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{ in·deed·a·bly }

adverb: to competently express interest, surprise, disbelief, or contempt

Zap

When I was a kid, I once pissed on a live electric fence.

With the benefit of hindsight, that was a mistake. Slightly less fun than being kicked by the cattle that the fence confined.

It was a “learning by doing” moment. A lesson learned the hard way. One I was unlikely to repeat.

One of those experiences that feels good only when it stops.

Empathy

A key lesson in business I learned early on was to always try and imagine myself in the position of the client. This allowed me to try and understand their problems and (hopefully) figure out how they might respond to potential solutions.

Picturing the same desires, goals, pressures, and restrictions they were driven by.

Following the money, to determine how their advancement or remuneration prospects might be impacted by the purchasing decision they faced. This informed their timescales, and how short the payback period needed to be for a politically viable potential investment.

Predictably, short-termism and the desire for immediate gratification tended to win the day.

Investments that would take several years to deliver compounding returns might have been the right answer for the client firm, but were seldom “right” for the person making the decision. How likely was it that they would still be occupying the chair in 3-5 years time?

Promoted or pensioned off?

Perspectives or priorities changing?

A casualty of the corporate game of thrones?

Acquired, merged, outsourced, or restructured away from the credit by the time the investment started to pay off?

For many decision makers, unless they owned the firm, remaining in the same chair five years hence would represent a failure. Advancement halted. Career topped out. Progress blocked. Their current rung on the corporate ladder representing a professional high tide mark. The point at which they reached the limits of their ability, luck, network, and level of incompetence.

Which is a shame, given we all know that the impact of compounding increases over time.

Misaligned commercial incentives often rewarded a short-sighted approach. Resulting in the “wrong” choices being made time and again. I might not agree with their decisions, but by walking in their shoes at least I understood them, and could position my sales pitch accordingly.

Headwinds

Our financial journeys are all unique. Yet they often follow familiar well-trodden paths.

Early on, most of us find ourselves living pay cheque to pay cheque. A form of subsistence living, where our income barely covers our outgoings. Living at, or sometimes beyond our means.

Over time, some of us begin to address that imbalance.

Pay raises and promotions.

Perhaps some belt-tightening or relocating to a lower cost of living locale.

As the gap between income and expenditure grows, life becomes less precarious. More comfortable.

Eventually, some are fortunate enough to reach the point of “enough”. Venturing into territory where pinching pennies and paying close attention to our day-to-day spending is no longer necessary.

Concern about whether we can afford everyday things fades into the background.

Replaced by a newfound feeling of abundance. The luxury of choice.

At some point, daily portfolio value fluctuations begin to exceed annual earnings.

Savings no longer shift the needle on our net worth. Amounts small enough as to be immaterial.

Feeling that the game has been won, self-aware players see through the trap of “more”. Focussing their attention instead on value.

Investments measured in time.

Returns denominated in the intangible. Contentment. Enjoyment. Fulfilment. Happiness. Love. Satisfaction.

Except sometimes the fates conspire to throw a spanner in the works.

Blowing us off course.

Derailing our well oiled financial machine.

Dealing us a shitty hand, perhaps involving death, disease, disablement, disaster, or divorce.

Reminding us that in reality, our financial journey more closely resembles a game of snakes and ladders than those nice straight lines used to project the shortest path to Financial Independence.

This week I found myself running some cashflow numbers and coming up short.

It wasn’t an everyday prioritisation question, of being able to do one option or another, but not both.

This time, none of the options worked. Not a single one.

Nor could it be readily solved with the usual combination of financial acrobatics and imagination.

For the first time in a long time, it was not a case of what I wouldn’t afford, but rather that I couldn’t afford it, even if I wanted to.

Which was confronting.

Humbling.

Frightening.

No matter which way I moved the pieces around the board, adjusting the sequence and timing, the numbers just didn’t add up.

Expenditure would exceed income.

By a significant margin.

For an extended period of time.

Producing a negative savings rate.

