Over the past few months, I've become more and more interested in the ancient philosophy of Stoicism. I've read several books and blogs, the philosophy just seems to make sense.
The more and more I find out about it, the more and more it I realize just how much it aligns with this whole FI mindset.
The Basics
The main belief in Stoicism is that events are neither good nor bad, they just happen. What makes them good or bad, is our emotional reaction to them. Therefore we can control whether the world is good to us, or bad to us. It's all simply a matter of mindset.
Like FI, the premise is simple. For FI the theory is: spend less than you earn, invest the difference. But just because something is simple. It doesn't always mean it's easy.
It's extremely hard to see the world around you reward the undeserving and punish the innocent and think to yourself these events are neither good nor bad. When someone insults you, or steals from you, or injures you in any way, it's tough to say, this is only bad because of my reaction to it.
And there in lies the strength.
Another Aspect
One other aspect of Stoicism that I have come to appreciate is the way the Stoics concerned themselves with events of the world. They divided events happening in the world into 3 categories:
- Events that I can control - IE: Whether or not I eat lunch.
- Events that I can not control - IE: Whether or not the Sun rises in the morning
- Events that I can sort of control - IE: Whether or not we have a popular blog
The Stoics attempted to divide the events of the world into these three buckets. They concern themselves with items in Bucket 1, and ignore items in Bucket 2. But there's that third Bucket that's the kicker. Where do we draw the line, and how do we handle events we can sort of control with out driving ourselves nuts?
Can I sort of control how popular this blog is?
Well, now let's think about this. What goes into making a popular blog?
- Good Content
- Active Readers
- Large Audience
- Fresh Content
So, looking at that list there are some things that I can control and others that I can't.
I can definitely keep creating fresh content.
But, I can't really decide if you think it is any good. And I certainly can't hold a gun to your head to make you come and read it in the first place.
So, what part do I create goals around? How do I put the Stoic philosophy to work on these events that I can sort of control?
I'm going to set goals for myself on the parts of making a "good blog" that I can control, and leave the rest up to the powers that be.
I create the best content I can, on a regular basis and I hold myself to that. The rest I can't really worry about, if you like it, great! If not, great! I did the best that I could and that's all I can really do.
So, why are we talking about Stoicism?
I made a snide comment on Twitter last week during the latest downturn in the market:
Those net worth updates are gonna be fun to read at the end of this month... 😆
— Waffles on Wednesday (@wafflesonwed) October 11, 2018
It's a stupid silly joke, but quite frankly I'm curious to see all the net worth updates and how upset everyone is.
What struck me is this one reply:
:( not sure if we will meet our net worth goal by the end of the year pic.twitter.com/RtuGp24lrb
— SavvyFinancialLatina (@SavvyFinLatina) October 12, 2018
Why did this strike me as odd? Well, because there's no real reason to goal yourself on Net Worth.
Wait... WHAT??? How can I say that you shouldn't have a goal based on your Net Worth?
Let's look at what makes up most people's net worth:
- Their savings rate
- Their investments
- The value of their investments
And what exactly can we control in that?
I know we can control how much we save versus how much we spend at any given time. We can also control where we decide to invest it. but...
We certainly can't predict or control the value of our investments. If you can, please send me an email, we can make a LOT of money together.
But, here's the interesting thing.
The larger your nest egg gets, the less and less control you have over the value of it.
Why do I say that?
Let's say I save $5,000 a month. And I have a net worth of $100k.
The market dips 1% and I still save my $5,000. My net worth increased by $4,000 and I am closer to my goal.
Now, let's say I have a $1MM net worth.
What happens if the market dips 1% and I still save my $5,000 a month? My net worth goes down $5,000!?!
Should you be upset about that? Maybe, but there's not really that much you can do about it. The market is going to do what the market wants. And the more you put into it, the more control it has, and the less control you have.
A smart alternative for tracking goals on the way
We all know that there is a limit to the total net worth that we need. We are all striving to hit that magic number of 25x expenses, in order to pull the trigger.
But, that total net worth number is an output of some diligent saving and an agreeable market valuation.
And since we only need to worry about what we can control, I propose you concern yourself with your savings rate, or your absolute savings number, not so much your net worth. These are inputs to your net worth that you can directly control, and track.
Enjoy the process
For most things in life we are concerned with the output:
- Revenue for your business
- Weight loss
- Net Worth Growth
- Popular blog
But, there is very little, if anything we can do to completely control these outputs. On the other hand there are a multitude of inputs that we can control:
Want to gain more revenue? Network to gather more clients, or change your prices to gain more money from each client.
Want to lose some weight? Control your eating, and make sure you get up and workout every day.
Want to increase your net worth? Save as much as you can from each paycheck and invest it in a smart and sensible way.
