The Ultimate Financial Principle

The world of personal finance can be complicated. Even when I try as hard as I can to keep it simple here. Learning and dealing with terms like passive investing, FIRE, safe withdrawal rates, stretch IRAs, expense ratios, safe harbor rules, HCE rules, tax loss harvesting, capital gains, dividends, escrow, PMIs, ETFs or rebalancing can trigger an eye roll. It really gets old fast. In aggregate the concept of personal finance is to ensure that you influence your net worth in an ever increasing upward trajectory.

However, in actual sense, true financial success rests on a basic and ultimate financial principle: CONTENTMENT. I know, I know, it sounds so cliché. But it’s actually true. Contentment is more than a financial principle; it is a mindset which makes all of life better. According to the Urban dictionary, contentment is the state of mind you reach when you look at your life, in all its imperfection, and say, “good enough”. It is a true peace of mind and has absolutely nothing to do with any external pleasure or condition, but rather your attitude. While there is no natural limit to desiring things, you can do it in such a way that it’s quite healthy to your mental being. Contentment does not mean you do not have the desire to want more money or stuff. But it means, that regardless of wherever you are on the journey of life or whatever stage you are on your wealth building, you can decide to be content. Yet to start saving for your retirement? It’s ok, you can start today. Already saved millions in your account? Good for you, you can be content with that. Did life hit you hard and you’re just trying to get up again? Bless your heart, but you can be content and thank God that you still can do something about your life to get to where you want to be.

One of the books that impacted my life, early on as a teenager, was the book, A Guide to Confident Living by Norman Vincent Peale. The book walks you through steps to enhance and improve every facet of your being. It’s like an instruction manual for contentment and happiness. Even though I read this book decades ago as a teenager, there was a part in the book that stuck out to me: it was the part about a man who walked into Dr. Peale’s office after he had lost his job and stated he wanted to kill himself as life was now gloomy. Dr. Peale went ahead to walk him through a simple test where he wrote all the negatives in his life on the left side of a sheet of paper, and he made him write all the positives in his life on the right side of the same paper. By the time they finished this exercise and compared both sides of the paper, the man discovered that he had a lot more positives in his life going for him than the few negatives, over which he wanted to commit suicide for. It was a remarkable exercise for the man. This also impacted me personally. The take away is that regardless of how bad things may seem for us, there is almost always a lot more positives in our lives to draw strength from than the negatives. You can draw contentment from this and keep striving to get to where you want to be. And when you are content and have a cheerful heart, you will have an attractive personality and you will actually feel good. It’s hard to be hateful when you’re content and grateful. The Bible thinks so too.

“All the days of the oppressed are wretched, but the cheerful heart has a continual feast”
                                                                                                                  Proverbs 15:5 NIV

Contentment and Finances

Applying this in our finances can be easy. Just because you’re not yet where you want to be financially does not mean you cannot have a content spirit and continue to work towards your financial goal. All around us, society is consumed by the culture of consumerism. People work their butts off so they can spend it all buying stuff. Like William Wordsworth said in his poem, The World Is Too Much With Us, getting and spending, we lay waste our powers. One’s tolerance to consumerism increases over time as they spend more, meaning it takes ever-more spending and stuff to experience the same high. One simply adapts. This is often referred to as the hedonic treadmill adaptation. The effect is that you never really make any progress financially because you keep chasing for the next high. Several research studies show that what makes us truly happy are not money, material things or stuff but experiences and our social connections. Well, actually, I lied. Money is certainly important, but above a certain level (some researchers say $75,000 annually), extra money is nice but does not really add much to your happiness level. Almost everybody will certainly like more money, regardless of how much they already have. Heck, Jeff Bezos, the world’s richest man at over $150 billion, still devises means to make Amazon (and by extension, himself) more money. And there’s nothing wrong with that. The way I see it is that the more money you have, the money you can potentially give away and do some good with. But the point is to go about this with a feeling of contentment. Why? Because it gives you a satisfying peace of mind that says, even if you don’t make more money, you can still be ok. It’s really a liberating feeling.

I’ve found that no matter what you do, there will always be someone somewhere who will make more than you, have more than you, do more than you, give more than you and be loved more than you. Jeff Bezos was always not the richest man (he only achieved that status in 2018). And it is possible that a decade from now, he will not occupy that spot (don’t believe me? Ask Bill Gates). Yes, I know, none of you reading this post can relate to such stupendous wealth. And that’s my point: I’m using the extremes to solidify my point. But a heart of contentment will accept this fact of life and still be fine. It’s like being in a state of equanimity at all times.

