Money and Happiness

Money can’t buy happiness but it solves 95% of the problems that make you unhappy.  - @gselevator

Money can’t buy happiness. There is a fair amount of truth to this. Research has suggested that the utility of additional wealth starts to significantly decline after about $70,000 of income a year. That being said, a good use of money as it relates to happiness is using it to avoid things that make you unhappy. For example, I absolutely hate doing laundry. It drives me crazy and I don’t like worrying about it. I pay someone about $20 a week to do my laundry. Over one year that is about $1,000, which could certainly be put to better use. However, for me it is worth it to avoid doing something that makes me unhappy. If I can go through life having never to do my own laundry, it will be money well spent. As we have discussed on this blog before, money is not the end; it is the means to an end. And while we all understand the phrase “money can’t buy happiness,” we might consider using money to avoid unhappiness. 

New Year's Resolutions Start Today

I am a fan of resolutions in general, but New Year’s resolutions are frequently unsuccessful. Let's assume, however, that 2017 is going to be different. There is a lot of advice on how to make the change stick. Here is one you may not have heard before though: start planning for your 2017 New Year’s Resolution now. 

Think about what a successful New Year’s Resolution looks like for a moment. It is probably not just a 6-week habit, or even a year-long habit, but more likely a lifelong change. To think that one can simply wake up January 1st slightly hungover and change one’s life is unrealistic. Rather, one must plan now.

Here is a hypothetical schedule:

  • October - 
  • Consider potential New Year’s Resolutions.
  • Make a decision to pursue one.
  • Decide what is going to be sacrificed. There are still only 24 hours in a day, but you now have added something to your life. As a result something must be given up, whether that is another activity, time, energy, or a combination of all three. What are you no longer going to do to make time for your new change?
  • November - 
  • Talk with other people who have achieved your resolution.
  • Read three to five books on the topic.
  • Create a few post-mortems. This is an exercise where you hypothetically assume everything went wrong, identify what could have caused this, and then learn from the mistakes in order to avoid actually doing them.
  • December -
  • Purchase the necessary equipment, supplies, or other required items. If your resolution involves waking up early, don’t start that January 1. Gradually ease into it, so come January 1 you are accustomed to waking up early.
  • Create a schedule or system to track progress and foster accountability - maybe in the form of a journal or simply marking a calendar.
  • Possibly test your New Year’s Resolution in advance to get an idea of anything you may not have anticipated.
  • Consider what you are going to do if you have an off day or get thrown off track.

Success lies in the preparation. Starting to think about New Year’s Resolutions now initially sounds ridiculous. However, consider a successful New Year’s Resolution: it is probably a big deal. Three months of getting ready is a minimum requirement. Start thinking and planning now.

The Most Valuable Class I Ever Took: Lessons on Exponential Versus Linear Growth

The most valuable class I took in college was Keyboarding 101. It was an entry-level typing class. I was a terrible typer, entering the class with zero knowledge or ability on the correct typing form. With maybe one or two exceptions, I was the worst in the class. 

The class was 15 weeks long. After we learned the correct finger positioning and first started recording our typing, I was around 18 words per minute, which is really slow. Each day we were assigned a homework assignment which always consisted of practicing lines on certain keystrokes. For weeks I saw little to zero progress. Half way through the course, at around the eight week mark, I was typing in the low twenties for words per minute. Again, not very good.

Then something funny started happening with about four weeks of class to go. I started seeing drastic improvement. All of a sudden I was increasing my speed and improving my accuracy at a remarkable rate. I remember thinking to myself, “wow, this is amazing.” It truly was an incredible change, seemingly out of the blue. I went from the worst in the class to one of the best in the final four weeks, tripling my words per minute from the beginning of the year.

I learned two important lessons from this:

One, I need to be patient. Whether it be exercising, learning a new skill, or simply adjusting to a change, one of the biggest mistakes is expecting results too quickly and then giving up when they do not occur in a rapid manner. Second, growth is not linear; it is exponential. I often expect the former, but it is almost always the latter. This look like the difference between the blue line and the red line:

The keyboarding class was useful because I now type every day. In addition, I’ll never forget going from frustrated to amazed as I saw little results the first ten weeks and a tremendous change the final five weeks. I can’t stress enough the importance of this takeaway and how much it resonated with me. It would be well-heeded to keep it in mind. 

