Intro – Episode 3

From ‘Puzzle’ to ‘Map’

Welcome to the 3rd part of the intro series for Finance and Fury. Today let’s start with a bit of time travel.

Picture 1500’s, London. All the guys have hipster like facial hair, accessories, the big beards, the little curly moustaches (wearing some frills instead though, maybe that’s going to be the new trend?). And women were wearing those big wire frame silhouetted dresses, trying to make their butts look bigger rather than getting implants.

Times they looked very, very different but people were still doing similar things.

If you really want to picture it, just think of Shakespearean times. It was around this time where modern English was starting to take form. Imagine that you’re actually now back in those times when Shakespeare is having his plays put on at The Globe Theatre. I’m sure most people have read a bit of Shakespeare or heard some of those sentences and words that are actually in there. And while it’s pretty hard to interpret the meaning of what’s actually being said we know that the words are, we know generally what the gist is – especially once we read it a few times it explains it. But, now go back a further 500 years. So, 1000 AD, London. They were speaking a totally different version of English, and we’d really have no idea what they’re saying.

So, I looked up a few words from back then, and ‘danger’ (I’m not quite sure how to pronounce this, again that’s how little I know about this language) I think is said ‘béot’?? That’s how someone would cry out ‘danger’ in 1000AD.

Imagine if someone cried out ‘béot!’… and we stand around looking at them weirdly while a raiding party is just riding into town. So, life would be quite difficult to operate under those conditions. Even worse, times were different – what skills do we actually have that are applicable? So, most of society was built off agriculture-based farming systems and majority of this was manual labour, so there was no power, no running water, no phones, no computers and there was a very limited amount of information of what’s actually going on in the world and all you had to work with was some very basic tools to farm some produce.

And if you got dumped back then (unless you’re already quite skilled up with the farming procedures, crop rotations, everything like that) it would actually be very, very, hard for us to pick that up without being able to understand what people are saying. And that would make life very, very, difficult. That’s where we ended the last episode, trying to solve that translation problem. But it doesn’t fully answer the “why”, and that previous example just gives the answer of, “even if you can translate and someone can tell you, you still might have a hard time picking up what to do with that information”.

Say for instance, business owners. They can translate their own business very well but they might not need to translate the share market, or ways of building their own financial independence outside of the company, because the company can do that for themselves.

It’s important to speak the language of really what you want to do and what you’re trying to achieve. The translation theory alone here doesn’t hold because, while you can translate it, you need to know what you can actually do with it as well. And helping build that is the next step of the how we want to provide a system of financial independence.

So, this got me thinking about the world of personal finance looking a bit like a jigsaw puzzle. I’m sure some people love solving puzzles and I’m sure some hate them, so let’s just say that you either want to or you actually need to complete jigsaw puzzle. But the catch is you only have a set amount of time…and you’ve got to get it done regardless of how much you enjoy it.

Generally, jigsaw puzzles come in a box. There’ll be an image on the front of the finished product of what it’s meant to look like and each piece has a little identifiable image on it that you can piece together eventually. And the box may contain 6 pieces to thousands, depending on how difficult you want to make it.

So, if you have a puzzle though which has no image on the box, and the pieces come, (thousands of them!) with no image, it may be a little harder to actually figure out how to finish this puzzle. And don’t forget time’s limited so the more time you spend trying to figure out what pieces go where (because you’ve got no frame of reference as far as a picture to follow) its going to take many, many, more hours/days/weeks to actually put that together than if you just had that reference picture in the first place.

In reality though, what happens is that sometimes the box is missing pieces. So, if you have no picture on the box, and you aren’t sure that there’s actually the right number of pieces in there, you might not even give it a shot to solve that problem. In this analogy the image of what the picture looks like is what you want the future to look like (so, the big picture financial independence) and then the individual image on each of the pieces is the individual area of your personal finances [that] you need to build and fit together to complete that picture.

