Say What Wednesdays

Financial Independence, spending habits, neurotransmitters, and what you can start doing today

Today’s Say What Wednesday question is from Paul;

“Hey fellas! I think you guys are doing a great a job. Always a fun listen.

Question; I was wondering your thoughts on the world of FI (financial independence) which is getting more momentum, to the likes of Mr Money Mustache and other FIRE? Have you taken a similar approach to these people with your own personal finance, having savings rates as high as or higher than 50% of total take home income?”

For those who don’t know:

  1. Financial Independence Retire Early (FIRE)
    • i.e. Save and invest most of your income now

I really like the idea of Financial Independence and employ it myself to avoid the hedonic treadmill creep. I set a base living standard and then invest everything I earn on top of this figure.

Whilst I was PAYG a little while ago I was saving between 50-60% of my income and investing it, with a decent chunk being salary sacrificed. I’ve been in the process of setting up a new business in the past 18 months which put a dint in the ability to save, but hope to get back to that level shortly. I always reinvest income from investments – starts to make up a larger component of your income.

Keeping things simple – It is hard to get to that point – But with one simple trick you can start working in the right direction. It starts with, ‘How to not care about what I have, or how I relate to others’

Where it comes from – Spending habits – Shopping, cars, etc.

  1. Dopamine – Reward system – Buying something is the easiest way to get this
  2. Serotonin – Status symbols – feeling higher up in the social picking order
  3. Money provides both of these thing – But only in what others can see
    • Dopamine is easier to do. Focus on savings every month and get your hit of dopamine when you achieve the target
    • Serotonin is harder to do. It does require a bit more self-confidence (self-esteem) to be happy not chasing the way out through buying things. If you’re constantly looking at what other people have you’ll always be unhappy – there is always someone else with more.
  4. Why you can never really tell who has real wealth just by looking at them (or if it is funded through debt and cashflow)
    • Met a guy who owns a helicopter, every time I saw him he was in old sneakers, old t-shirt.

What you can do

  1. Play a game – You can think of it as tricking people – turn the game around and as long as you know are making yourself wealthy, and not others buying their stuff it can work.
  2. Endowment effect – Put more value to what you already own
    • Turn it into thinking about Keeping your money – put a premium on your spending habits
      • Essentials – 0%
      • Non-essentials – Gross the price up by a factor:
        • Example – New TV is $3,000 – Life of TV is 10 years
        • Earn 7% on that over the same time – is the TV worth $6,000?
        • Thinking in terms of future value and opportunity cost
      • To part with it, the item better be worth it

Conclusion

You don’t have to live like a pauper – enjoy your life with great experiences. But, just next time you’re looking at a big splurge on something, gross up the value and see if it is still worth it!

Furious Fridays: The price of free is freedom – Taking a look at Lenin’s reign of terror

Furious Fridays The price of free is freedom: Taking a look at Lenin's reign of terror Today we’re going to run through the very first implementation of Communism on a mass scale. Our last few Furious Friday episodes are a lead up to this. If you didn’t catch those...

Infinite Banking Concept – can you become your own banker?

Welcome to Finance and Fury, The Say What Wednesday Edition. Where we answer your questions. I'm Louis Strange and today's question comes from Mark. Hi Louis, I just heard about IBC (INFINITE BANKING CONCEPT) and I would like to know your input on it. They are saying...

How well are Australian Universities functioning and is it even worth going?

Welcome to Finance and Fury, the Say What Wednesday Edition Today’s question comes from Octav Hi Louie, My question is how the universities are functioning in Australia, especially the one that are governmental managed. How do they make the advertisement for casual...

What is an economic moat and how can this help an investment portfolio?

Welcome to Finance and Fury. In this episode, we will be looking at investing using a moat. Moats are an effective tool for defence historically – you would put one up around a fortified structures – such as a castle or town – can be filled with water or not, many...

The superannuation changes coming to an account near you.

Welcome to Finance and Fury. In this episode – want to look at the proposals for the superannuation industry overhaul – released in the latest budget – as there are some pretty big changes – In the budget – the super system is likely to be in for a shake up due to the...

How to avoid getting further into debt and get spending habits back in line

Welcome to Finance and Fury. Credit cards and pay day lenders are on the rise, as some of those out of work are becoming strapped for cash. Today, we look at this further but also look at some alternative strategies to avoid the debt traps. We’ll also look at how to...

Do value shares perform better than growth shares when inflation levels are high?

Welcome to Finance and Fury. This episode – want to continue looking at theory versus reality – Focus on the theory of Value versus Growth investing in an inflationary world – and which one does better Looked at if inflation will return – but if it does - maybe Value...

Cash rates decline – but will your mortgage repayments? As your savings rates certainly will!

Welcome to FF – RBA cash Rates are lower now – talk about flow on effects Today – Will you get mortgage cuts, how your savings will be affected, effects on the job market and wages.   Mortgage cuts Don’t expect the banks to pass on the Reserve Bank’s rate cuts in...

What creates a lack of resilience in financial markets and how a loss of resilience makes them prone for a collapse?

Welcome to Finance and Fury,  For the past few Monday episodes been talking about complexity theory and markets – check out Last two eps – went through phase transition, feedback loops and how markets become fragile and some signs this is happening Most recent...

Furious Friday: Is social media at a tipping point?

Furious Friday Is social media at a tipping point? Today we’re looking at the market environment for Facebook, Google, Twitter, YouTube etc… their costs are going to far outpace what their revenues will be. Are they on their way up, or on their way down? EU copyright...

Pin It on Pinterest

Share This