Living beyond my means.

Which, as any newly minted personal financial blogger will tell you, is not the path to success.

This exercise, and the feelings it produced, were more than a little frustrating. Out of my comfort zone. Out of control. Uncertain. Unsettling.

It gave me a newfound insight into the way some of us perceive the world. Focussing entirely on future actively earned income and the fear of the unknown. Worrying about where the next pay cheque will come from? Wary of dragons, real or imagined, lurking in the shadows and conspiring to put that steady income at risk.

Mistrustful of investment income. Magically paid out by benevolent strangers, who expect little of us in return for their generosity. Too good to be true, the adult equivalent of a visit from the Easter Bunny or Santa Claus.

Companies may slash dividends.

Interest rates could be cut, and cut again.

Tenants might flee or fail to pay their rent.

Capital gains resemble lottery wins. Not guaranteed. Non-recurring. A pleasant surprise, but not something that could be relied upon to purchase the groceries or pay the utility bills.

Investment income offered precious little opportunity to complain, should it not arrive as expected.

Quite the opposite to the friendly HR person working just a couple of desks away in the office. Processing payroll. Providing reassurance. Painting an alluring picture of a comfortable and secure future retirement funded by a workplace pension. Essentially another form of salary, albeit in many cases a greatly reduced one.

These folks choose to ignore net worth. Focusing not on what they already have, but rather on the salary income they will (hopefully) continue to receive. Believing that capital’s function is to finance lifestyle in the immediate term. Owning a home. Decorating and furnishing it with nice things. Driving a nice car. Living a life rich in experience and indulgence, socialising and travel, but poor in income producing assets or realisable capital growth.

Simple.

Tantalising.

Understandable.

The default option.

The path of least resistance.

Requiring little imagination. Thought. Or additional effort.

Like those purchasing managers of old, their choices favoured instant gratification at the expense of long term wins. I might not agree with their decisions, but by walking in their shoes at least I understood them.

Wisdom of crowds

Ironically, the way to resolve my cash flow challenge turned out to be adopting the approach of those I disagreed with.

Embrace the short term.

Give in to immediate gratification.

Sacrifice some geese that lay golden eggs, those wonderful magical creatures who power my perpetual money-making machine.

Convert their infinitely sustainable recurring income streams into a single “one and done” capital lump sum. The financial equivalent of trading a garden hose for a bucket.

Then empty the bucket. Spend down the lump sum to reduce the recurring outgoings incurred.

Income could then exceed expenditure once more.

Saving rates returning to positive territory.

Living within my means once more.

Only now, a material proportion of that income would involve selling time in return for a salary, rather than the passive form of income provided by my magical metaphorical avian friends today.

Which sounds very much like financially handcuffing myself back on the treadmill that I thought I had long since escaped. This square on the game board most certainly involves sliding down a snake rather than climbing up a ladder.

A feeling not unlike pissing on that electric fence all those years ago.

A tactical retreat or a reversion to the mean? Time will tell.

Either way, it will feel good when it stops.


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11 Comments

  1. ryangibsonclever 21 August 2021

    You bought the house? Cryptic as usual my friend 🙂

    • {in·deed·a·bly} 21 August 2021 — Post author

      Lol, thanks Ryan. I obfuscate the details to protect the guilty. Part of my appeal as a pseudonymous blogger and international man of mystery!

      And no, while the figuring was housing related and the golden geese formerly laid rental eggs, at the time of writing I have not bought a house. The angst and handwringing stem from (perhaps unwisely) historical choices that now see my kids happily settled in schools and friendship groups located in one of the more expensive neighbourhoods of one of the most expensive cities on the planet.

      If I ever met my younger self, I would give a stern warning about the high price of gilded cages, followed by an atomic wedgie to remember it by. I doubt he would have listened though, he used to be pretty certain about everything back then!

