Our journey to Financial Independence

Category: Financial Minimalism Page 1 of 2

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Financial Minimalism Builds Wealth Simply

Money doesn’t need to be complicated. Actually, it’s one of the key reasons people are scared to embark on their financial journey… it just feels too hard. Between the overwhelming amount of well-meaning misguided advice and scammers. Differentiating right and wrong can feel impossible. 

chili peppers placed on blue surface
Photo by Laker on Pexels.com

Yet, whether you are a beginner or advanced streamlining your finances is liberating. Not only do you gain a clear understanding of your Net Worth but budgeting and tracking become easier. The idea behind Financial Minimalism is to identify what you truly need and cut the superfluous stuff. 

What is Financial Minimalism?

To answer that question, I looked into what Minimalism itself is. The definition from the Oxford Dictionary is: “an artist, a musician, etc. who uses very simple ideas or a very small number of simple things in their work”. Just like beauty can come from simplicity wealth doesn’t need to be complex.

Minimalism has gained popularity as a lifestyle. Stereotypically we picture it as wearing the same thing every day and living in a tiny house. Yet, one of my favorite creators Matt D’Avella shares shows through his YouTube channel that there is more to it. Finding the most efficient and simple way to lead your life. It allows you to focus on the parts of daily life you value. 

Doesn’t sound so bad, does it?

Financial Minimalism in simply put terms is using a small number of tools to power your wealth journey. As it’s key to remember that simplicity doesn’t mean easy or bad. It’s quite simply the idea of streamlining your processes. Making your money management an efficient afterthought instead of a constant struggle. Radical Fire shares great insights into saving rates with a simplified look into them here.

What do minimalist finances look like?

As I started my journey into personal finance, I decided I wanted it to remain manageable. It’s the main reason I invest but don’t trade. Instead of looking for small advantages every day – my money is in it for the long run. 

So it led me onto focusing on 3 key points:

  1. Consolidation
  2. Optimization
  3. Automatization

Consolidation

The first step of my minimalistic journey was identifying all the different accounts, brokers, pensions, and more I was “using”. 

less is more
Photo by Kaboompics

Oh my gosh… there were so many. On the plus side, I was able to increase my net worth by 1.5% by finding accounts I forgot about. A financial spring cleaning if you will. Thankfully I didn’t find any new debt. Since then I have decided to limit myself. I know have:

  1. Joint Account
  2. Current/Checking Account
  3. AMEX Platinum Everyday Cashback
  4. Pension Pot
  5. Vanguard Stocks & Share ISA
  6. Trading 212 General Investment Account

Ok, it’s still quite a list… But you should have seen it before. All accounts now have a clear purpose and use. My biggest decrease was taking my credit cards from 3 to 1. I was always hunting for the best reward program. Until I realized I don’t spend enough for it to be worth it. The conclusion of my research was the AMEX platinum as it gives me 0.5% cashback. 

Additionally, a joint accounted with my partner makes bookkeeping for our flat and relationship much easier. I keep my money in a current account with Virgin Money as they have generous interest rates at 2% for the first £1000 and 0.5% for the balance of the account. I avoid changing bank account regularly as going from 0.5% to 0.6% interest rate isn’t worth the admin. 

Instead of relying on abysmal bank account interest rates I’ve consolidated my investments into my Stocks & Share ISA with Vanguard and hold about 10% of my NW in individual stocks with Trading 212. You can learn more about investing styles with my article “Trading 212 or Vanguard, which investor are you?”.

Streamlining my accounts simply helps me keep track and answer my own questions rapidly. No longer do I wonder how much I have in X obscure brokerage account. A straightforward account structure makes it easier to seize investment opportunities when they present themselves.

Optimization

composition of calculator with paper money and notebook with pen
Photo by Karolina Grabowska

Great you’ve now streamlined your accounts and feel 2 tons lighters. Does it stop here? Of course not, we can go deeper. I know this whole minimalism thing is feeling like a lot of work right now. Yet, it’s momentary pain for long-term gratification.

So what do I mean by optimization?

It’s simply the B-word… time for a good old budget. Although the way I like to approach it is to track my expenses and identify my spending patterns. This way I get to know myself and my habits. Following the trail my money left allowed me to find subscriptions I forgot about and sneaky platform fees. 

It also gave me a lens in how much I save without trying. I quickly realized I was consistently saving 25% of my income with close to no effort. Since then and by optimizing my expenses and increasing my income it has climbed up to 40% every month.

person holding gray pen sitting near laptop
Photo by energepic.com

By cutting superfluous expenses and optimizing my overall expenses I have been able to increase my monthly investments.

Automation

The hard work is behind you! Now that you have identified how much you can consistently invest and save monthly time to automate it. Using financial gurus favorite saying “pay yourself first”. I have a direct debit set to send 70% of my projected savings to my Stocks & Share ISA. The other 30% goes to my high yield saving account. 

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Photo by Luis J.

To become true to financial minimalism you want to have the less work possible. By automating every possible transaction you cover yourself from “forgetting”.

I used it first to build my emergency fund and now am saving to build my prospective house deposit. I was lucky enough to never have debt. If it’s your case focus on reimbursing your loans first whether they are credit cards or car payments. You can learn more about going debt-free with this article.

Once you have achieved a debt-free lifestyle it’s time to build your emergency fund! It might feel like you will never get to investing but having a strong financial foundation is the key to any strategy! Learn more about emergency funds here.

Are you a financial minimalist?

If you are reading this article you probably are. Yet there is always more we can do to simplify our finances. If there is one thing I want you to remember it’s that complex doesn’t mean good. 

Simply investing in an ETF tracking the S&P500 will outperform most complex portfolios. You might beat the market in 1 day but it’s highly unlikely in the long term. How have you simplified your finances?

It’s time to embark on your financial minimalism journey!

monopoly car piece

How Survivorship Bias Affects Your Decisions

I opened YouTube this morning. Time for some inspiration and to learn about personal finance. Yet, the algorithm is convinced I want to learn how much X was paid for 1 million views. They’ll of course share a few tips on how they attained this amazing amount of revenue. 

The only problem is all we see are the successes… we are constantly put in front of successful creators, investors, and entrepreneurs. It makes us believe it’s accessible. The issue here is the sample size. We forget to look at the overwhelming amount of failures. Survivorship bias is in action!

Let’s dive into what survivorship bias is and how it influences choices.

What is survivorship bias?

When researching the feasibility of an opportunity, I start with the tip of the iceberg – success. What would it mean if I became a successful investor or chef? It’s a natural instinct, we look for the best-case scenario. We fantasize about how better our life would be in X scenario. Completely neglecting those that failed.

When only focusing on top performers and statistical outliers- we become victims of survivorship bias. As conclusions are drawn, based on overwhelmingly positive examples the idea of failure becomes abstract. It’s the reason we constantly hear about unicorn startups and successful traders. Without, giving space or a voice to those that gave up along the way. 

An amazing example is Jeanne Calment (1875-1997), the human to live to longest, she ate over 2 pounds of chocolate on a weekly basis (almost 1kg). Madame Calment also credited her longevity to her diet. Yet, it would be preposterous to expect that eating 1 kg of chocolate a week would ensure you live till 120.

brown and white chocolate bars
Photo by Polina Tankilevitch

As soon as you understand survivorship bias it becomes easy to spot. From the lottery winner to the millionaire day trader. Yet you never see the thousands that lose every week playing the lottery or the traders that gave up along the way. I dive into the broader issue of comparison in my article “Comparing Yourself To Others Is Expensive”.

Biased inspiration

When you decide to undertake a new endeavour ask yourself where your new-found love comes from. Are you starting a blog or YouTube channel to make money or as a passion?

To create a successful creative venture or company, drive must come from elsewhere. Success and riches cannot be the sole driver of any endeavor. Or we risk going up in flames. Success whether financial or personal is often built on failures. 