Contentment As Antidote to Consumerism

The funny thing is that not having contentment can drive you to acquire wants and feel like they’re needs. Human wants are very basic: Food, shelter, transportation, clothing. But we have perfected ways to embellish our wants. The simple home will provide the same shelter that a McMansion will provide. A Rolls Royce will take you to work just like a Honda will. You can cook and eat healthier meals at home for cheap than eating out in restaurants everyday. You can wear nice clothing that feels and looks good on you without buying the name brands. You don’t have to spend $1,000 to get the new I-phone X when your old, refurbished I-phone 6 is still functioning very well. Like Dave Ramsey says, “We buy things we don’t need with money we don’t have to impress people we don’t like.” After a while, the high you get from that fancy car or home or bag disappears and you return to your baseline. Then you crave another high again. A vicious cycle is set off in motion. But if you bought that stuff with credit, you will have to keep making the payments. This generates discontentment. It’s this discontentment with your possessions that possesses you. Instead, you should maybe buy experiences. Make a bucket list and try to cross every experience in your bucket list. That will give you longer-lasting joy.

We are also at the mercy of advertisers. We live in a world where advertisers make you feel like you are not cool unless you buy the stuff they are selling. Ever seen a car advert that makes it look like the guy driving a certain car is getting all the ladies? Or an advert that shows a school boy wearing a certain shoe looking like the coolest kid in school? You know what I’m talking about. The thing is advertisers spend billions of dollars annually. They’re not crazy. Advertising really works. When we hear or see an advert often enough, we tend to subconsciously believe it. And sometimes, it makes us give up part of our money to make that purchase. Here is a classic example:

You wake up one beautiful morning and you have no desire to buy clothes, because, well you already have more than enough. But you still decide to go to the mall anyway, just to window shop. So you go to the mall, and as you are looking at new inventory, you see some nice clothes that are marked SALE: 50% OFF! You drool on that offer and tell yourself, you will never be able to get this kind of deal again and that you must buy it now. But you don’t have the money to buy it, because, well, you never really planned on buying clothes today. No worries. You pull out your credit card and one swipe later, you are going home with this deal. You go home and excitedly announce to your spouse that you saved 50% on this buy. And if that spouse is like me, I would tell you that it was a 50% waste of money. Why? Because when you woke up that morning, you didn’t need clothes. This was an impulsive buy and marketers and advertisers depend on this behavioral lapse of judgement to keep smiling to the bank.

But with contentment, you can easily fight off this pressure to buy, buy, buy. You can tell yourself that you have enough, that you don’t need another new stuff. The side effect of our consumerism culture is that many people (more than 75%) are living paycheck to paycheck. For these people, there is more days in the month than money. When you do that, you rob yourself of the opportunity of making financial progress. Like I said in the beginning of this post, the aim of personal finance is to improve your net worth in a positive trajectory. To do this, you use the greatest secret to wealth building, which is to live on much less than you earn, then save and invest the difference. Do this consistently over 1-3 decades depending on the level of FIRE you have in you, and you will reach financial independence. While simple on paper, this is extremely hard to do. Financial discipline is not easy. If it was, many people would be wealthy. But you can always work towards it, regardless of your many mistakes in the past, no matter where you are today.

Pushback From Naysayers

The commonest pushback from people when they read this kind of post is for them to say, they don’t want to wait till they’re old and retired before they get to enjoy their life now. YOLO (You only live once) and FOMO (Fear of missing out) has become their go-to catch phrases. They say what’s the point in delaying gratification when you can die any moment in this life. But what they miss is that less is sometimes more because more didn’t seem to make us happier. And when you delay gratification (temporarily), you can get ahead faster. Like many people in the FIRE movement will tell you, money by itself is not the real objective of financial independence. By spending less so you can save and invest enough now, you are able to choose to spend your days however you want later. This is the ultimate freedom. Freedom from time. Freedom from the need to continue to work for money. Contentment with your situation frees you from the pressures of more stuff and channels your inner strength towards a more fulfilling life. And like one of the popular bloggers, J. Money (who blogs at BudgetsAreSexy.com) recently tweeted to the YOLO crowd, actually you don’t only live once. You live many times and die only once.

So what are your thoughts on contentment? Do you feel content? Comment below.

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