Personal finance is personal. Yes, that’s the title; but since I wrote my own book on my own personal finances (Dream. Invest. Live.) the simplicity of that observation has become more apparent – even after twelve years.
Finance is impersonal, in the ideal. Assets, liabilities, income, expenses all define the majority of finances for people, businesses, organizations, and governments. Arithmetic required, but not necessarily mathematics beyond multiplication and division. Get fancy with things like compound interest which involves understanding how to take a number to the power of another number, and find quicker ways to calculate mortgages, debt payments, and the returns on investments. Or, let a spreadsheet do that work for you.
As I’ve ridden a roller coaster through America’s wealth classes I’ve received advice when I was rich, poor, and muddling by that almost always referenced the bare truth of those objectively correct numbers and mathematical realities. But, there are other realities.
Humans are not automatons. Society does not treat everyone equally. Opportunities are not evenly distributed. Success breeds success. It takes money to make money, and the defining aspect of the poor is that they don’t have enough money. Advice that sounds rational and sound to some sounds silly, impersonal, insensitive, and clueless to others. I’ve learned to affix a long acronym to almost any financial advice I find: ALAYCPYB.
When you can’t pay your bills, the idea of putting something away for a rainy day is ridiculous because you might already be in a gentle drizzle or out in a deluge without a hat or a home. Working harder makes little sense if you’re already working seven days a week at several jobs, gigs, or endeavors. Go back to school, or move to a better place, or invest in yourself, or get a better job are great ideas but useless ideas without the surplus cash or time to get a better job.
I know too many people who’ve tried to access government assistance but who were denied because they or their businesses hadn’t enough history of making enough money to qualify.
I suspect I’ve lost many readers this far in because that reality is uncomfortable and a challenge to conventional wisdom. It is 2021. Conventional wisdom was established before trickle-down economics were introduced, about forty years ago. This is no longer 1981. Much of that wisdom remains valid, but seemingly only for those from whom finances are supposed to trickle down from, not trickle down to. The world is changing.
Despite those difficulties, there’s a truth that is appropriate for almost anyone who is having to manage their finances. Here’s the echo: Personal Finance is Personal.
It is possible to dispassionately manage personal finances, but most people aren’t purely objective. We are a subjective species. Even Vulcans had emotions, they just repressed them.
If we were purely objective about personal finances, we’d all be frugal, only purchase and produce necessities, would invest purely based on things like return on investment, exercise every tax minimization method, and always have balanced checkbooks.
But. We do more than invest; we dream and live. We buy luxuries, which can be necessities to maintain mental health. Some of my best investments have been little luxuries like coffee (Starbucks) and movies (Pixar) that managed to make billions of dollars a few dollars at a time. Investments can embody personal values. Do you want to invest in industries like fossil fuels, the military, plastics, or exploitative cheap consumer goods? They can have a good return on investment. There’s also triple bottom line companies that measure success by more than profit and stock price, or companies in renewable energies, healthier food production, socially responsible labor and supply chain companies, or one of my favorite approaches – positive disruptive technologies that may replace inefficient anachronisms.
Personal finance is personal because personal values are personal. Even people within restrictive societies will be unlikely to have identical values. Even within the same list of values, two people can emphasize different values.
Respecting the reality of personal values can make it much easier to approach personal finance. For those fortunate enough to be able to pay their bills and have excess with which to invest, it can be much easier to manage those finances when they represent more than just the accumulation and escalation of wealth. (I’ve been binge-watching a lot of Star Trek, so excuse yet another reference to the ultimate accumulators of wealth, the Ferengi. Fun folks, but oy, do they go to extremes – within their fictional realm.)
There are investors who concentrate on stock movements without concerning themselves much with the company behind the stock. That can work, but the stories involved are mostly about charts and trends. That may be sustainable for them. But they can spend a lot of time concentrating on staring at screens with their fingers on the keyboard ready to act.
There are investors who concentrate on companies with strong growth trends, but only while the stock is going up or down. Waiting for a buildup or sitting through a lull may not be their style; which means moving onto new subjects every few months. They also risk missing a rapidly rising stock. Dynamic without being as frantic.
There are investors who concentrate on companies with steady growth, or at least steady revenues. Maintain the status quo, enjoy the hoped-for steady appreciation and possible dividends, and maybe only check in for news or quarterly financial reports.
There are investors who research companies, trends in technology, trends in society, trends aimed at profitably meeting unmet needs. It can be difficult estimating the value of such stocks because the future is always speculative. These can be story stocks, where there’s enthusiasm based on a company’s optimism; but not every story has a happy ending. I am in this camp.
I am one of those who is willing to speculate early, sit through the lulls, check in regularly, and be more comfortable than many with uncertainty and risk. A new investor asked how I’ve managed to hold one of my stocks for over twenty years. The same way I’ve held several stocks for that long. I find it far easier to remain engaged and optimistic in stocks that represent companies which are employing new technologies to do things like regrow damaged nerves, treat currently untreatable health conditions, improve energy efficiency, revolutionize restrictive wasteful and inefficient electronics, and enable faster and cheaper internet operations.
My style of investing is risky, not the riskiest, but definitely risky. (See Dream. Invest. Live. for examples of ups and downs. See My Triple Whammy for details of as one financial pro called it “A perfect storm of bad luck.” See the recent stories about MicroVision and MVIS for a developing story about a dramatic turn around including a stock rising 10,000% in one year.)
In over forty years of investing I have invested in stodgy companies, but I find them harder to keep in mind. Some of them have been profitable, but, well, even as I type this I took a long pause as I tried to bring up any way to describe them. They are easily forgotten until I look at the spreadsheet I use to track my investing performance.
But, that’s just me. I have met few investors who are willing to take buy and hold for such long terms. Disruptive and unprofitable don’t inspire them; they frighten them. That’s fine. Personal finance is personal. Don’t just do what I do. Find out what you want to do. Find out what you value. Be real about your situation. Self-awareness can be more valuable than the advice you may receive. Spend less than you make and invest the rest is a fine idea as long as you can pay your bills and money left to invest.
Ironically, people with less money may be more aware of how archaic conventional wisdom can be. They are less likely to be tied to an outdated model of finances. They may have been more aware of bitcoin, innovative ways to buy stock, the viability of operating a virtual business, and more efficient and decentralized technologies that are disconnecting people from industries and institutions. By choice or necessity, they may have an advantage over people who haven’t changed their perspective since the fall of the Berlin Wall, or the Apollo landing, or VE Day.
Personal finance is personal. You are a person. Don’t ignore your self. Respect your self. Learn about your self – and hopefully benefit from the knowledge.