  2. David Andrews 23 August 2021

    Deciding what to do with my single rental property yielded mostly unsatisfactory outcomes and I had to pick one of them. Changing from consent to let to a BTL mortgage required a rent increase and the tenant ( who had been on a good deal for 2 years) wasn’t keen, which is rather an understatement.

    Curiously he wasn’t very sympathetic when I advised of increased finance costs, legal requirements and tax changes. Clearing the mortgage and continuing to rent was possible but I wasn’t keen on having so much equity tied into a property.

    The least worst option ( in my mind) turned out to be taking back possession, retaining the super cheap offset interest only mortgage and keeping my property spare for a few months at least.

    The current domestic tensions in my household suggest it’s wise to maintain an emergency property. Whilst holding an empty property has associated costs, in the short term they are an acceptable level. I guess I’ll try and view the extra costs as a “management fee” for my property investment.

    Mutually Assured Destruction in domestic relationships can prove expensive. Switching from accumulation to decumulation can also feel very painful

    • {in·deed·a·bly} 23 August 2021 — Post author

      Thanks David.

      I hope things improve on the home front, an unoccupied property with a mortgage places a fairly hefty price tag on hedging against the potential downside.

      Agreed on the changing gears from accumulation to decumulation being potentially painful. Once I started my previous semi-retired existence, my brief stints of work were to bridge the gap rather than acquire wealth, which meant little additional savings or further investing. Was quite the mental shift.

      • David Andrews 27 August 2021

        I’m fortunate that the mortgage is an interest only offset mortgage at a very attractive rate. The mortgage has been fully offset for some time now so effectively costs me nothing (apart from the opportunity cost of investing the funds elsewhere).

        The same mortgage product / rate is no longer available and I might find it handy to be able to draw-down some funds in future to bridge the gap before my pension becomes available.

  3. Donna 23 August 2021

    We all have moments when ‘we come up short’ – either financially or in other parts of our lives, such as success on the job market. And these moments trigger a primal fear – maybe last experienced 20 years ago, when starting out as a naive graduate. It is important to take stock of the benefits of the accumulated ‘wisdom’. At least we now have the toolbox and knowledge of what to do next. It will get better, even if if is really difficult to zoom out of the current state and look to the future.

    • {in·deed·a·bly} 23 August 2021 — Post author

      Thanks Donna, your wise words and good advice are much appreciated.

      We all have moments when ‘we come up short’

      Something I’m regularly reminded of in no uncertain terms!

  4. Q-FI 23 August 2021

    That first sentence was pretty epic. It had me cracking up quite a few times.

    But the sentence that I find my life revolving around is this one:

    “Investments that would take several years to deliver compounding returns might have been the right answer for the client firm, but were seldom “right” for the person making the decision.”

    Yep, you hit the nail on the head. My professional life is dealing with this self-inflicted dilemma daily.

    I’ll also add, you are not alone in your sentiment: it will feel good when it stops.
    With some recent lifestyle decisions that the wife and I have agreed upon, extending my trading time horizon, I also have some experience with numbers not adding up quite how I’d like. Hahaha.

    Here’s to forever tinkering.

    • {in·deed·a·bly} 23 August 2021 — Post author

      Thanks Q-FI.

      Unfortunately that short-termism is innate to human behaviour, so the best we can do is recognise it for what it is and adjust our game accordingly. That might involve only suiting up for battles we can win, or prioritising the immediate benefits when touting a potential solution to a prospect.

      Good luck with the extended time scales, hopefully find a way to reconcile things.

  5. FI-FireFighter 25 August 2021

    As an ‘international man of mystery’ who is ‘pseudonymous’ would you say you are more James Bond, Jonny English or Austin Powers?
    I’m edging towards more Austin Powers as I can’t quite see James Bond doing that on a live electric fence 🙂
    Another good one, enjoyed reading it.

    • {in·deed·a·bly} 25 August 2021 — Post author

      Lol!

      It could be argued that James Bond was the only one tough enough to pee on the fence and live to tell the tale. But then again, only the other two would be dumb enough to make the mistake in the first place.

What say you?

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