Want to increase your blog readership? Put out the best content you can on a reliable schedule.
If you concentrate on the controllable input and enjoy the process of it, the output will come. As an added benefit, you won't drive yourself batty attempting to control the uncontrollable.
💬 45 comments
I do find it interesting that in this community of control freaks, people try to control things they only have partial control over, while in my every day life, many people I know feel powerless to control the things that they have almost complete control over. I.e. spending, debt, making progress towards life goals, etc.
This is why I don't talk about net worth all that often on my blog... instead, I focus on "what gets measured, gets managed". Daily and weekly disciplines will lead to much bigger successes than checking personal capital and seeing where we are in the random walk will.
Have a nice Wednesday!
As investments take up a greater percentage of your net worth, those movements begin to dominate any changes. It can be very disconcerting at first. You've done everything right but the benchmark you use, your net worth, goes down. And goes down massively!
I think it's a function of not recognizing that the part you can't control has become a bigger part of the benchmark you're using. Once you realize that, and how you have to avoid the random walks and look at the trend over time, many people often look to another measure for their financial goals.
Well said.
Totally agree with net worth tracking BTW. It’s good to track, but the further you get along the FIRE path the more useless the tracking becomes!
Cheers!
On "bigger nest egg, less apparent progress", that brought me to see net-worth as a mere proxy for my real measure: how much of my FI-life expenses am I covering with current residual income. Doesn't matter what the current market prices are, I'm unchanged at x% of my FI income target. Just bought 45 shares of T to add to my dividend stocks -- cool, now I'm 0.25% closer to FI!
Just concentrating on the levers you can pull is the important part though and that's all it's about.
Why spend four days of the week wishing it was Friday, when you can't control that?
Why would you waste four days of your week just waiting for the weekend? Your wishing away 80% of your life!!
I try to keep a positive outlook whatever happens, but it's tough sometimes. Net worth isn't one of the things I worry about.
I'm glad it's Monday. Kid goes to school. :)
See... Life is good!
Regardless, I've been trying to follow this more and more, and I think it's a great way to look at life. It certainly is tough, but that's why it takes practice and time to master. Like most things worth doing, they're tough, but that's what makes them worthwhile.
Also, I need to talk to you about the t-shirt business. Once everything calms down, I want to look into that.
It's a great way to be. And hopefully it helps move you toward your goals.
I agree with you, it's not all about net worth. We have been on a frugal journey since we started our FI journey at 22 years old. I measure so much, savings, net worth, expenses. It's helped me help us stay on track. I do have to tell you, seeing our net worth climb has been positive reinforcement.
The only reason I found out about the dip was because of Twitter! Investments are all on automatic pilot according to our IPS statement.
You started at 22?!?!!? Holy Crap! You're gonna be done before you know it. I only wish I had learned about all these things at 22, and not only learned about them, but actually listened to any of it.
It's definitely positive reinforcement, but the goals need to be more something that we can control. Depending on your net worth, these last few weeks probably weren't all that pleasant.
it's interesting watching the numbers on the screen say you've "lost" about 50,000 dollars in a week but that's a good problem to have if the snowball is a good size. i didn't know our net worth until about 2 years ago when i read your money or your life and went and told the mrs. "i think we have a million bucks." it's not like we bought champagne afterward like when we paid off our house.
It's kind of amazing when you are living a pretty good life, and you aren't anxiously awaiting something to come and change that. I think that is a vitally important point. Even when working, make your life as good and joyous as you can.
Love the comment about "flipping the script" to look at things as positively as you can, for me, this attitude has brought more positive outcomes my way.
I will make sure to check out that youtube channel. Check out https://dailystoic.com/ if you are into this stuff as well.
Market investments have both return and risk. Return is for the good times, we ride the returns UP. Risk however is Return's constant companion. When return falters and risk rears there is NO REASON to ride the risk into the ground. A 60/40 portfolio returns 7.41% with a risk of 8.93%. S&P returns 9.23% with a risk of 14.8%. 1.8% more return (19% difference) with an added 40% MORE risk. Half as much extra return for twice as much extra risk. 40/60 has 6.53% return and 6.24% risk. 89% of the 60/40 return with only 70% of the risk.
The solution is step out of the 100/0 or 60/40 river and into the 40/60 river in a downturn. Don't just watch your money evaporate. You will have all that bond money to reinvest in stocks on the way back up! Oscillating your AA around 60/40 and 40/60 improves your risk profile and improves your compounding over decades. You are always in the market so you don't make the mistake of getting out you merely take a little risk off the table.
At the moment, we're really heavy in equities, but as the time draws near we will start loading up on bonds. Just a theory I have on that. But again, it's a personal thing.
Thanks for the insightful comment on Stoicism as well.
This was a fantastic read!
Focus on the circle of influence rather than the circle of concern.
WTK