Change: The Three Areas to Make It Happen

For several reasons I decided to make some changes and get back to the fundamentals in the month of July: exercising consistently, eating a healthy diet, spending more time outside and less time on social media, consistent meditation, writing in my journal on a daily basis, reading books every day, zero frivolous spending, and not drinking any alcohol. During the final few days of June I mapped out a specific plan with specific goals on each of these objectives. The next step was to figure out how to make these changes happen.

There are three main ways to change oneself:

  1. Change one’s daily habits or routines.
  2. Change one’s environment.
  3. Change the people one surrounds him or herself with.

Outside of these three change is improbable, if not impossible. In fact, without some combination of all three, it is not likely to happen either. Real and permanent change requires one take deliberate steps in all phases. For example, if I wanted to lose ten pounds, but I kept visiting the same bar (number 2) with the same group of unhealthy friends (number 3), the weight loss would never happen. It might in the short term, and if I have great self-control I might even be able to keep it up for a full year, but ultimately I would revert back to my old self. Point being, significant and lasting change requires not one or two adjustments, but mindful adjustments in three specific aspects of one’s life: one’s daily habits or routines, one’s environment, and the people one spends time with. As Darren Hardy notes in The Compound Effect, “Small, Smart Choices + Consistency + Time = Radical Difference.”

Deliberate Practice

I just finished reading Moonwalking with Einstein: The Art and Science of Remembering Everything by Joshua Foer. It was excellent. This passage really caught my attention:

In the 1960s, the psychologists Paul Fitts and Michael Posner attempted to answer this question (on plateauing) by describing the three stages that anyone goes through when acquiring a new skill. During the first phase, known as the “cognitive stage,” you’re intellectualizing the tasks and discovering new strategies to accomplish it more proficiently. During the second “associative stage,” you’re concentrating less, making fewer major errors, and generally becoming more efficient. Finally you reach what Fitts called the “autonomous stage,” when you figure that you’ve gotten as good as you need to get at the task and you’re basically running on autopilot. During that autonomous stage, you lose conscious control over what you’re doing. Most of the time that’s a good thing. Your mind has one less thing to worry about. In fact, the autonomous stages seems to be one of those handy features that evolution worked out for our benefit. The less you have to focus on the repetitive tasks of everyday life, the more you can concentrate on the stuff that really matters, the stuff that you haven’t seen before. And so, once we’re just good enough at typing, we move it to the back of our mind’s filing cabinet and stop paying it any attention. You can actually see this shift take place in fMRI scans of people learning new skills. As a task becomes automated, the parts of the brain involved in conscious reasoning become less active and other parts of the brain take over. You could call it the “OK plateau,” the point at which you decide you’re Ok with how good you are at something, turn on autopilot, and stop improving.

But what if we are not OK with how good we are at something? What if we still want to improve? What if we still want to get better?

The secret to improving at a skill is to retain some degree of conscious control over it while practicing - to force oneself to stay out of autopilot.

This is what experts do.

What separates experts from the rest of us is that they tend to engage in a very directed, highly focused routine, which Ericsson has labeled “deliberate practice.” Having studied the best of the best in many different fields, he has found that top achievers tend to follow the same general pattern of development. They develop strategies for consciously keeping out of the autonomous stage while they practice by doing three things: focusing on their technique, staying goal-oriented, and getting constant and immediate feedback on their performance. In other words, they force themselves to stay in the “cognitive phase.”

Overall, Moonwalking with Einstein: The Art and Science of Remembering Everything is a worthwhile read. In addition, another book on my list regarding this same topic is Deep Work: Rules for Focused Success in a Distracted World by Cal Newport. The bottom line is this: in order to learn on a expert level, we must literally think about how we think.