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Photo by olia danilevich

The problem is we idolize successful outliers from dropping out of college to quitting your job with no plan. They are invited to talk at seminars and give presentations in companies. They write books on their story. 

This leads us to think “If he can do it, so can I!”. It can’t be that difficult, can it? Every year we read interviews from those that beat the odds. The one in a million genius entrepreneur. That’s the thing, isn’t it… They are 1 in 1,000,000. Why would emulating their lifestyle make me any more likely to be the 0.0000001%? 

Beating the odds takes an unimaginable amount of risk and has a small chance of success. If we were all capable to win the jackpot there would be no appeal. Don’t get me wrong… drawing inspiration from the Elon Musks of the world is normal. The problem comes when we convince ourselves that we can be as successful. Whereas, in reality, 57% of startups from 2013 were gone 5 years later. 

How to survive the bias?

The first lesson is an obvious one. Making a decision based on an inspirational tweet or video is a terrible idea. Blindly following financial gurus or simply legit investors can lead to making impulse decisions based on perception. Taking a step back to understand our own biases is key. Yet it’s easier said than done, isn’t it?

My favourite serial-entrepreneur, Richard Branson has shown that it takes failure to find success. Who doesn’t remember the terrible Virgin Cola… All aspiring entrepreneurs have looked at multi-millionaires that bet their last dollar or dropped out.

On the other hand, they rarely look at the number of failures. Worse yet, it’s almost impossible to hear from true failures. Google “Failed Entrepreneur”, you will see that quickly you hear about JK Rowling or Oprah. We forget about those that never found mainstream success.

adult frowned male writer working on typewriter at home
Photo by Andrea Piacquadio

When getting started I take the time to look into the statistics and trends of the market. Go further than the headlines. This is especially true when it comes to trading. Once mass media reports a great investment that has 10x. It’s probably too late. It’s ok to miss the wagon don’t beat yourself up. Risking everything without in-depth research is lunacy. 

As explained in my article, “Why I invest but Don’t Trade”, the reason I’ve decided to put most of my portfolio in index funds is security. Based on historical data the S&P 500 has returned 9.1% over the last 30 years. On the other hand, most day traders lose money within 300 days of trading. Yet, all we see are the successful traders flouting their wealth online. Effective investing is boring… learn more about it here.

Do your research

Whether it’s investments or health tips… take the time to research. We aren’t owed success. The achievements of a human must not set your expectations. Taking the time to understand average is great and knowledge lets you grow. Life is all about calculated risks and understanding most parameters. 

There is nothing wrong with becoming an entrepreneur – it’s simply crucial to understand the risks.

Comparing Yourself To Others Is Expensive

Why do we do anything? Is it from an innate desire to succeed or is it to show off?

No matter what I undertake – my brain tends to compare myself to others. How is John doing on this project? Will he succeed and where I failed? Although I’m able to control these impulses better nowadays… it has been quite the journey. I used to see life as a zero-sum game. For one to succeed others must fail. 

game cartridges
Photo by Kevin Bidwell

As I grew and took a step back, I realized how nonsensical it was. As time progressed humanity grew. Yet, we arguably have never seen as many successful people. Paradoxically, mental health has been on the decline. As a result, I’ve decided to dive into facts and studies.

Is comparing yourself always bad? And most importantly how can we solve it?

As always sources and complimentary information available at the bottom of the article.

What does the research say?

30 studies or more have shown that constant comparison leads to both mental and physical ailments. Not only are we pushed into a toxic spiral but the impact varies in every case. There is no concrete evidence that looking up to someone or on the opposite saying that you are doing better than someone else helps you grow. 

The best way to recognize our biases and decision trees is by accepting our flaws. True introspection is shown to have decreased the negative spiral. Furthermore, instead of nurturing hate, understanding that we can learn from our perceived foes is key.

Simon Sinek clarifies that it isn’t only social media that is to blame. He indicates that we have a tendency to psychologically self-harm by creating rivals and only focusing on their strengths. Looking inward and focusing on our strengths opens us up to growth. By doing so he was able to learn from his former rival.

Additionally, consistently looking up to others leads to unrealistic expectations. Contrary to what gurus say it’s unlikely you will have a private jet or become a billionaire.

Studies have shown it is unsustainable to draw motivation from unrealistic goals. As you constantly fail to achieve them. On the other hand, Research shows a change in perspective can counteract it. 

As we understand that comparison is a vicious circle how does it impact our finances and investments?

The Financial Impact of Comparing yourself

Weirdly enough constantly comparing yourself can cost you thousands. October 2020 was when I finally pulled the trigger on Instagram. I said goodbye to the temptation of showing off in Stories or posts. The amount I have saved isn’t quantifiable but my saving rate has increased and my impulse buys have diminished.

black and white people bar men comparing themselves to eachother
Photo by Gratisography

Purchasing behavior

Since then I’ve focused more on the utilitarian side of purchases. When shopping for groceries or medicine, I go to the store-brand. The quality is on par and no one will know the difference.

Although, my friends have purchased beautiful german cars. I realized that in the long run it will cost them more than a beat down car. Additionally, we earn the same income why spend more upfront?

Recently, I wrote about how much we can truly afford. As impulse and status buy often end up costing tenfold in the long run. You can learn more in “How Much Can You Really Afford”.

person shopping online
Photo by cottonbro

Furthermore, peer-pressure is a strong component in your purchase decision tree. By including and seeking the opinion of others we influence ourselves. This plays into the hand of marketers and “fake gurus” leading you to believe outlandish claims or programs. Multi-Level Marketing bases most of its strategy on this.

Additionally, studies have shown that we gravitate to shopping sprees to boost our self-esteem. This is built on the idea that something new will make you feel better. On the contrary, a study shared on the “Oxford Academy” shows that when you have low self-esteem you will gravitate to lower quality products. Therefore not only does comparing ourselves to others lead to lower self-esteem and impulsive purchases but it’s a vicious circle.

A Study by HEC Paris found that:

“We found that the willingness to pay for status products did result in self-repair, but only for the people who saw the ad with no tagline.”

Although, there is a positive impact from status products as soon as we let ourselves be influenced by external forces… the positive impact is lost. 

Realizing that most of my “want” purchases were based not on my desires but societal pressure has lead me to save substantially more. Since coming to this realization in September has helped me skyrocket my savings rate by 4%. Learn how to stop living paycheck to paycheck here. 5 Ways to Stop Living Paycheck to Paycheck.

pen business eyewear research
Photo by Anna Nekrashevich

Wealth insecurities

Whether it’s on social media or in the news we are constantly bombarded by wealth signals. To such an extent that we don’t question how the money was made or if it’s truly affordable. The problem is we only see the positive online.

From your colleague’s brand new car to the gains your favorite influencer has made. You never get to see their Profit & Loss (P&L) statement. Without that, it’s impossible to know their true position.

black calculator beside coins and notebook
Photo by olia danilevich

If an influencer was truly making 6 figures a month by trading or with dropshipping. They wouldn’t need to sell you a $50 course. Don’t get me wrong not all courses are scams. But it’s impossible to make a 2% gain daily constantly that would be over 600% a year. 

Warren Buffet is often regarded as the greatest investor of all time. Over the past 30 years, he has returned on average 20%. Which makes it highly unlikely that someone selling their signals would help you achieve anywhere near this. 

Constantly comparing ourselves to unachievable targets leads to us chasing returns. Asking the question “why haven’t I bought into Tesla, Dogecoin, or GME?” Without understanding that by the time a stock has hit the news you probably missed the train. And it’s ok! My friend Steve, the Frugal Expat, goes in-depth in his article “How Chasing Returns is a loser’s game” a brilliant read that shows how flawed this idea is.