But again, the issue with the real world is that it isn’t as simple as an analogy. And even trying to figure out every single piece, putting those together in order – that’s going to take a long time. And unlike the jigsaw puzzle, where you can just put in a piece, see if it fits, take it out if it doesn’t, with finances it’s much more costly to put a piece into place and realise it’s not working …because it costs time and money.

So, it’s much too simple a comparison to actually work with and peoples’ pictures are different as well. And the principles (while they’re the same) life is just far, far, more complex than this.

Instead of trying to give a pre-packaged jigsaw puzzle – say for instance you go to the shops and buy it on your 10th birthday and then you can set that up and just build your own financial independence – no-one is going to give that to you. Or, there’s no ability to buy your pre-set jigsaw puzzle. You’ve got to make it on your own, and that’s the beauty of the real world.

While no-one’s going to show you the completed picture on your box, it’s something you get to choose. You get to choose what the picture looks like, you get to choose where each picture will fit. And it actually seems like you can work it out if you can remove more and more pieces from the picture. So, with the puzzle, if you start the puzzle with 1000 pieces it will take a while to finish, but if you can finish your puzzle with only 6 pieces then that’s probably going to be a lot easier and less time consuming to achieve.

That’s where the next problem broke in for us, where the internet is wonderful, however it allows for an overexposure of information.  Because if you’ve got 1000 pieces which are on the internet that could possibly fit, where do you start? what pieces work? and how many options do you need? and which do you choose?

If you google ‘shares’, there’s over 7.5 billion results for shares. Sure, google will rank the top most popular sites first, but how do you know it’s the best information? And how do you know it’s the right piece for you in the first place? Because shares might not be.

And when something is seen and repeated enough it generally becomes the truth, and that’s how fads and trends occur because they create confusion among what really works and what doesn’t in how to properly build sustainable wealth. So trends are almost like the fashion industry, where investments can be ‘in season’ or ‘out of season’… so the price of them will go up a lot all of a sudden when everyone thinks, “oh, that’s the best new way to financial independence” …and then they’re out of fashion and the price goes back down and people have pegged all their hopes on that one new fashion trend.

And when the price goes down, unfortunately it’s quite hard to actually recover from that… and now enters the financial biases we’ve all formed over time!

They’re called heuristics. Your individual bias of your experiences through your life; positive feedback on things you’ve done, or negative feedback. The more positive feedback you get about actions you do, the more likely you are to continue those… and the more negative feedback you get the more likely you’re going to avoid those sorts of behaviours.

So, you see others gaining money very ‘simply’ from following this ‘trend’ and that’s very positive – you’re more likely to jump on that trend of investment because it has very positive feedback with many people doing very well. The price has gone up a lot – “Oh! That’s great positive feedback, let’s do this!”

But when you see people lose money, that’s negative feedback… so you get positive feedback from something, then negative [feedback] can kick in, and then you sell the investment or you make the opposite decision. And this programs us subconsciously over time to follow certain actions and avoid other negative feedback.

Because the pain of losing money is something we really, really, want to avoid.

But delaying the pain now through avoiding getting any negative feedback (so, you just don’t do anything because there might be a negative feedback) that’s actually leading to a massive negative feedback in the future. Where, if it keeps being delayed, then the negative feedback you get is realising that it’s ever, ever, closer to where you want to be…. but you’re not actually getting any closer to achieving it.

So, through seeing the same message over and over broadcasted endlessly, we tend to form how we should view our own journey of financial independence. And unfortunately, the view is that it’s relatively easy and one trend will be able to solve all your problems. That’s been hardwired into us from a very, very, early time because we’re hardwired to gravitate towards the maximum reward for the least amount of effort. If you had two options where you’re going to get a million from either option, but one’s going to take you two hours to do and one’s going to take you 20 – you’re going to go for the two hours!

And it’s really the best thing to understand that if you’re gravitated towards toward the maximum reward for the least amount of effort, it’s that your perceived reward that matters, not the actual underlying reward. Because you think the reward for something’s going to be better, you’re going to really go and look for the least effort-ful way to do that.