America's Bank: The Epic Struggle to Create the Federal Reserve by Roger Lowenstein

An excerpt from America’s Bank by Roger Lowenstein:

When America last had a central bank, in 1836 (the year before J.P. Morgan Sr.’s birth), the country was a financial innocent. Its credit was borrowed in Europe; its stock market barely existed; its most common mode of transportation was the horse. The United States of 1913 was entirely different. The frontier had vanished; industrialization was a fact. Ford’s was churning out 170,000 Model Ts a year. The New York Stock Exchange listed more than three hundred companies, and corporate news was disseminated on glass-domed stock tickers. The banking industry had mushroomed, thanks in large part to the greater willingness of people to deposit their savings. The heady progress of finance was, however, an unfulfilled promise to the great wash of industrial workers. Capital in its formative stage was undemocratic. Workers’ pensions and other forms of savings were practically nonexistent. Leisure time was the province of the wealthy. America had far more banks than ever, but banks existed to serve business.

What struck me the most reading about “the struggle to create America’s bank,” was the similarities to the issues being debated today. In many cases the exact same questions are still being asked: what role does government have in business? Is Wall Street too powerful? Should we consider a gold standard or use fiat money? The excerpt from the book could practically be taken from the news today:

When America first established the Federal Reserve, in 1913, the country was a financial innocent. The Great Depression had not yet occurred; its stock market barely existed; airplanes were yet to become an accessible mode of transportation. The United States of 2016 is entirely different. The frontier has vanished; Silicon Valley is a fact. Musk is hoping to churn out some 300,000 Model 3s next year. The New York Stock Exchange lists more than two thousand companies, and corporate news is disseminated almost instantaneously via the internet. The banking industry has mushroomed, thanks in large part to a decrease in barriers of entry and a proliferation in financial technology. The heady progress of finance is, however, an unfulfilled promise to a great wash of workers. Capital is somewhat undemocratic. Workers’ pensions, 401ks, and other forms of savings are practically nonexistent. America has far more banks than ever, but banks exist to serve business.

Nothing is new, and everything is different. Frank Vanderlip is now Jamie Dimon. President Woodrow Wilson is President Barack Obama. Charles Hamlin is Janet Yellen. While we have all heard some version of “past performance is not indicative of future results,” it is important to read about financial history in order to gain some perspective. With the Federal Reserve garnering the attention of the financial industry with their every move, America’s Bank: The Epic Struggle to Create the Federal Reserve by Roger Lowenstein is a one place to start.

Still Strugglin'

I know how it feels to wake up f***ed up
Pockets broke as hell, another rock to sell
People look at you like you're the user
Selling drugs to all the losers mad Buddha abuser
But they don't know about the stress-filled day
Baby on the way mad bills to pay
That's why you drink Tanqueray
So you can reminisce and wish
You wasn't living so devilish s-s***
- The Notorious B.I.G., via Still Strugglin’

I am sure we can all relate to the above passage by the late poet, Notorious B.I.G. It is certainly understandable to be stressed by money and other financial concerns. This has been especially true lately. As the chart below shows, the VIX, which measures volatility and is sometimes referred to as the “fear index,” has been above its 50 day and 200 day simple moving average for almost all of 2016. 

The last six months have been a different story compared to the first half of 2015. As Inspectah Deck adds, “A man with a dream with plans to make C.R.E.A.M, Still strugglin, Survival got me buggin'” 

Michael Batnick over at The Irrelevant Investor had an insightful post last week where he explains a hard truth about investing:

If you’re feeling a little frustrated, I have some bad news for you, this is how stocks work. The stock market doesn’t owe you anything. It doesn’t care that you’re about to retire. It doesn’t care that you’re funding your child’s education. It doesn’t care about your wants and needs or your hopes and dreams.

I absolutely believe that stocks are the best game in town. I don’t think there is a better way for the average investor to grow their wealth. However, this is called investing and the price of admission is gut wrenching drawdowns and sometimes years and years with nothing to show for it. If you can accept that this is the way things work, you can be an enormously successful investor. 

Behavior trumps everything when it comes to investing. The VIX chart above probably doesn’t even matter, as it is such a short time frame. However, to paraphrase Josh Brown, long term results are the only ones that matter, but long term is not where investor’s live their lives. They live them in the day-to-day short term. This is why it is crucial to have a plan, to bridge the disconnect between life and long-term investing results. As Biggie eludes to, the alternative is not pleasant.