Stop comparing yourself start building 

man working with turning machine and wood
Photo by Anna Shvets

Overall taking a step back and focusing on growth gives you time to build. It’s the main reason I don’t share the exact value of my Net Worth. Instead, I want to focus on growth, diversification, and progress as percentages. 

Recognising we all have a different path and expectations was what allowed me to truly embark on this journey. Wealth and Life aren’t a competition as nobody will ever walk the same path. I invite you to discover my Financial Origin Story to discover more of my philosophy. 

This research has comforted me in the idea that; although I’m not alone in the journey – it’s mine to travel. My key takeaways were:

  1. Comparison leads to impulse buys
  2. Envy leads to unnecessary risks
  3. Jealousy leads to a lack of productivity

How do you deal with comparing yourselves to others?


Sources

Universal Basic Income could it be THE Answer?

What if the government covered your living cost? Would you still go to work? What even is Universal Basic Income? Could it work?

2020 was the biggest challenge our social systems have seen in a long time. It forced countries to become creative and find new solutions. One of these solutions was Universal Basic Income or UBI. Whilst it’s not a new concept it bounced to the forefront of our attention. We saw different examples last year from the American stimulus checks to the travel grants in Japan. 

The first hurdle the policy faces is its definition. Some call for a replacement of welfare by UBI and others for an addition. The longest-standing “experiment” of UBI is the Alaskan “oil dividend”. Which sees any permanent resident of Alaska receiving an annual monetary stipend.

Oil Dividend Alaska Monthly Stipend

This monetary stipend has not had an impact on employment or wealth imbalance in the area. It has seen an increase in part-time work and “evening” studies. We will explore this more later.

I believe that UBI could open the doors to Financial Independence to many as well as giving more time for meaningful work. Less risk of living paycheck to paycheck and higher chance to make a valuable contribution. This ties in with the ideas I explore in “Financial Goals: I was wrong“.

So today let’s explore what Universal Basic Income is, what it means for the economy, and the pros and cons.

What is Universal Basic Income?

Universal Basic Income is quite easy to define it’s the idea that every adult should get a monthly stipend. Although, it sounds utopic and simple. It’s far from easy to put in place. There are many different takes on it from a no questions asked to check to a restricted special use debit card.

This concept has been around since the 16th century and is back with a vengeance currently. Tough economic situations suggest a radical solution. UBI is one of the options. The perfect amount is not a matter of economics but politics. The one rule the policy would abide by is that no matter who you are, what you do, or what you believe you are entitled to it.

Additionally UBI is not a plea to make people work less. It’s the power to enable them to a job that matters. It not only means an increased chance to work according to your values. It empowers workers in less enviable positions as they gain leverage to request higher working conditions. 

Implementing it could be as a supplement to the welfare offered by the state which would increase the overall cost and tax at higher incomes. Or replace it partially/fully and become a new and fairer approach that has diminishing returns as you go up the income ladder. All in all, it is an effort to bridge the wealth gap. But can it work?

How could UBI Work?

Negative taxation?

At the end of the day, UBI starts with tax reform and implementing a negative income tax (yet another name for UBI. To help you visualize the situation in table 1. You can see the impact on your taxes and net income. The data is based on the European Average tax level in 2019 39% and the global average of 31%. As well as a £1000 per month income or £12000pa.

Universal Basic Income Breakdown

If you are more of a visual thinker the curb looks like this :

Universal Basic Income Gross Income vs Net Tax Rate

As you can see with a negative income tax as the basis for UBI taxes would normalize fast. Instead of creating an inflationary situation it would lead to the redistribution of wealth whilst giving an equal footing to all.

Regional Currency?

Gyeonggi province in Korea has had a basic income for under 24-year-olds for some time now. The idea was that they get a quarterly stipend of 100’000won or 85USD which they had to spend in local business with a revenue of under 830,000USD. (article link

The program has now been expanded to the whole of the adult population since the start of COVID-19. It allows the state to subsidize small businesses whilst empowering and protecting its people. With the spending restricted and limited to certain regions.

By directing the cashflow via local spenders and increasing the regional GDP – the population is also enabled to invest. Not only in stocks but in themselves. It empowers workers to focus on their education and retrain new skills. This is particularly important in a country with a strong increase in automation.

Why not check out the video below from the Wall Street Journal which visited a recipient of this variant of UBI.

Replacing Welfare?

Welfare can often feel like a trap. With clear thresholds that are arbitrarily set and rarely updated. By generalizing aid and removing constraints you give a chance to recipients to use the funds as growth support. Supporters of the cause call for this to be funded by existing welfare funds as well as with saved administrative costs. The OECD (Organisation for Economic Co-operation and Development) says its members spend on average 20% of their GDP on welfare. Or 8700USD per capita in 2019 raising to 22.7k for Luxemburg.

Social Welfare Cost OECD

This data excludes 2020 were due to COVID-19 relief efforts the value is certain to raise. It also excludes the cost of administration for such efforts.

What are the risks of Universal Basic Income?

In this category, it’s essential to differentiate perceived risks and risk themselves. In this case, I will explore the biggest perceived risks and whether or not studies see them as founded or not.

People will stop working

A big if not the biggest sociological fear around UBI is that people will stop working. The idea that UBI which causes higher taxes and a stronger base for a living will incentivize people to stop working. 

Evidence shows that indeed working rates significantly decrease when focusing on child labor. Although it only made it disappear in 8/19 studies it did show a decrease in hours worked in all studies! Which in turn led to an increase in school attendance and literacy.

As for the adult workforce, cash transfers did lead to a slight decrease among the elderly and those that care for dependants.

People will misuse the funds

But wouldn’t people just use the money on booze and cigarettes? A 2017 University of Chicago study on “Cash Transfer and Temptation Goods” has shown that when offered a basic income or subsidy the expenditure has a significant negative effect with a -0.18 standard dev. Studies have therefore been showing that concerns around tobacco and alcohol consumption are not applicable! 

Indeed the research paper also points out that temptation goods are subject to high substitution effects When one unlocks the fund for more valuable substitutes they tend to gravitate towards them. These alternatives include a higher education with uptake in reskilling as well as health-based replacements such as nutritious foods or exercise equipment.

How about inflation?

The worry of inflation is linked to the decrease of work in relation to the income earned. As seen above UBI doesn’t lead to a significant decrease in working hours and thus should only mildly impact inflation. 

Seeing it as a general raise is correct. A great example being Alaska’s oil dividend once more. Prices in Alaska although inflated rank 41st in the country despite supplementing income far from the likes of California, DC, or New York. 

Additionally, an approach in line with Gyeonggi pay would make sure UBI would be redirected and consumed within the region. Boosting the local economy in turn. In a study by the Roosevelt Institute on the Macroeconomic Effects of UBI, they point out a potential uplift of the GDP by 12.56% over 8 years.

They also conclude that there was as of 2017 no empirical data that such a program would lead to an inflationary economy.

Why Do We Need Universal Basic Income?

It often feels like the status quo is fine. It’s comfortable and easy as we know how it works. The goal of this article is to challenge your understanding and try and give you an alternative point of view. We grew up with our social system in place but go back 70 or 80 years and Paid Time Off was unimaginable. 

The strength of humanity is its constant evolution. With 2020 in the rear mirror and 2021 looking just as bad, the question stands are we doing enough?

The Wealth Gap

UBI inequality growth
Graph by David Leonhardt - NY Times Aug 7, 2017

This graph shows the striking difference in income growth between 1980 and 2014. We seem to think that the rich get richer was always true. Yet a measly 30/40 years ago the trend was reversed. With a wealth gap that was shrinking.

Of course, it would be delusional to think we could go back to the economic growth of the past. Yet redistributing the cards at the top of the range would make a large difference. Systemic poverty is engrained and not moving as the wealth gap increases.

