?”. One simple answer revealing a great deal about the person being asked. Approximate net worth. Socio-economic status. Likely future prospects for their children.

At one end of the spectrum lies the poverty trap. A self-perpetuating spiral that becomes a family tradition.

At the other end lies what woke young culture warriors like to call “privilege”. Another self-perpetuating spiral, this time one of money making money.

Part financial talisman. A person’s home is their castle, initially granting a sense of safety, as long as the homeowner keeps up with their mortgage payments.

Then later, a sense of security, as the mortgage gets paid off and their largest financial outgoing significantly reduces. Making surviving on a pension that pays a mere fraction of their former full-time earnings a potentially viable possibility. Though not always a comfortable one.

Philandering politicians do all in their power to ensure property prices climb ever upwards. Persisting the illusion that homeowners are getting richer and feeling more prosperous, when the truth is they are merely treading water as surrounding property values increase at much the same rate.

The rent versus buy question was largely irrelevant. As long as that cashflow stream covered the accommodation costs, it didn’t really matter. A lifestyle choice rather than a financial one.

My thinking on property has changed somewhat.

The concept of “home” is an emotive choice, not a financial one. It isn’t a physical building so much as a sense of belonging and community. The friends, neighbours, and loved ones we choose to surround ourselves with. Familiar haunts and stomping grounds. Favourite parks. Restaurants. Shops.

The big difference between owning and renting is that sense of security. Renters risk being priced out of the local market as neighbourhoods gentrify and prices rise faster than wages. Which in turn can have huge knock-on effects. Changing neighbourhoods may mean changing schools, support networks, and potentially starting over. Again and again.

Many people score huge financial own goals by choosing to make their home in the wrong location.

A neighbourhood that is too expensive, both in terms of property prices and lifestyle expectations. Creating mortgage stress and a lifetime inferiority complex, as the whole family struggles to keep up with the local Joneses. Owning the worst house on the best street might be a smart property move, but being the poorest kid in class is a tough path to follow.

A neighbourhood that is too cheap. Backing onto a motorway. Beside a train line. Below an airport flight path. Beneath a high voltage power line or mobile phone tower.  Poor access to services and healthcare. Terrible schools. Unhealthy commuting distances. Hanging out with the local Joneses, who are more likely to help provide a criminal record than a graduate placement. Living in the nicest home in struggle town might look like a smart property move, but being the richest kid in a resource-starved failing school closes many doors while opening few.

My thoughts on Financial Freedom have evolved. It is achieved when a person has that sustainably reliable cash flow AND a fully paid off home. Owning a home outright (should) lower recurring outgoings, allowing that cash flow stream to be smaller in size.

However, this means the value of home equity does not belong in a net worth figure nor a withdrawal rate calculation. Instead, it more closely resembles things like home furnishings, a non-collectable car, or a prepaid annual insurance premium: a sunk cost. Potentially convertible into cash, but generally not while continuing to enjoy their ongoing usage.

Getting that home location right is one of the most important financial decisions we will make. Much like the ovarian lottery, it has a huge influence on what is realistically possible and what is merely a pipe dream.

The role of market experts

I used to believe that little of the commentary written about investing in the markets had much value.

Articles. Blogs. Journals. Newsletters. Whether penned by the amateur or the professional.

Now I believe none of it does. Humans are irrational. Data rarely supports popular narratives. The psychology of herds drives behaviour. Lemmings blindly oscillating between greed and panic.

Meanwhile, talking heads make a name for themselves playing the modern-day haruspex. Espousing wisdom after divining meaning from excrement and offal. Correlation and causation are so easily confused, yet rarely does anyone ever go back to validate the performance of past assertions.

How many of those experts actually “beat the street”? A difficult task at the best of times, made even more so by the practical realities of transaction costs and taxes. And if they aren’t, then why do we listen to them?

I’m not sure whether I grew out of it or lost interest, but for me the magic and wonder of competing in the markets has waned.

Thanks for reading

I wrap up this post, and this year of blogging, with a heartfelt thank you to all those who read, comment, share, and hopefully enjoy my ramblings.

If you told me three years ago that I would be writing this today, I would have laughed delightedly.

If you’d told me a year ago where I would find myself today, I would have gawped in disbelief.

It turns out the “boring middle part” of personal finance occasionally gets livened up by unpredictable “life happens” events. There may still only be a handful of core lessons, yet a whole world of fresh perspectives informed by hard-won experience and occasional wisdom awaits.

References

• Gov.uk (2021), ‘National Minimum Wage‘
• Zweig, J. (2016), ‘Repeating yourself over and over in a way editors and readers won’t notice’, MoneyShow.com

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