And that unfortunately is a disconnect with the effort you expect. Because you expect the reward to be a certain amount but you also expect the effort as well. So, you’re anticipating these things.

And when the effort that you start experiencing outweighs what you think the reward will be long track, that’s a massive disconnect. We ended up seeing that these get rich quick schemes they actually overexpose people to many, many, positive feedbacks before many, many, negative ones… Because apparently “others have done it” – that’s positive feedback. That’s why we got in. But now we’re not achieving our dreams, we’re not becoming financially independent… that’s more negative feedback. So, why not us? Why aren’t we achieving it?

So eventually the message becomes (rather than financial independence is easy and if we do this we’ll meet it), “Oh, financial independence is impossible! It’s not achievable” and, while it’s not easy, it’s certainly possible and it’s certainly achievable.

So thankfully, while the truth that it takes effort can hurt, it’s actually just too simple to really believe. Hearing the truth can be hard, to start, as promises of get rich quick schemes go and trigger into that hardwiring of receiving the massive benefit for the least amount of effort it creates a big problem when sustaining wealth and building wealth.

So, that’s actually a great importance to most people – to actually come to a conclusion where, if they do simple things over time just to build wealth rather than looking for the next best thing and jumping ships, it simplifies things.

And the frustration from the very, very, first episode was simply that things are complicated, things are frustrating and annoying and that’s because there’s no simple plan to follow, to achieve, because there’s always the next best thing coming along.

And the more negative experiences related to finance you have the less you are likely to believe that financial independence is achievable, because one big bad event – say, the GFC (that ruined a lot of people’s beliefs that they could actually achieve financial independence) and those negative flow on effects actually affect everyone in society because everyone sees those stories. And it’s very, very hard after you get knocked down so severely to actually get back up especially if you keep getting knocked back down there’s only so many times you can get back up.

But why does this seem to still occur? Why do these negative feedbacks, or positive and then negative, still happen in society?

What if we could somehow turn the puzzle analogy into a map, where the map will show the destination of where you want to go and depending on what that destination is you can follow a certain root to get you there.

So, most of the work is really just creating a picture of the map – what it looks like at the end. And then, depending on that there’s going to be pretty clear, self-evident root to take, simply over time, to get you there.

It would help to remove redundant pieces as well from the puzzle because again the puzzle analogy you’ve got 1000 pieces you might only need 6.

So, if you have a target in mind then this is really what the picture of financial independence looks like, it’s the destination at the end of the map. However, you still have finite resources and time to get there. And, what happens if you don’t?

So, this is where defining our own limits of potential when it comes to unlimited wants is really important because without that cap it’s probably going to be very, very, hard to get a picture in mind when there’s an unlimited want involved in that picture – if you can’t buy a private island, why even try, right?

That’s the eventual flow on effect of always wanting more with our unlimited wants, where if you can’t get that private island, what’s the point?

So, the only purpose of having a map is to take you to your destination and if everyone has a different destination in mind …then everyone will take different roots. And even with a GPS though, people get lost. So, you have a map, even today with technology that will track you around, people get lost.

We understood, based around this, that a map alone won’t cut it. It’s not as simple as just following a map to reach financial independence because like every journey, you know what the outcome is you know what the destination is, but you can’t tell what’s going to happen along the way.

And that’s summarised nicely by David Hume with what’s now called the “Is-Ought” problem, or Hume’s Law. He was a Scottish philosopher who started thinking about this very concept where there’s a significant difference between what we think ought to be, based around our own biases, of observation, of what we think should happen in society vs what IS.

It’s a realisation or just the relation of having an idea about something, but the matter of fact and experience of it will be very, very, different.

So, this was developed into Hume’s Fork – knowing what ought to be with your financial independence doesn’t mean that it will become an IS.

Unless you actually have a proper [idea] (not ought) in mind, but what you’re going to do to get to the IS, the problem will still be there. So, we can take this Hume’s Law and really help implement it, to stop getting lost on the map, and figure out how to get to the IS best.

And this is what we’ll be covering for the next episode…so I hope you enjoyed it …and I’ll see you next time.

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