An egalitarian UBI would give the chance to the 98% to bridge the gap and start working towards a greener future. Currently juggling multiple jobs with a constant fear of losing them leaves no space for hope or betterment.

Often when working towards Financial Independence we forget that the deck was stacked in our favor. Of course, there are exceptions and inspiring stories. Yet recognizing my privilege and looking to help others grow is equally important.

A security net

If COVID-19 has taught us anything, we can’t be prepared for everything. With 40% of British people between 22 and 29 having no savings at all. Many have found themselves in dire situations as the age group was the hardest hit. 

With no social security net or protection in place in the United Kingdom, the jump below the poverty line is very fast. 

Not only does the crisis happen but it’s foreseen that 1 in 4 Americans will lose their job to automation in the next 12 years. UBI would allow peace of mind whilst these workers retrain for newly profitable jobs. 

Of course, it would be easy to say prepare in advance but when living paycheck to paycheck that is an option many can’t sustain.

Entrepreneurial Boost

Entrepreneurial Take Off thanks to UBI

With the rise of platforms like Patreon we see an increasing amount of creators relying on donations from their followers to live. This is no different than a basic income provided by self taxation. UBI is no different and would allow the extension of such principles to a bigger share of the population.

By paying, a consistent stipend and delivering what is effectively an income floor. Residents are empowered to take more calculated risks and create their own path. In turn, creating employment and boosting the economy. 

Ask yourself, how often do you hear people wish they could afford to start a company. But it’s just too risky they might lose everything. The impact knowing one can feed his family has on ambition is astounding.

Conclusion

My goal here wasn’t to convince you we need to adopt UBI. It was to dispel preconceived notions of economic downfall. Of course, just like every societal revolution, there will be repercussions and tradeoffs. 

Yet it doesn’t mean we will be taxed to all hell. Of course, we can expect an increase in taxation in the short term. Yet the chance of creating opportunities for everyone equally is worth it in my eyes. UBI, when tested, has led to an increase in GDP, education, and morale. 

As studies have shown an increase in mental health across the board!

I would love to hear your thoughts and ideas around this issue! How would you reform societal help?

Sources

light bulb with success definitions

Are You Successful? 7 Definitions of Success

How do top performers define success?

Are you going to be a success? I wish I could guarantee it. The problem begins when I ask you, how you define success.

By the way… How do you define success?

I’ll be honest, I have no clue. Curious as I am — I couldn’t leave this question unanswered. From Personal Finance to life, in general, it’s an essential question. We measure ourselves comparably to the success of others. Although, ultimately it doesn’t matter we cannot stop ourselves. 

So to be sure I had the best insight I had to look at the best for feedback. At the end of the day, we measure our own success. Yet finding pride from within can be challenging. I’m sure that whatever you believe is a success you will find yourself below!

1. If you're engaged it's a success

When asked about success Richard Branson answers

“My definition of success? The more you’re actively and practically engaged, the more successful you will feel.”

Mr Branson makes no mention of performance. In his eyes, success is a feeling – an emotional reaction. Although this quote might be difficult to apply to investing. It’s perfect when it comes to chasing Financial Independence. As we achieve FI the chase of success becomes an easy one. You have the time to throw yourself into engaging work, despite lower potential returns.

The book “Finding My Virginity” , an autobiography by Richard Branson, was eye-opening for me. Although, he has failed dozens of times and gotten back up. He started with nothing and has built the Virgin Empire by pursuing passion projects. 

We can put it down to luck. But it opens the question: had business been less profitable would he have the same definition of success? 

I feel close to this definition as motivation always runs high when I’m passionate. It certainly explains why “pro-bono” work feels rewarding.

2. Sacrifice is necessary

I didn’t expect to find “it’s easy” among the answers. Yet the way the Dalai Lama puts the value of success in perspective is mind-opening. It’s also a quote that is perfectly at its place on a FI/RE and Personal Finance blog.

“Judge your success by what you had to give up in order to get it.”

If you strive for Financial Freedom – you know the importance of lowering expenses and growing income. Achieving your yearly saving rate is a success in itself as it requires you to sacrifice some comfort.

I talk about the challenge of moving abroad in my article “Should I Live Abroad?”. My move abroad although at the cost of higher pay is in my eyes a success. Sacrificing the comfort from home for personal growth was the right call!

Take time to reflect on what you’ve given up on to reach your current position.

3. Success to the unyielding

How Bad do you want success?

Striking gold is tough. The likelihood of it being on the first throw is minuscule. You will fail. Not once probably, many times. How do you keep your drive? More importantly, how do you find your strength in failure?

Winston Churchill defines “Success is walking from failure to failure with no loss of enthusiasm.”

I’ll be honest here… If I had given up blogging at my first hiccup. There would be no article. What keeps me relentlessly motivated and wanting more is passion. And maybe, more importantly, the conviction that Cent by Cent will go somewhere. 

Similarly when it comes to investing, “holding” is the only true strategy. Of course, rebalancing occasionally is important. But to reach the coveted million dollars the best tactic is consistent investing. Whether the market drops or rises you stay in the market. The technical term is Dollar Cost Averaging.

Keep your heart and hope high, success will accompany you. Do not let yourself be shot down and keep growing no matter what.

4. Eyes on the Prize

As an ambitious person, I tend to go from idea to idea. I get excited by many different projects, which end up leading to nothing. Expecting dumb luck or some kind of innate talent. Not realizing that concentrating my energy was the answer. Bruce Lee put it best when he said:

“The successful warrior is the average man, with laser-like focus.”

When it comes to investing, set your end goal and thrive for that. When saving feels pointless this month remember that you do it for tomorrow. Keeping a clear goal in mind and focusing all your efforts on it.

Of course, blind loyalty even to yourself is a Damocles sword. With strong focus comes emotional attachment. Sometimes accepting to take a loss is the best decision you can make. The high focus tends to make that difficult. As we saw with Winston Churchill accepting a failure can define your success! 

I dive into this idea in my article “2020 Retrospective: 10 Important Lessons

I’m not special but if I stay concentrated. I might just become successful.

5. Will it even matter?

“Try not to become a person of success, but rather try to become a person of value.”

This quote by Albert Einstein caught me by surprise. I was tunneling on success.

Society has taught me success is all that matters. 

Yet, does it matter if I must betray my beliefs? 

When making a big decision I always come back to this quote. I ask “what is the cost of this success?”.

From investing to lifestyle decisions, realize your values are what define you. Without them you are but a dragon hoarding money and accolades. Working aimlessly towards growth is an illusion.

The only true measure of your success is how much you grow towards your values. As a way to stay true to my values, I read the poem “If” by Rudyard Kipling weekly.  Alternatively, I explore the idea of setting goals in line with my values in my article “Financial Goals: Why I was Wrong”.

6. Where to start?

Whether it comes to storytelling, launching a company, or buying a house. We all get started with an idea. Pablo Picasso tells us to take a step back:

“You have to have an idea of what you are going to do, but it should be a vague idea.”

This resonates strongly with me. Of course, having objectives is important. On the other hand, being too specific can feel limiting. When I set off to write a new article I decide on a general topic and let it take me. The more free reign I give myself the more creative I get. 

Similarly when it comes to investments having rigid targets is taxing. I personally am aiming to save 5 digits this year. But I refuse to give myself an objective on returns. No one can control the market and when you are in it in the long run… one year’s returns is a drop in the ocean.

7. Success is accepting imperfection

Success won’t come easy. That’s a given. Success eludes many as they define it as reaching perfection. Perfectly mastering a skill, a perfect recipe or creation are but dreams. 

Have no fear of perfection – you’ll never reach it.

Salvador Dali

I find this quote relaxing. It reminds me that although quality is important – perfection is fiction. When I started Cent by Cent, I would refuse to publish an article if it wasn’t perfect. It took me a month to understand I’ll always find flaws in my work. It’s better to publish and grow than to stagnate and wait for perfection.

The same goes with Personal Finance, I’ve accepted I’ll never rid myself of all unnecessary expenses. It’s impossible simply because sometimes “treating” yourself is a necessity. I try to keep my mistakes to a minimum but accept that I can’t completely avoid them.

So What is success?

No Idea…

Really None.. but isn’t that the beauty of it? 

You are able to create your own definition of success. One thing that seems to be in common is to never back down. Whether it’s in life or in finance, hold your positions and give yourself the time to grow. 

The biggest cause of failure is giving up. On the other hand, I try to remember to not be stubborn. Sometimes, giving up is the best thing you can do. As long as you grow from every endeavour whether it ends in success or failure doesn’t matter.

We must strive to create our own measure of success and to live according to our values!

I would love to hear what you define success as and how you apply it to your everyday life.

Around the world

Should I live abroad? To Leave or Not To Leave

Should you live abroad?

How difficult could it be to go abroad?

People, do it all the time, don’t they?

I was confident when I decided to leave Switzerland. Living abroad was going to be a walk in the park. Although, I had always worked and lived by Lake Geneva. English and traveling had been a big part of my upbringing. On the other hand, it never felt like quite enough – I wasn’t fulfilled.

All my friends had gone abroad to study, learn a language, or on internships. 6 months here, 6 months there. Surprisingly, most of them have decided to drop their bags in Switzerland — it was my turn to go out and explore. Yes moving abroad meant turning my back on the infamous “Swiss Salaries” but I needed to do it.

Sometimes decisions have to be made despite FI/RE as mental wellbeing is paramount.

Just like every 22 years old, I was convinced I had everything under control! Once I found a great job opportunity in London, it was very straightforward, get there: find a flat and go to work. Friends, finances, and all the rest will just fall in place.

They will right?

Well… it wasn’t quite that easy. Let me share what I learned, hopefully, it’ll make your life easier.

Living abroad can feel extraterrestrial

Sounds obvious, doesn’t it. Of course, I expected a few things to differ. From the currency to the language or the cost of living. Somehow differences are hidden everywhere. Even within Europe, social expectations, work culture, and mindset are drastically different.

People were bonding in different ways. Where back home we tend to be straight to the point— in the UK people would take offense. Where working overtime was customary (and paid), it was now frowned upon or hidden in plain sight. It isn’t bad far from it. It just took some time to get accustomed. None of these things were deal breakers, I’m more than happy to be abroad. But when preparing or thinking about a move abroad take the time to research smaller things. It won’t always be plug and play. The learning curve can be steep at times but golly gee is it worth it.

For example, if you are looking to move abroad and are from the USA The Frugal Expat shares amazing insights on wealth from the other side of the world.

Living abroad an astronaut on the moon

Banks, credit score, and more...

Oh, how naive I was…

Why did I expect everywhere to function like the Swiss system? I have no idea… most likely I was arrogant. Take it from me at least research how to open a bank account. Sounds straight forward right? Well, it wasn’t… I had to go to at least 10 banks before I could start the process. They didn’t understand how time-sensitive it was. I mean how was I supposed to receive my salary, pay rent, get a phone?

Once again this could have been avoided with a bit of research. Had I known which documents were needed for what — it might have been easier. I’d recommend researching the following:

  1. How to open a bank account?
  2. How to get a phone plan?
  3. Public transportation or a car?
  4. How does healthcare work?
  5. Do you need to change your driving license?

The list goes on. But had I figured out the 5 above, my driving license wouldn’t have expired…

Look for financial opportunities for example in the UK you can open an ISA (a tax-free account) and opening a brokerage account tax-free is simple! Whenever you are making a move abroad take the time to look for opportunities. If you are in the UK learn how to start investing with Index Funds here. If you are in Switzerland check-out this article 2 Step Guide To Achieve $1,000,000 In Your Voluntary Retirement Account — Swiss Edition by Fast Track.

There are many more to find and countries all have their hidden tricks. Luckily you can find Personal Finance bloggers all over!

Banks abroad piggy bank and coins

Building Trust Abroad

Leaving your support system behind for a city — you’d traveled to once is tricky. I expected building a new support system would be easy. Somehow knowing which supermarket to go to was already a challenge.

The problem, when you move abroad for work and not for studies, is people are at different stages of life. Some have a family, some have a favorite pub, or group, finally, the other new guys are also completely lost. Although, I quickly found circles to join building trust and true friendship took time.

Thankfully, I stuck through it. I got out of my comfort zone and got to know these lovely people. Since then I have formed a tight-knit group of friends and met a wonderful young lady. The rough start was definitely worth it. I’m now blessed to have true friends both in Switzerland and in London.

“No distance of place or lapse of time can lessen the friendship of those who are thoroughly persuaded of each other’s worth.” — Robert Southey

Homesickness is sneaky

6 months… they flew by — it hit all of a sudden. What in the world was happening? Everything had felt normal until that moment. This intense feeling of doubt and dread suddenly dawned upon me.

I might never live there again.

A crazy thought. The 1-way flight ticket should have made that obvious. I remember the Sunday 17th of February 2019 like yesterday. It suddenly all became real. I picked up the phone and called home. Hearing my mother’s voice was all I needed. I guess there is just something about rainy Sundays in Watford that makes you nostalgic.

Instead of letting the feeling control me — I let it flow. 

I dug in what did it mean?

The sadness was not that I left, it was the realization I was creating a new home in the UK. A new identity, even though I grew up in Switzerland — I can exist elsewhere. Every time, I feel it since then, I take time to reflect and I look at my partner — it’s worth it. No doubt here! I’m happy, but I would lie if I said I didn’t miss the mountains.

“Maybe you had to leave in order to really miss a place; maybe you had to travel to figure out how beloved your starting point was.” — Jodi Picoult

The best decision of my life

Despite all of this, leaving home was the best decision of my life. Of course, staying would’ve been easier. On the other hand, going home now has a completely different flavor. I enjoy every moment with my family and friends tenfold. I have also created a support system and met the most wonderful person here.

The beauty of leaving is not knowing when I’ll return. The open ending means my life is up to me. I get to choose my direction, my purpose, and my passions. Although traveling for vacation feels liberating, nothing compares to packing your bags and leaving. A 1-way plane ticket feels and is entirely different. How could I regret being truly alive?

If you are contemplating making this decision. I couldn’t recommend it more. Get out of your comfort zone, travel, live elsewhere. You’ll never regret it.

What was your big decision financial or travel-related? What makes you feel alive?

pins on a map

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2020 in the rear mirror

2020 Retrospective: 10 Important Lessons

The time has come to say goodby to this awful year. Finishing the year with a retrospective is a great way to appreciate our growth. Yet at the same time… Saying the past year was tough is an understatement.

Like many, I was determined not to let 2020 go to waste. It would be easy to wallow and think that we wasted 365 days. Inaction is always the easy route. This year especially required creativity to grow and improve. 

On the other hand, despite all its flaws 2020 was an amazing learning opportunity from self-improvement to personal finance. Never has my life changed this much. This article is an opportunity for introspection and a window into my mind.

Embrace uncertainty

If I had to take 1 thing away it uncertainty is unavoidable. I always thought I could design my future. 2020 showed me you must make the most of the cards you are given. 

It was liberating as it taught me to be more laidback. I take things as they come and enjoy the moment.

Better late than never

Before 2020 my investment portfolio was all of £200. I had tiptoed into using a roboinvestor but it had never really stuck as a habit. That was until I discovered the power of compounding interest. 

When I realized that £500 per month for 20 years would be worth £312k with an interest gain of £173.7k. I became impatient and had to start that instant. If you want to get into investing check out my article on “Investing with Vanguard.”

It would’ve been easier to think why not wait an extra year? As I had already lost the first 2 years of my career. On the other hand, I could start today and reap bigger rewards. 

It was a no brainer

coins in front of a clock money is time

Just start

As I grew up, I had a flawed idea – I believed in perfect timing. There was no point starting something if all the stars didn’t align. If I wanted to work out my body needed to be in top shape. 

Yet as I spent most of the year on furlough. I realized that appetite comes as we eat. The first minutes of exercise, writing, or cooking might feel dreadful. But as it goes on the result feels more rewarding and empowering. 

All I need to do is get going.

Define yourself

I grew up in a family of very hard-workers. Coupled with the societal belief that your work defines your identity. As I was sent home for the foreseeable future in March – I felt directionless. 

My goals and purpose had been solidly tied to my job and before that to my studies. For the first time, I had no given path. It left me with an empty feeling. Until my partner helped me wake up and showed me life had more to give. 

As 2020 went by I rediscovered what mattered to me and how I would build myself. This lead to Cent by Cent and countless memories!

Remain true to your values

values Strong like an oak

My own mortality

I was always aware that I will die. Luckily, I’ve always been in good health. Never had the thought will this be my last breath crossed my mind before 2020. As I was struggling to breathe in March – the thought dawned on me. 

“I might not wake up tomorrow”

The hospitals were full… people were dying and the UK was in crisis. I was laying there wondering how I would draw air in. There were no regrets to be had but I was lost. The situation only truly became apparent as I looked into my partner’s eyes. She was sharing my pain. 

I have lived a life that leaves me with no regrets. Every decision has led me to where I am today and for that I’m thankful. Yet one thought kept ringing in my mind.

It’s too early I still have so much to do, see, and create.

Creativity is within us all

My talent for the arts is close to none. I can’t draw or paint and you most definitely do not want to hear me sing. On the other hand, I’ve always been drawn to art – the need to create was buried within. 

The game-changer was writing. As I started publishing on Medium I found my voice and strived to help people on their Personal Finance Journey. Do my early articles make me cringe? Undoubtedly but they are a sign of progress.

Unlimited

It was easy to think that I wasn’t:

  • Talented enough
  • Creative enough
  • Funny enough

2020 is the year I realized. I create my own limitations. It’s up to me to set my limits and break them. There is no limit to my personal growth. The only way I stop growing is when I stop learning. 

A lifelong learner is unstoppable.

Agility is key

This year was a nightmare for all control freaks. Everything went out the window. Rules society relied on for decades were gone. Some reacted by closing themselves up and throwing up the white flag. Others used 2020 as a catalyst and put down the fight of their lives. 

A situation although immovable is what you make of it. 2020 could have been a lost year but I decided to make it mine. 

Was it perfect?

Far from it. 

But I adapted to this ever-changing world and made the most of it. My friend the Financial Imagineer shared this bit of wisdom: 

“When the wind of change blows, some build walls, some build windmills.”

An old Chinese saying

money in a tissue box

Money isn’t important

Sorry for misleading you. It is. But not as much as we think. Money is a tool. It allows us to purchase freedom and peace of mind. On the other hand, money isn’t the key to happiness. 

Have you ever tried hugging a stack of banknotes?

It’s cold and probably feels very lonely. Wealth is important as it allows you to focus on your true values. Falling in love with money is greed personified and a slippery slope to loneliness.

I explore this more in-depth in my article “Financial Goals: Why I Was Wrong”.

Never Alone

The grind is often sold as a 1 player game. Work as hard as you can neglect your relationships and build your wealth. On the other hand, you’ll reap the rewards down the road they say.

I have a simple question what is the point?

Throughout this year I was lucky enough to move in with my Significant Other, spend time with family and friends. After all, I found a community of like-minded people online that I’m excited to grow with. 

2020 might’ve been the year we were all a part but for me, it shone a bright light on my relationships. Don’t give up building meaningful relationships in pursuit of wealth. Life isn’t made to be lived in isolation.

If unfortunately, you had to spend the Holidays in isolation or alone. Please know that you are loved and valued whoever you are.

2020 retrospective

This year was full of surprises good or bad. But looking back, never have I grown and learned this much. Although, it came with its load of troubles 2020 counted double in many cases. 

The end of the year doesn’t mean the end of the pandemic, unfortunately. Yet it’s a great time to reflect and learn. What have you drawn from 2020 and how will you apply it in the future?

Money Talk

Money Taboos Cost You A Fortune, Time To Start Talking

“Money makes the world go round.”

“Don’t share your income.”

“Don’t talk about your money goals.”

“Spending money will make you happy.”

Money is part of my life whether I like it or not. Yet, I’m not supposed to talk about it. I need to be smart, invest, save, spend, etc. But by default, seeking advice is tough as people get cold feet when talking about this hidden divinity that is cash.

Just like everyone else I dream of Financial Independence. Imagine being able to work for pleasure not thinking about having to make ends meet. Money Taboos are counterproductive. 

How am I expected to reach freedom, if I can’t be open?

I was lucky, my family always talked freely about finances. Whether it from downturns to investments. It made money mundane instead of some kind of deity. We need it to live — but it’s nothing more than a tool. Vicki Robinson’s “Your Money or Your Life”, completely transformed my understanding of money.

What relationship do I want with it? 

Should it govern my life? 

How much do I need?

That last question hit me hard. When am I going to have enough? I’m not a dragon… No need to hoard as much as I can. What would be the point? Her book helped me realize that juggling multiple side-hustles, a normal job — isn’t making a living. We are dying at work. When do I get the time to live?

Money Clock

No More Shame - No More Taboo

How many times have you bought something on a whim?

How many times did you look at the object shamefully?

Yeah me too… 

The number of times I spent money on a “must-have”  is unmeasurable. When I started questioning why I didn’t share my expenses more. I realized it was because of this inherent shame. 

What are they going to think about me? 

Who spends that much on tech?

It was much easier to keep it for myself. At the end of the day it’s none of their business, is it?

That’s that I’m not sharing. But what if I did? I couldn’t shake the thought off. Some day I took the step. I started small. Talking about my overall rent with some colleagues. My gosh… it’s like a weight was lifted. By listening to their tips, tricks, and struggles. I felt like I was seeing light. Then the dreaded “Why?” came. Why do I spend this amount? Why not more or less?

This epiphany made me realize that not only am I not alone. But we are all going through this existential crisis. 

Opening up about my expenses allows me to understand why I’m spending. The need for a strict budget has passed me over. I must understand what my values are. As long as my spending reflects them — I’m doing well. No point in being ashamed either. Ridding myself of Money Taboos made me realize: What is spent is spent. Discover more about this thought process with my article Why I Was Wrong About My Financial Goals.

Monkey Money Taboos

What Am I Worth?

An intense yet important question. We are encouraged by society to keep our income to ourselves. It’s simply bad etiquette to discuss salary. Truly the most engrained of Money Taboos. But how am I supposed to know what I deserve if I can’t talk about it?

Another head-scratcher. The answer was easier. I didn’t want to sell myself short. How are the different roles compensated? Opening the discussion with my colleagues, friends, and family was a mixed bag. It was easier with my generation. We have similar roles. We were all in the same ballpark. On the other hand, it meant we had less to learn from each other.

Although starting a conversation with older generations was tough. It was beneficial when the shell started to crack. Not only could I learn about future potential earnings within my job. I learned a lot about multiple income streams. Whether it was rental income, dividends, or general freelancing.

This topic is paramount when it comes to blogging and freelancing. As we all adventure on our journey to creativity we are blind. The community and people being open about their revenue online is what gives us referral points. 

By opening up the conversation around income. I discovered options for future revenue streams. It set expectations for my financial future and a benchmark for my blogging. But most importantly, I understood my worth isn’t tied to my income.

Investments around the world

Let's Get Rid Of Money Taboos Together

Understanding money is a tough nut to crack. You can’t do it alone, yet sharing is frowned upon. By opening up about my finances – I liberated myself. I realized that I’m not alone. Sharing both my fears and my successes means they become real. The only way to deal with something is by acknowledging it.

Not only has it empowered me it has helped people around me. 

Having money talks is beneficial. It made me understand that my income doesn’t represent my worth. It is a building block I use to reach fulfillment.

I would love to hear from you. What helped you break the Money Taboo? How to you go around Money Talks?

money in a tissue box

7 Deadly Personal Finance Sins To Avoid In 2021

How do Personal Finance Sins impact you?

Whether you are religious or an atheist – you commit these Personal Finance sins. They have led to bad financial habits. You might not notice it but they wreak havoc over your future. 

Personal finance and FI/RE are about the path to independence which requires discipline and focus. Yet, along the path, traps are often disguised as great opportunities. Which all lead to Personal Finance Hell. They range from debt, an empty pension fund to overwhelming clutter. 

Any of these sound familiar?

We often don’t realize the situation we are in before we take a hard look in the mirror. For me, the realization came during a move… As I was clearing my room the number of unnecessary clothes, gadgets, and other “must-haves” appalled me. I had accumulated so many pointless items. 

As the saying goes “Hindsight is 2020”. It hit the nail on the head, all these purchases were made on a whim, to keep with society, or to have the latest tech. None of them were thought out or aligned with who I am. It felt like I had gone on a gluttonous shopping spree that left me with nothing but dust and an empty wallet.

Key Takeaways

  • Take your time before any financial decision at minimum 24 hours
  • Never make big decisions when you are emotional
  • If it sounds too good to be true it is
  • Pay it forward, match every dollar spent on wants with a dollar invested
  • Be humble, you’ll never know everything about finance (or anything else for that matter)

As I moved forward I started noticing different types of impulses and mistakes. It led me to re-categorize them as the 7 deadly personal finance sins:

1. Lust - The Impulsive Buyer

Have you seen the new iPhone?

How can you live without it? The only path to happiness is to own it now. 

How couldn’t you?.. everyone else bought it. 

Even your broke friend has it. 

It can’t hurt it’s just another $34 per month or maybe just $900 today. Not only do you need it but you need it now. Before, the hype has passed.

Lust makes you crave unnecessary things just for imaginary pleasure. Social Media and events, such as Black Friday, are tremendous enablers. They spam you with ads, reviews, and deals. You to fantasize about the amazing new features. 

Aaaah the “IT”, the purchase to rule them all, to satisfy all cravings. You just know you’ll be fulfilled once you have “IT”. For that reason, no point thinking much – let me enter my credit card.

The purchase has gone through – you own “IT”. The Amazon Delivery comes in the next day. My gosh is this what happiness feels like? You put the item in the cupboard – it can wait for now. 

The rush is gone it lasted all of 30 seconds. The fantasy was arguably the most enjoyable part of the adventure. Oh well, maybe the next iPhone will do the trick…

The first of the 7 Personal Finance Sins Lust is treacherous…

Tools against Lust

When your mind gets filled with dreams of a new marvel. Start a clock, give yourself 24 hours during which you don’t shop around for accessories, look up the stats, or research good deals. 

Take the time to discuss with someone you trust – explain why you must have it. Ask them about their opinion. How would they use it? Don’t try, to convince them instead of having a conversation.

If you still want it. Start researching for another day. How much does maintenance cost, how long does it last, and what’s the best deal. If you are approaching Black Friday or the summer sale be patient. You’ll be thankful to have saved 20+% on your purchase.

Shopping Lust

2. Gluttony - The Overflowing Wardrobe

I often feel gluttony creeping up when I go grocery shopping. I have a clear list of what I need. I have a distinct plan of which shops and where to go. 

Yet when I get to the shop it all goes through the window. The offers, sales, and yellow stickers draw me in. Another box of cereal of course. Obviously, the pack of 3 only cost $1.29. How could I not… there’re only 5 others in the cupboard.

The never-ending cycle of stockpiling. Suddenly I have an overflowing bag and a 30-minute walk home. 

If only it stopped here. As you go online to buy a new pair of running shoes you notice the nice looking shorts. You definitely could use more of those. Down the rabbit hole we go… 1 hour and $150 later you have bought 2 t-shirts, 1 shorts, and a football but you forgot your running shoes. It doesn’t matter the deals were so good. 

Now where to put them my wardrobe is full…Not only had you not bought these shoes would you’ve avoided clutter. But in 20 years these $150 invested in an ETF could be worth: $605.81. That small decision cost you over $450. Start your investment journey with Trading 212 (and get a free stock valued up to $100)

As discrete of a personal finance sin, gluttony is not to be underestimated.

Tools against Gluttony

Reverse engineer sales; do your research. My favorite habit to get in the right frame of mind is withdrawing the exact amount of cash I need for each trip and leaving my credit card behind. 

Ok… I add around $10 just in case but it means unless I find the deal of the century. I cannot give in to my gluttony and leave with exactly what I planned for. It might sound rigid but after a few times, I promise you will not think twice about shopping trips. 

Having built the habit, I no longer need the trick but my gosh am I grateful. So is my wardrobe…

3. Greed - The Vicious Circle

Greed is in the same vein as Lust. You can’t resist your appetite. It’s more than a fantasy you need it. You are willing to do anything for it. As a result, Greed is the greatest of the Personal Finance Sin. 

You are willing to sacrifice social ties, your credit score, or your emergency fund to get it. Greed is what sucks people into Multi-Level-Marketing (pyramid schemes). The promise of riches and freedom sound so good don’t they…

People that buy into these programs sacrifice their family ties, their dignity, and their financial prospects. Not only does the initial investment come at a high price. For even the smallest ROI  you must leech on your family. Down the line, you are left with an empty bank account and no social ties. 

Greed leads you to emptiness and hopelessness. The only thing holding you together is the object of your greed. Soon, that too fades away as you can no longer afford it…

Tools against Greed

The only tool against greed is patience. There are no get rich quick scheme you need to invest in today. There is no point in going into debt to buy a brand new car or to kick-start your MLM career. 

Take your time if you cannot afford it today don’t dive headfirst. As I explained in my article around financial goals understanding what you value will lower your greed.

Don’t forget to be humble and seek advice! It will lead you to review the objective impact of your decisions.

4. Sloth - The Lazy Text

From Takeaway to uneducated purchases… we all pay this tax once in a while. How often have you been sat on the couch thinking “I’m too lazy to cook: I’ll just get a pizza delivery.” Instead of spending ~$1 on your meal you’ve just spent $10.

We’re all culprits here and honestly once in a while fair enough. Indulge in a small pleasure. The trick is it quickly snowballs into a regular offense. Just like everything else… If it’s ok today it means I can do it again tomorrow. 

This leads to the $10 quickly transforming into $50 or more. Imagine that $50 a month… that would be worth $10,681.24 in 20 years

The Lazy Tax also strikes when purchasing new items. If you don’t take the time to shop sales or find deals with apps such as Honey (the US mostly) or Pouch (the UK only). This is a harder amount to put a number too. But if the purchase isn’t an emergency why buy it today?

Money Clock

Tools against Sloth

TAKE YOUR TIME. Personal Finance is all about the long game. If you aren’t in a rush shop around and wait for the next sale if you can. This not only lets you think twice but leads to you being ready for sales.

As far as takeaway goes, I’ve gotten into the habit of matching my spending with an investment. For each dollar I spend – I invest another. This has transformed takeaway into productive action. The easiest way to lower your food expenses is to meal prep and freeze your leftovers. You just need to fish them out when you feel lazy!

Sloth is the easiest of the Personal Finance Sins to get rid off all it takes is preparation!

Wrath - The Decision Maker

This one is going to be short. You make a lot of financial mistakes when emotional. A great example is the March 2020 market crash. Many rushed to selling and closing their positions expecting a bearish market for the year.

Yet the S&P 500, for example, increased more than 60% since then. With many other financial indexes reaching all-time highs. Whereas by selling and buying in once more. You pay the fees and spread twice. Without benefiting from Dollar Cost Averaging.

Tools against Wrath

This one is tricky… emotions are incredibly difficult to control.  I can tell you to stick it out. But if you’re in fight or flight mode you won’t remember. I’ve learned meditation and breath-work has helped me stay in control as my adrenaline rises. 

What are your tricks to handle wrath?

6. Envy - Lifestyle Inflation

Stop trying to “keep up with the Joneses”. Whether it is through credit cards or spending all our income on payday. We need to keep up appearances. What matters isn’t how our bank account and future looks but what our Instagram feed reflects. 

Social Media is consistently trying to sell you something. Whether it’s holidays on the other side of the world or a new car you need the likes. AT WHATEVER COST. Influencers in Russia have started renting studio space to make them look as they can afford a private jet…

We look forward to our next raise or bonus as it will allow us to have more. You need more right? You need that Tesla. Instead of seeing the potential of additional investments we see a new wardrobe. 

In the end, we are blinded by the likes and the clout. It’s all that matters. Whether the investment brings us value or not.

Tools against Envy

Take a break from social media. I’ve uninstalled Instagram for around 2 months now. My gosh have my purchasing impulses changed. No longer do I feel like I need all the latest tech. I’m happier to take time to discover what works for me and around me. 

I now invest in what I value instead of what others do. It has made a huge change in my life. 

Unsubscribe from brand newsletters. From Amazon to Converse they bombard you with offers and “1 time opportunities” opportunities. Worse they share the most popular discounted items. In an attempt to generate sales. As strong as we think we are, such spam unconsciously creates needs.

7. Pride - The Knowledgeable Ignorant

The biggest mistake you can make as a Personal Finance enthusiast is thinking you know it all. Because you go through blogs and watch a few videos you assume you know the market 

Remember that Monkeys have consistently outperformed fund managers. They generated higher returns for prospective clients. If you want to learn more about our Monkey Overlords I recommend this article.

By consistently taking more risks and assuming we know better we expose ourselves to great losses. I lack the knowledge to get involved with day trading and options. Therefore I avoid them entirely – they are akin to gambling.

It’s not to say that if you’re knowledgeable there is a lot of money to be made in that space!

grow your investments graphs going up

Tools against Pride

Be humble. It’s as simple as that. Accept that however figures you have in your accounts. There will always be someone more knowledgeable. If even Warren Buffet has been wrong in the past… How can we be certain of any decision? 

You’ll win some and you’ll lose some. Take risks appropriate to your knowledge, more importantly, ask for help.

Begone Personal Finance Sins

This article was long enough to warrant a short conclusion. Personal Finance sins are inevitable we all get caught up in them. Learn how to deal with them and every mishap will have a solution.  Never forget you must take your time!

Below are the Key Takeaways you found at the top of the article!

Key Takeaways

  • Take your time before any financial decision at minimum 24 hours
  • Never make big decisions when you are emotional
  • If it sounds too good to be true it is
  • Pay it forward, match every dollar spent on wants with a dollar invested
  • Be humble, you’ll never know everything about finance (or anything else for that matter)

What are your top tips when it comes to avoiding these 7 deadly sins? Are there any you would add?

7 Steps To a Great Start With Personal Finance

Personal finance is just that. Personal. Yet there is a lot to learn from other people’s stories. It isn’t straightforward as a I learned when I graduated.

Everything changed the day I left University. I left Switzerland for the UK. A new country meant a new financial system. It also meant losing my financial security net.

“But Lionel, you are Swiss of course you can manage money”

My gosh, have I cursed, the reputation the Swiss bankers gave us… Yet I can’t deny it, I have a passion for personal finance. There I said it… a walking stereotype that’s what I am. The good news is I’ve learned some stuff along the way. Keep reading to start your journey with Personal Finance

1 Download a Budgeting App

Personal Finance through expense tracking

The first thing you should do is get an expense tracking app. It’s stores all my current accounts, credit cards and saving accounts. I’m able to visualize all my expenditures, find the hidden money sinks, and track my overall wealth.

I personally use Emma, it categories my expenses automatically! As soon as I get close to reaching a budget –  I receive a notification. I had no excuse for forgetting to track an expense. Not only could I visualize my expenses – I got to know myself.

I have now set up an external sheet for my budget but I still use Emma daily. It keeps me on top of my finances with one quick stop.

2 Apply the 50-30-20 Rule

At the start of my personal finance journey, it was difficult to grasp what my spending targets should be. After learning about Elizabeth Warren’s 50-30-20 rule. I had found a framework on which to base my decisions.

It suggests you should spend your after-tax income as follows:

  • 50% for needs (rent, food, transport, insurance)
  • 30% for wants (entertainment, gym, holidays)
  • 20% for savings (investments, paying off debt, saving accounts)

This rule helped me when deciding which country I should move to when graduating. And whether it was financially sound to do so. Since moving to the London, I’ve aimed at decreasing the 50% to grow my savings.

I have managed to shift take it down to around 40% in a couple of years. I cannot say I have achieved my goal but I am on my way.

Currently, I’m saving 43% of my income mostly supported by lockdown diminishing my expenses. Thankfully, it has lead me to increasing my investment rate to 25%. I mostly invest through Vanguard and ETFs although I also invest through Trading 212. (You can get 1 free share worth up to £100/$100 with my link.)

Wealth consists not in having great possessions, but in having few wants. — Epictetus

3. Paying off debt is an investment

Debt is like a weed. It will grow especially if you ignore it. Paying off your credit card debt should be at the top of your priorities. Most of the money they make comes from the predatory APR interest rate they charge.

When you pay off a debt you do not only increase your credit score. You lower your future debt as you curb the interest growth.

4. Build an emergency fund

Since COVID-19 hit I have become a massive Emergency Fund advocate. I keep upwards of 3 months of expenses saved at all times. It allows me to keep my mind at ease. When the ghost of unemployment comes looming — I have breathing room.

Whenever I need to tap into this fund my priority is to refuel it as soon as possible. You can learn more about how to build your own with my article “How to Build an Emergency Fund in 2020“.

5. Check your finances daily

Every day, I take a couple of minutes to go through my budgeting app. It helps in making the money real. I know where, when, and what I spent.

Of course, I end up letting myself down every now and then; but my impulse purchases have gone down tremendously. Instead of treating “mistakes”. they are now learning opportunities.

6. Educate yourself

I try and read as much as I can about financial law, investment opportunities, and saving tips. The world of personal finance is ever-changing and different from 1 country to the next. Researching what applies to your area will help you grow and be critical about what you read online.

“Winning at money is 80 percent behavior and 20 percent head knowledge.” — Dave Ramsey

7. There is no "get rich quick"

When I started reading about personal finance; every other article talked about the X trick. I quickly learned that there is no such thing as easy money. Passive income is not a myth but it takes a lot of work before it becomes sustainable.

Take your time, let your money grow, and be disciplined it will all come eventually. Remember that passive income although it’s attainable is often looked at through rosy lenses. You can learn more here “Passive Income It’s All a Lie“.

Here’s the major problem with going on strike for more money: You cannot get rich by demand! — Jim Rohn

Personal Finance Is Worth It

Starting off with personal finance isn’t an easy thing. It takes rigor, discipline, and courage. It means tracking expenses and making every penny count. Yet, I find it freeing. It gives me control over my life and lets me decide where I’m going. You’ve now seen a few of my tricks. I hope they will help you begin this exciting journey.

Share you experience of Personal Finance and what gave you the bug! I would love to hear your thoughts and tips.

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